The big news of the past week is that according to Bloomberg, Russia cut its holdings of U.S. Treasuries in half in the month of April.
Although investors usually seek safety in U.S. debt, Russia cut its holdings of Treasuries nearly in half in April as Washington slapped the harshest sanctions to date on a selection of Russian companies and individuals.
On one hand, given the context of the relationship between the U.S. and Russian governments, the news hardly comes as a surprise. In fact Russian President Vladimir Putin even recently warned of such an action, in a rather pointed commentary in early May.
“Now in regard to the notion that we should break away from the dollar.
I agree in general, this is not merely a separation from the dollar. This refers to the strengthening of our economic sovereignty.
And this is absolutely right.
He further went on to mention that:
Oil is traded in dollars on the exchange.
Certainly we are thinking about what we need to do to in order to get free of this burden.
Because the whole world sees the dollar monopoly is unreliable. It is dangerous for many. Not only us.
Our gold and foreign currency reserves undergo diversification, and we will continue to do it.
However this is a very sensible and gradual operation. We will continue to work in this direction.”
Now with the release of the treasury data it turns out that Putin has apparently followed through on his bold assertions.
Russia continues to cooperate with China, who has also more overtly pulled away from U.S. financial infrastructure in recent months (the Bloomberg article mentions that China’s U.S. Treasuries holdings fell $5.8 billion in April). And now the news of an actual reduction of Russia’s treasury holdings serves as a another significant blow to the notion of the dollar as the world’s reserve currency.
Also worth noting is what Russia continues to buy instead.
As Louis Cammarosano of Smaulgld points out:
Russian holdings of U.S. Treasuries were at $48.1 in April 2018. Gold reserves worth $80.511 billion constitute 17.63% of overall Russian reserves.
While the timing of the breakpoint in market pricing remains unclear, Russia can now be added to the list of countries that have been buying gold and reducing their dependence on U.S. Dollars and Treasuries. Which is why despite the current pricing of the metals, the fundamentals continue to paint the picture of a bright future ahead.
June 25, 2018