Thursday, January 21, 2010

Is Russia Attempting to Strike Back Against the U.S. Economically?

Russia’s central bank announced on Wednesday that it has started buying Canadian dollars and securities in a bid to diversify its foreign exchange reserves, reports FT.

Not only is this a sound diversification away from the U.S. dollar, it is very likely Moscow attempting to attack at the Achilles heel of the U. S., i.e., it's growing debt and the likelihood that the Fed in the near future will have to print money to support the debt the Treasury needs to raise.

This is what happens when the U.S. starts to meddle in the arena of influence of the former Soviet Union. Russia must now be considered a disruptive (to the U.S.) economic force.

Alexei Ulyukayev, first deputy chairman of Russia’s central bank, said that it would invest in Canadian dollar-denominated deposits and bonds.

“The Canadian financial market is not very deep, so we can invest in deposits in significant volumes, while the bond market is limited,” he said.

Sergei Ignatiev, chairman of the Russia’s central bank, said last month that its was “discussing the possibility” of buying Australian dollars.

Russia has also urged the creation of a new supra-national currency to replace the dollar as the world’s reserve currency.

All these steps makes sense for Russia from an economic perspective, but announcing the diversifications into non-U.S. currencies smacks of geopolitical influence behind the moves, dovetailing with the economic reasons.

Russia most assuredly doesn't want a total collapse of the dollar, they hold near US$250 billion in foreign reserves (and another near 250 billion in euros). But the Canadian dollar buy is a clear signal that Russia is not going to play the patsy that China has and lap up whatever dollars and dollar denominated debt that Washington decides to issue.

1 comment:

  1. Been happening for ages though. The Russian Central bank made clear its intentions to buy the CAD several months ago, if memory serves, and has been vocal about its desire to diversify out of the USD. This started with accepting Euros for settlement of oil deals with Europe and increasing their gold reserves.