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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ekm1's picture

http://www.nydailynews.com/new-york/empire-state-building-garners-2-1-bi...

 

Even billionaires want to dump USD or currencies.

 

Why? Simple.

 

Where do you hold billions in cash? If you hold them in a bank, the collapse of the bank will make your billions vanish

 

The "system" will have to extinguish $10 to 20 trillion. Issue is: Whose trillions?

Otherwise the world abandons USD. USD avoidance has accelerated.

 

In my view those who refuse their trillions to be extinguished in peace, will simply be shot dead by Saudis, Russians, Chinese etc.

History never ever changes. Elite kills elite over real assets

 

The Putin-Khamenei Axis is advancing too fast now fearing that Obama might not stay in power until Jan 2017.

Barack Obama existence as president is their strongest hope

ekm1's picture

PUTIN - KHAMENEI ALLIANCE is in a hurry, too much hurry.

 

Something is going on. Obama just offered Khamenei to only disconnect pipes into the centrifuges, not dismantle them.

 

Military is in open revolt followed and reported openly by the media and DXY is getting stronger, which means NY Fed is draining dollars, assuming DXY still represents REAL TRADE.

The "system" is about to break, NOT just monetarily.

Shots could be fired and I pray God I'm wrong. 

eXMachina's picture

Can you please explain your theory in greater detail? Genuinely interested in understanding what you mean by this.

SAT 800's picture

So is he; but I doubt if any significant progress will be made.

ekm1's picture

Military Complex + Saudis on one side (represented by Koch Bros as oligarch), they want USD.

 

Bank lobby + Iran on the other side (represented by Warren Buffett as oligarch), they want SDRs

 

Buffett wants oil control and wants to cooperate with Iran

Koch has and Military Complex want to maintain alliance with Saudis for oil control.

 

We are going to have blood being shed I very much fear. I think Military complex could bypass oligarchs and go junta like in the 70s.

Warren Buffett and his minion Obama, offered to Khamenei yesterday to just disconnect the pipes to centrifuges, not dismantle them.

Which means this is getting worse and worse because Buffett wants oil control and be a bank also with SDRs.

 

War between Saudis and Iran is becoming inevitable, which means everybody gets involved, of course, unless Military goes junta behind the scenes and threatens everybody shot if no obedience. Saudis can esily execute anybody.

 

This is my scenario

 

Kirk2NCC1701's picture

I'd hate to say it, but our country is SO messed up, that (ideally and everything being equal) a military junta is exactly what it needs: "What this country needs is a good Enema."

OTOH, given that our military is part of the Problem, we can hardly expect the current Generals in charge to be part of the Solution, to be the "Winds of Change". I fear that they are waaaay too beholden to The Usual Suspects.

eXMachina's picture

Thank you, much appreciated.

ekm1's picture

We are definitely living in a time that is not that great to be rich with lots of cash in the bank

Your money may vanish abruptly

 

Be careful

AGoldhamster's picture

Rubbish BS - as is would be absolutely GREAT - for every single reader and poster here - to be rich with lots (even tons) of cash in the bank.

Ekm - you live in a different - maybe somewhat paranoid - world.

But at least your stuff - sometimes - is entertaining.

Winston Churchill's picture

He has the basic factions correct, its what he extrapolates from there,thats the problem.

ekm1's picture

I foresee Military Junta back into power in the coming months, after they ceded power voluntarily in the early 90s after soviet union fell.

Quite possible they will reneg any alliance with any oligarch or lobby for sometime until Iran issue is put to bed.

 

They will never accept a deal with Iran. Quds Force has blood of US soldiers in their hands.

Bloodshed will occur, I very much fear

Iran is about to capture Yemen also, now. They have Baghdad, Damascus. Now Sanaa.

 

Recipe for major blood.

Winston Churchill's picture

There I agree with you. I foreseee a military putsch, and junta in charge within a year

from now.

The only other option is a truly massive US military defeat,that discredits the sheeples love

of men in 'service'.

Sounds like a damn brood mare when I hear it..

holdbuysell's picture

ekm1:

If I get your thesis (do correct):

Rockefeller vs. Rothschild

Rockefeller = MIC

Obama = Rothschild

Strong dollar = MIC

SDR = Rothschild

SDR = Weak dollar

 

 

TeethVillage88s's picture

Yeah I think you are in the ball park of what he was saying.

I see it a little differently. PMIC, Prison-military-intelligence-Security-Complex needs funding but it comes from Federal Authorization. The employment level shows a trend line at 2.8 Million people. The Military was reduced in the 1990s under Congressional BRAC Legislation, slightly, and Clinton flattened the budget for 4 years before allowing new increases in Federal Budget for DoD. This created a lot of shouting by the DoD Lobby.

Today you see this Shouting again by PMIC Lobby. But this time is different.

The Federal Budget & DoD have Doubled and almost Tripled. This is partly due to Privatization. Today we have a huge army of PMIC Contractors. My guess is 50% of the US Economy is now Tied directly or nearly directly to the Federal Budget. They can't hire more workers with efficiencies realized from computers.

The Truth all of us go hat in hand to Bankers. We love our Finance Managers.

But in Politics you have to have an Enemy. Obama is still immature, but he is a puppet. Like him or Hate him he has supported all the wars and covert ops and funded them under hugely expensive continuing resolutions with budget increases each year and about $1 Trillion a year goes to Military, Veterans, DHS, International Programs, and Intelligence programs. He blew it on VA Medical Funding and on getting modern computer for VA Medical Centers.

But not all Military know about the Generous DoD Spending, and we have more and more contractors each year complaining they need more Juice.

All Employees: Government: Federal
2014-08: 2,717 Thousands of Persons (+ see more)
Monthly, Seasonally Adjusted, CES9091000001, Updated: 2014-09-05
http://research.stlouisfed.org/fred2/series/CES9091000001

Kirk2NCC1701's picture

We digress, but the Prison Complex can be simplified in structure and cost by Outsourcing it to our NAFTA partners.

Prisons across the Mexican border and up on Elsmere Island would fix that in a jiffy - seeing that we can't ship them off to "Australia".

Bangalore Equity Trader's picture

Listen Sell,

On "THE HEDGE" "=" is an assignment of value, while "==" is a comparison of values.

ekm1's picture

Replace Rothchilds with Warren Buffett and Bill Gates

Replaces Rockefellers with Koch Bros and Sheldon Adelson

 

Nobody cares about dead people. Rockefellers and Rothchilds are dead. They can't rule from the graves.

We live in Warren Buffett and Koch Bros times

 

However, the way it is going, Military Complex may even bypass the oligarchs and reinstate a junta, like the 60s and 70s.

This is my view

disabledvet's picture

Ask Warren Buffet how trying to corner the market in treasuries worked out....

ekm1's picture

Buffett wants oil control and not lose money on derivatives. He is totally nakes on derivatives.

Rates are low so Buffett survives.

 

Not for long, not for long in my view. Real blood may be shed. Saudis....................

RaceToTheBottom's picture

At one time Buffett wass a SILVER hound.  Then like Greenspam he was taken aside and given the message...

Kirk2NCC1701's picture

Given your hypothetical scenario, personally, I'd clearly prefer Buffet and Gates over the evil Koch-Adelson alliance.

Joe Tierney's picture

China will, of course, have to be very careful about doing or supporting anything that starts a stampede out of Treasuries. Losing nearly $2 Trillion would be a huge catastrophe for China.

 

So this transition away from Treasuries and the dollar will have to take place gradually - unless some geopolitical development, like a world war, forces everyone's hands on both sides.

 

It just feels like a global explosion is imminent - but maybe not. Maybe lots of bumps but no WWIII for a few more years. But I can't imagine avoiding WWIII for more than just a few more years at best. The article above makes a very good point - The U.S. and Europe haff to trounce Russia financially and economically before too many other world players wise-up and join the anti-petro-dollar-axis.

 

But I don't think it will work - I'm betting Russia succeeds. So this all compresses things, time-wise, I mean. The shit's gotta hit the fan soon, and one or the other has to rise to the top - I say it will be Russia-China that rises.

Bangalore Equity Trader's picture

Listen Tierney. Russia-China-India is my guess. Then it's all over, not even close. Done, no need to stick fork in either.

Winston Churchill's picture

The Chinese/Russians have been getting out of UST's since 2008.

Only if you believe the Govt. figures would you think otherwise,

There are lots of ways to dispose of them in every way except in name.

I doubt they are on the hook for anything.All this was planned and carried out long

before anything was made public. A public statement just announces a fait accompli,

in my experience.

yrbmegr's picture

Interesting, and the value of the dollar is near a five-year high.

disabledvet's picture

Yeah, no shit. "Selling into strength." WINNING!

I mean seriously...the military has no idea how to pay for their "military industrial complex."

While Germany demands return of their capital in a way that makes Japan seem pecuniary the USA is building out a "space/industrial complex."

Wait until the Navy starts building out an "Undersea Industrial Complex." You'll know pretty quick if your seals are no good let alone your "superstructure."

Winston Churchill's picture

Its rising on the basis of the official figures.We know here that they are BS.Many don't.

As I said on another thread, TPTB are just as susceptable to cog.diss. as J6P.

I deal with them on a weekly basis, and I assure you they are just as fallible as

anyone else.

Being the cleanest shirt in the laundry doesn't work when said laundry is on fire.

yrbmegr's picture

At some point, with all this "dollar dumping", we might actually see the demand for dollars start to fall.  Maybe.

Ironmaan's picture

How many fucking times must I see the reserve currency graphic? 

yrbmegr's picture

At least one more time, apparently.

Quaderratic Probing's picture

Until there is a BRIC block and a China block and whatever is after that or until you click your heels three times repeating reserve currency changes.

 

yrbmegr's picture

Yeah, the heel clicking on this site is deafening.

matrix2012's picture

Here's a greatly improved Global Reserve Currencies chart taking into account the gold backup, and interestingly the chart is named after the Zero Hedge, out of appreciation i guess :-)

http://dont-tread-on.me/wp-content/uploads/2013/10/Zerohedge-gold-Reserv...

 

Prior to the current US dollar stint, the currencies of FIVE countries each held world reserve status for an average of 95 years:

Portugal         1450 - 1525      75 years

Spain               1525 - 1635     110 years

Netherlands  1635 - 1710      75 years

France            1710 - 1815     105 years

UK                    1815 - 1925     110 years


US                    1925 - Present   89 years

 

Read on "Currency Watch: Triffin's Dilemma"

BandGap's picture

The average is actually 94. The standard deviaition is 17. The US is well within one standard deviation of the average.

Could go anytime.

TeethVillage88s's picture

Seems like you lose your military strength first or lose your Banking Strength first... but they may appear to happen in the same year at the same time.

New Home for US Bankers?

Since China doesn't have derivatives and has a new Navy and has been funding projects and starting projects all over the world would seem like BRICS are an alternative.

Do Bankers Appreciate Freedom of the type of Europe better? China is dicey and India is Dicey-er. If bankers want the largest human resources to bank on... then China looks like the winning new home for US Bankers.

- Middle East, No
- Africa, No
- Mexico, No
- South America, No
- Australia, ??? Points for English Language

Sandmann's picture

The US economy has been subjected to a Monster LBO.

It has been a spiral since the 1980s with ever-increasing risk and leverage.

No manufacturing company can ever generate such leveraged returns except by liquidating and becoming a bank

matrix2012's picture

Nope, the average is right to be 95 among the earlier five

= (2*75 + 2*110 + 105) / 5

= 475 / 5 = 95

 

It takes the USA about six more years to just match the average,,,lets see then.

disabledvet's picture

Portugal and Spain should be combined.

Karaio's picture

Uai! 

Do the commentators ZeroHedge now have to talk to me in Portuguese-br? 

Will come down from the pedestal and no longer look only navel own apple bite? 

Wait six months at most, and this shit is upside down, it will be chaos in the European Union and on Wall Street. 

The banksters this time they found a wall. 

hehe.

Minge's picture

It's hard to believe someone could suck as consistently as you.  And lose the "hehe."  It just magnifies your douche-baggery.

Minge's picture
t no ser un imbécil.
FreeMktFisherMN's picture

This cyclical 'bull' (shit) market in the dollar may well be the last one it ever has. Maybe gold to 1k, but see you at gold 2500+ and silver well north of 50, in not too distant future. Virtually a mathematical certainty given the debt levels and trajectory and inflation already created. Not saying SPX won't go up, either, although many companies whose model is contingent on low commodity/raw material costs will get crushed, so more so int'l companies will be the ones that can hang on if they have exposure abroad to places where people save and markets are allowed to work.

And this gold conviction isn't even counting on whatsoever BRICS 'going galt' because I see them doing a lot of mercantilism and printing disguised as 'growth', too. They are improving their trajectory towards free markets, but it is a lie to say they are 'Austrian bastions'. China epitomizes malinvestment. The savings rate is what gives them a chance if they keep trending towards free markets, because savings is what is crucial; actual foregoing of consumption here and now for the greater good down the road. It's good to see these nations slowly but surely bypassing the petrodollar, but looking at the balance sheets of sovereign funds, they still are in on the dollar hegemony game, doing pegs, too, like with the yuan. Statism is statism, and there is tons of corruption abroad, too. I don't view the East as the 'good guys'. It is nauseating the narrative that the West is the 'good guys' East 'bear, bad guys', etc, but I don't fall for the hegelian, either and pull for the other crony statist side. I would say that they happen to be acting much more reasonably than the West, though, and relatively speaking much more so 'minding their own business'.

 So my bullish view for gold doesn't even need to incorporate BRICS defecting, although obviously that would only accelerate the demise of the dollar. 

 

MKD's picture

so is this how world war 3 will start

MsCreant's picture

Yes they win sorta for now. This spirals down for everyone, in the long run. Russia emerges as an empire, for a bit, they will not hit as high a high as we did. India might improve. Then flail and fall, too. China is so fucked. They hold some great cards for this one glorious second. With us on our ass, where does it go from there? They will gut each other competing for resources in this big assed game of risk. 

This is the earthling's long emergency. We deplete her, she kills us off, gradually. Like the so called gradual withdrawl from treasuries. 

The message is in the saying of it, not the doing. Why say it now???? If you really gave a shit about that money, you do it quiet so that there would not be a stampede. 

THEY WANT A STAMPEDE. They could give fuck all about the money.

 

SAT 800's picture

MsCreant, they are doing it very quietly. Outside of Zero Hedge no one is paying any attention to any of this at all. So far, what we have is "jawboning"; hardly an earthshaking event. I really, really, doubt there is any one who 'WANTS A STAMPEDE'; and certainly no player who doesn't give a fuck about the money. I think yoiu got a little carried away this time.

MsCreant's picture

Why announce what you will be selling then?

Winston Churchill's picture

Because they already have.

Do you honestly think they will preannounce after seeing what happens to foolish leaders that

did ?

The petrodollar is blood backed,almost  just as much as oil.

MsCreant's picture

I agree.

My point is that the announcement here is not about them rotating out of USTs, but getting a reaction. They would not announce if they really were going to gradually sell. They would just do it.