Russia FinMin Calls For Shift Away From US Treasurys Into BRIC Bonds, Settlement In Non-Dollar Currencies

Tyler Durden's picture

It is no secret that Russia has had enough of the Petrodollar, and in light of ongoing western sanctions - which many view not so much as a reaction to events in Ukraine bur merely as an attempt to halt the Russian revolution against the Petrodollar status quo, crushing its economy before the momentum grows and more countries join Moscow - is constantly thinking of ways it can ditch the dollar as a medium of exchange as fast as possible. The problem is that when it comes to retaliating against the West, Russia - short of declaring an embargo on USD payments for its commodities - has little control over what currency its western trading partners will pay in. So instead it is focusing on its net exporting peers, aka the BRICS, with whom as previously reported, Russia had launched a "bank" alternative to the IMF when it comes to backstop and bailout funding, one that avoids reliance on the SDR, the USD, and on Western empathy.

It is the same BRICs that, Russia's Prime Minister Dmitry Medvedev, told Rossiya TV in an interview earlier today, should conduct transactions in national currencies, bypassing cross-rates with the US Dollar, adding that "we can easily make mutual settlements directly," and the mechanism should be beneficial to both sides of transactions.

And if it wasn't clear by now, Russia pivot away from the west and toward China is pretty much complete. Medvedev also said that "our collaboration with China is of strategic importance. We have great, brilliant political contacts, we have excellent economic relations. [China] is our strategic partner, and we are interested in expanding the volume of cooperation. We are not afraid of collaborating because we are confident that this is equal, friendly and mutually beneficial collaboration in all areas."

Meanwhile, regarding escalating Western tensions, the PM said that sanctions have created a bad situation for Russian banks on financial markets, all sources of liquidity are frozen. "We regard this as a senseless and ugly decision toward Russia, but we’ll manage without it." So does that mean that China will step in to provide the required FX reserves as Russia minimizes its USD exposure? Perhaps, but not entirely: Medvedev did add that "Asia, other markets “unlikely fully” to compensate for frozen European financing."

The PM also said that Russia passed through similar squeeze in 2008-2009 and can manage with central bank resources, adding that Europe is still important market for Russia, if EU members "make no absurd decisions to squeeze us out of this market, we’ll stay there, it’s interesting for us."

But while Medvedev was the good cop today, it was Russia's finance minister Anton Siluanov who was the designated "bad guy", and as the WSJ reported, Russia is considering diversifying its debt portfolio away from countries that have imposed sanctions on Moscow and into the papers of its BRICS partners.

Speaking on the sidelines of an annual investment forum in the Black Sea town of Sochi, Mr. Siluanov said the Finance Ministry wants to diversify its investment basket, and is looking for higher yields without too much risks. He said the ministry will consider buying papers issued by Brazil, India, China and South Africa, which along with Russia are known collectively as the Brics countries.


"[We would like to] walk away from investing in papers of the countries that impose sanctions against us," Mr. Siluanov said, adding that the reshuffle would be carried out gradually. He didn't elaborate on when the first purchases of Brics debt may take place.

The good news for the US, now that Russia appears set on either rapidly or slowly selling off its US Treasury exposure, is that Kremlin has possession of only $115 billion in US paper, which happens to be more than the $100 billion it reported in May when the first shock of a Russian bond sell off hit the market, and both of which happen to be amounts the Fed can easily monetize into its record big balance sheet (which, taper or no taper, just grew by $28 billion in the past week alone) in just over a month.

But at the end of the day it is not what Russia does, but what its other BRIC peers and US Treasury holders do. Because while Moscow may be in possession of just over $114.5 billion in US paper, China, Brazil and India share among them some $1.6 trillion in US Treasurys, better known as "leverage" in every sense of the word, or an amount that not even the Fed could monetize on short notice without sending a massive shockwave through the global capital markets.

In other words, while the US pushes Russia hard, it may be careful not to push it too hard, and in the process start an avalanche that leads to a BRIC bond avalanche, which may well be one possible endgame as the world is forced to transition from the US Dollar as a reserve currency in the coming years.

Never gonna happen?

Considering that none other than Obama's own former chief economic advisor, Jared Bernstein, is advocating dropping the USD as the global reserve currency, we would be careful with using the word "never" in this specific case...

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COSMOS's picture

Dollar Dumps sprouting up around the world. Not even worth recycling.  Gold and Silver on the other hand are one's best friends.

Mr Pink's picture

How many shoes have to drop?! Just freeking die already!!!

Ignatius's picture

Not wishing to finance their own imprisonment, imagine that.

knukles's picture

Besides all the blathering and bellicose smarminess of the global financial players, let alone the ZH peanut gallery, may I remind all that it is firmly ensconced in international law, that declining another country access to the "international payments mechanism" constitutes an "act of war".  Mechanistic language be damned, I very much doubt that most people, including our very own dear readers understand the gravity of the current financial tribulations undertaken on a truly global scale.  
This is not a mere preference of choice of payments, currency alignments or banking colossus designation as important or profitable
This is a Cold War, Hotter than any heretofore engaged in the Post WWII era, for the literal economic dominance of commerce and trade.  Which, in turn with increasing or decreasing demands for particular currencies, will enable or destroy the ability of Economic Powers, Giants and Empires to Finance their Day to Day Activities.
The ability to Finance, Literally, Empires, should not be taken lightly, for the history of mankind is replete with the rise and fall of such predicated upon the nations' very wealth, which in the age of fiat, demands universal faith and acceptance.
Understand, this is, to destroy the financing mechanism, eliminates the projection of power, and thereby leaves in tatters, the Edifice of Empire.  Memories of such then become mere Illusion sourrounded by pitiful self agrandizements, lies and deceit, culminating in the delusion of relevance.
This is for all or none.
And perhaps, the final bids shall necessarily take the forum of a detachment not only from a specific currency but from a specific currency in favor of other than fiat .... in exchange for scarce resources.
God help us all, for this is not likely to end well.  The myriad of what can go wrong by intent, let alone unintended consequences and circumstances is virtually unimaginable at this juncture.

TheReplacement's picture

What can go wrong will go wrong.  But on the plus side, everyone has nukes.

The Doofus's picture

Russia is an isolated fascist regime.  The entire country is run by a clueless homosexual.  Putin's been drinking too many tainted juice boxes.

matrix2012's picture


Member for: 1 week 4 days


This The Doofus is a newly inbred batch of trolls at ZH board.

It seems they're mostly programmed to rejuvenate by every 30 days or less. Some familiar douche bag trolls already disappeared... lol

indygo55's picture

Wow what a fucking troll and on a Sunday morning. You must be collecting overtime pay from Obama.

TruthHunter's picture

Worst thing about weekends here on ZH

Way too much Drinkin Thinkin

TeethVillage88s's picture

Agree. I wanted to muse over Knuckles words with some timing and planning issues.

Some say that we will see the US Financial Collapse before President Obama leaves office, a strategy that gives the new president a clean slate (just like in 2008).

The timing of the Last Crisis is a very Big Coincidence, like it was planned. And seems like Obama was selected along with Henry Paulson earlier, Ben Bernanke, and Tim Geithner & Larry Summers.

Also we see reports that Wealthy are buying Gold Now, and leaving the stock market...

Obama seems to need National Emergencies, War to gain GDP Growth... unless he can cause a global depression and play it as another simple "US Recession". He is careless about job creation & homeless or workless and about diseases entering the country, but the boost in GDP from reaction to Disease wouldn't make up for loss of wealth & labor hours.

Military, Financial, Political Superpower...continues with all policies from 2008.

Another Danger is further Extraction of wealth of Middle Class through Carbon Tax, Mileage Tax, Or more Federal Regulation and Legal Requirements. For instance nationwide roadblocks which inhibit Commerce & normal citizen business. Obama could pass legislation that greatly harms Trade.

Oldballplayer's picture

I think we will see some big things happen in October or November: To either influence the US elections, or right after them.

It probably will not take much time after that.

SAT 800's picture

Now, now; it's important to look on the bright side of the street; I'm sure everything will turn out just peachy.

Sandmann's picture

You make exceptionally good points !

On 3-4 June 1989 Tanks entered Tienanmen Square and the USA accepted matters and MFN status was renewed


But Russia is vilified. It is clear there is a war and it is underway with positioning and it will spin out of control. Germany feared a two-front war in 1905 but it feared Russian industrialisation which was growing fast and the threat it would pose - it needed to knock out France first as Russia's western ally hence the Schlieffen Plan.

Sarajevo was not the casus belli they had anticipated or expected and they were not prepared which is why they stalemated in the west and suffered British blockade.

The US thought they would get the Ukraine transit pipelines and fill them with gas fracked in Donetsk and thus control Europe and cut it off from overland trade routes to Asia.

It is clear US/UK maritime power politics to keep the Atlantic relevant which means they need the Suez Canal.

It is pretty clear Russia, China, India and probably Brazil will need to boost nuclear delivery systems and plan for the inevitable Armageddon Scenario with the USA and UK.


Escrava Isaura's picture


Exellent post!


I just want to add these:


Prepare your family


Protect your savings


Growth is over.


dicksburnt's picture


 this may be the finest piece of writing I have read yet to describe the predicament we all are in.

Kirk2NCC1701's picture

Not to worry, it'll all be resolved eventually. In fact...

The future's so bright, you gotta wear shades. You gotta wear shades.

bbq on whitehouse lawn's picture

Acts of war are on paper, where they will stay. The definition of international will be changed. The world is spliting in to two seperate economies. One for the West the other for the East and the time is fast approching to pick a side.
Small trade and bleed through but the big money is picking sides.
China will have to choose if they want to lead or follow. If China chooses to follow the US then Russia burns, but so does China in time. If China chooses to lead then they will own the currency of the second economy.

TLDR: Two economies one world.

BandGap's picture

It is interesting to contemplate the smaller scenarios playing out within the BRICs. While the enemy of my enemy is my friend will work as an overall tactic short term - BRICs vs. US/EU - it would be interesting to watch the fallout as the unwinding begins. For one, I have to believe the Indians will side with the West on many issues. And there are so many that currently hate/don't trust China.


disabledvet's picture

Russia is missing the "G" in their BRIC.

That's by far their largest trading partner.

Sandmann's picture

What is GM going to do about Opel ?

Russia's car market was the same size as Germany but with growth

disabledvet's picture

What is Europe gonna do about GMO?

I mean seriously...a "market for automobiles"? The debt maybe...but not for a automobiles.

Maybe AN automobile (the Ford F-150, Tesla Model S)...but not for all "automobiles."

Kirk2NCC1701's picture

Although I would LIKE to believe that India will remain aligned with the BRICS, in a showdown I do not have confidence that they will have backbone when it counts.

Alas, I suspect that they will fold, like a cheap Made in India tent.

IronForge's picture

I respectfully disagree.

Mr. Modi's been on the business end of USA's Visa Sanctions Game.  He'll go elsewhere - He blew off Team_USA's invite to go to Japan shortly after the Elections.

Also, IND-CHN Trade Volume is larger than IND-USA parings.  I don't think CHN is going to sit idle and let the USA_Oligarchs take a definitive role over IND's Economy and the IND-CHN Trade Pairing.

Bossman1967's picture

so one would guess that's why the grand manipulation last month and wow on Friday but it is considered now to be on sale. one strange world when everything is backwards. full retard and I mean fully

ShrNfr's picture

Not entirely true. Lead is your best friend. It lets you retain your gold and silver.

post turtle saver's picture

so, here's what's really happening...

- US and EU impose sanctions, closing off finance access to Gazprombank / Rosneft / Novatek et al

- future sanctions are going to cut off sale of Russian government bonds (OFZ)

- Russia loses access to long-term financing as a result

- Russian central bank has no choice but to attract interest in buying their GKO-OFZ paper from alternate sources (various Asian and Arab countries)

- the Asian finance centers that Russia has in mind are Hong Kong, Singapore, Tokyo, and Shanghai (lol - Tokyo, practically a US proxy)... basically, wherever all the liquid sovereign and developing market funds live

- Arab sovereign funds are effectively Qatar and Saudi Arabia (again lol - US by proxy and firmly entrenched in the petrodollar)

so, you're going to areas that are less dependent on US and EU pressure but let's not kid ourselves... that pressure is still there and is part and parcel of petrodollar economics

clowns keep posting these articles announcing the death knell of the petrodollar, when all that's happening is these actions further prove the petrodollar's continued dominance... the reality on the ground is that Russia's Economic Ministry has downgraded forecasts for 2014 and is basically calling for a "cold winter" in Russia

don't get me wrong, there will be buyers, Russian bond yields are currently high which makes them attractive, but at most we're talking about alternate finance routes resulting in tens of billions of dollars, not hundreds by any means

it's judo folks... if you have a hold on me, I have a hold on you... the West is doing a great job of reworking their OODA loops to account for the "Putin effect"... Russia will be lucky if it doesn't have another year like 1998 at this rate

NoWayJose's picture

At current rates the Russkies would be fools to hold any US debt.

Bangalore Equity Trader's picture

Listen Jose. Just dump it, quick and dirty. Russians are a smart, ruthless bunch. Americans are getting backed into the ropes and Rockey Balboa is about to get ass kicking.

MsCreant's picture

Rocky wins, ultimately. Is this what you intended to allude to with your metaphor?

angel_of_joy's picture

Rocky was an old fart ! The only reason why he won against Drago was because the Americans made the movie...

Bangalore Equity Trader's picture

Listen Angel, "MS." does not understand that this is "NOT" a fucking re-run.

Sylvester is like 70 yrs old now and in fact, it's the #1 USSA trending question on facebook and yahoo:

And as such stands as the "PERFECT" metaphor for the conversation. Why is Rockey Balboa and USSA aging so disgracefully? "They look sick" asks the public, "WHY"? Do they have "CANCER"!?

MsCreant's picture

You did not remember the outcome of the film. I was teasing you for picking a metaphor that did not match your meaning.

I fully understand the USA ain't winning. That is why I hassled you.

Ralph Spoilsport's picture

Green shootskies Dmitry!

Truther's picture

Check Mate Western BITCHEZ...

MsCreant's picture

Sure looks like it, but me thinkest not. War will get hot before US says "uncle" unfortunately.

knukles's picture

The "war(s)" are already hot covering virtually every continent and engaging just about every country in one form or another.  "Get" hot seems to me to be a past tense condition

SAT 800's picture

well, good; then this implies by your own logic that the US will cry "Uncle"; soon. see, it's important to remain optimistic and look on the bright side of slaughter, barbarism, fraud, and corruption. After all, every cloud "has a silver lining".

BandGap's picture

Sometimes you don't know there's a fire till you open the door.

But I think feeling the doorknob would be a good idea.

disabledvet's picture

"Backdraft" not "blowback."

Be very careful opening the door..."the fire is always looking for more fuel."

The movement in utilities last winter was dispositive. If there was a crisis in either energy or the dollar the cold winter would have crushed those plays...instead they were huge winners.

That says we're in the midst of a prolonged glut in energy production ala the 1800's.

I would be long "nuclear decommissioning." We just don't need all that output and the more regulators and politicians play with the market to pad their bottom line the more the market is "rationalized" (Tesla's, I-phones.)

Once I can power my house using the battery in my I-phone 7 (using same said phone as my only solar collector)...well, what else will I need?

MoneyThimbles's picture

Yeah but when it does get hot, they will reveal themselves as burger-eating surrender-monkeys the moment the heat touches American shores.


hobopants's picture

What an optimist! You think there will be time for anyone to surrender? The world will be lucky to have time for a prayer. We've had no hot wars between nuclear powers for a reason, the game of (real) war has completely changed since WW2.

eddiebe's picture

And so the anti-dollar coalition is born.

yrbmegr's picture

Born?  It was born at least decades ago.

disabledvet's picture

Decade? It was born in 1776 dude.

They were called "Continentals" back then.

The Bucky has done pretty well here considering it was started during he Civil War. I think it's roots can really be traced backed to the Mexican/American war of 1846-1848 actually.

Instead of a chart showing "global reserve currencies" as the Hedge does quite often they ought to show "various iterations of alleged US reserve currencies." I would count the US South's money during the Civil War as one as well.

It wasn't just the lack of steel but the lack of coal in the South as well. It should be noted the first thing the North did about defeating the South was to start rebuilding all the rail lines down there. "Railroad heaven."

Turned out to be interstate highway heaven as well.

I think the next great battle in transportation will be in subway lines as "this improves the value of real estate." MASSIVELY. And since MBS's are never going to be sold and Fannie and Freddie Mac are still in existence "printing money" as it were...

yrbmegr's picture

I was thinking of Bretton Woods, but there are certainly older antecedents.