Pozsar Flags Russia-Related Risk To USD Funding

{r0} STIR: Pozsar Flags Russia-Related Risk To USD Funding

Credit Suisse’s Zoltan Pozsar notes that “the Bank of Russia has over $450 billion in non-gold FX reserves, and the private sector has over $500 billion of liquid investments.”

• “Of this close to $1 trillion of liquid wealth, just over $300 billion is in short-term money market instruments, and we estimate that about $200 billion of this represents the lending of U.S. dollars in the FX swap market. This, however, is not immediately obvious from the Bank of Russia’s reports, which don’t mention FX swaps and list only about $100 billion in U.S. dollar exposures. The published numbers require careful interpretation. Thus, according to the Bank of Russia’s latest Foreign Exchange and Gold Asset Management report, U.S. dollar assets made up about 20% of Russia’s non-gold FX reserves at the end of June 2021, which is way down from 50% at the end of March 2018.”
• “In April 2018, Russia sold all its Treasury securities – both the central bank and the private sector – but there are tell-tale signs in the data that the proceeds from these sales went into the FX swap market. In other words, FX reserves are still in U.S. dollars, but not onshore. They are offshore in the Eurodollar market.”
• “We are no experts on geopolitics, neither do we know which way events will unfold either on the ground or in the domain of sanctions. But if things escalate, it’s hard not to see a direct impact on FX swaps and U.S. dollar Libor fixings given Russia’s vast financial surpluses and where those surpluses are deployed. Whoever moves first, there is a funding impact either way.”