Russia Dumps US Treasuries, Converts into Gold and IMF Securities. Will China Follow?

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russia-briefing-gold-coinRussia has sold off US$77 billion of its US Treasury Bonds, in one of the biggest sales of the financial instrument. The sales, which occurred last month, have triggered surprise, as United States issued bonds are generally considered a safe investment. Russia currently now holds just US$14.9 billion in US debt.

The Russian Central Bank has stated that it will in future be investing in IMF securities and gold. IMF bonds are issued by the International Monetary Fund (IMF); Russia has stated it will be investing in these and IMF bank deposits. IMF bonds are denominated in special drawing rights, an artificial currency used by the IMF.

Russia’s gold holdings also increased last month, with the country adding a further 87 tons, bringing its total gold reserves to 1,944 tons as of June 2018. These holdings amount to just over 17 percent of Russia’s total foreign reserves.

Russia’s sale of US Treasuries comes as the benchmark 10-year Treasury note yield rose to its highest level since 2011. Analysts have suggested that the sale is in part due to sanctions and the need for portfolio adjustment, and little to do with a real market move. The sale has some concerned that the Russian Central Bank are aware of impending, as yet unspecified, problems with United States bonds.

Russia, along with China, has been critical of the global trade dominance of the US dollar, and both have been actively introducing alternatives. Indeed, Russia’s announcement came just a few days before the BRICS nations — Brazil, Russia, India, China, and South Africa — gathered in Johannesburg for talks. BRICS leaders are known to have discussed alternatives to the dollar as the global reserve currency.

If China, one of the largest holders of US bonds, follows Russia’s lead and also begins to sell off US Treasuries then the United States could find itself in trouble. It remains to be seen if Russia, already under US sanctions, and China, under serious threat of a US-led trade war, feel sufficiently protected to attempt such a move and place President Trump in a position of having to deal with a major financial crisis. Russia is already fairly immune from US retaliations. It all hinges on how much pressure Beijing wishes to bring down upon Washington. If a growing developing world feels a change is required, moves to dump US treasuries and commit instead to IMF bonds or even gold could be very interesting.


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