from Follow the Money

Where oh where are Russia’s reserves?

September 18, 2006

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Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

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Through the end of July, Russia had added $83.5b to its reserves.  It added around $15b in July alone. 

Through the end of July, China had added about $135b to its reserves, including around $13b in July.

Russia had plenty of funds to invest.    But it sure wasn’t putting those funds into the US.  At least not in ways that show up in the US data.  

Russian holdings of short-term US debt (custodial liabilities in the data) are down $15.6b this year.  Its total short-term holdings are down a bit less, by only $11.9b.   Russia has bought $13b in long-term debt.  But its overall holdings (at least recorded holdings) of US debt are still basically flat in the face of a huge increase in its reserves.

Russia certainly didn’t add to its US holdings in July.  Short-term holdings fell by $8.8b; long-term purchases of debt were only $2.4b – for a net fall in Russian debt holdings of over $6b.  Sure, Russia had to get ready to pay the Paris Club in August.  But its reserves were still growing in July.  More diversification?   Or did Russia just shift from short-term dollar accounts in the US to short-term accounts outside the US?   The US data alone cannot answer this question. 

The slow increase in Russian holdings of US debt is a big change from years past – Russia was basically the only oil exporter whose purchases of US debt were showing up in the US data.  Russian short-term holdings rose by $30b in 2005 alone.   The other oil exporters were basically invisible.

This year, Russia isn’t showing up at all while a bit more of the purchases of the other big oil exporters are showing up in the US data.  The Gulf’s (Asian oil exporters in the US data) recorded holdings are up by about $30b in the first half of 2006 -- $30b pales relative to their total oil windfall, but it is more than the $18b that showed up in the US data in all of 2005.

China is also showing up strongly in the US data.  China’s recorded purchases of US debt total $81.4b, with a $10.6b increase in July alone.   The fraction of China’s reserve growth that appears in the TIC data is actually far higher in 2006 than in 2003, 2004 or 2005. 

All data comes from the TIC home page and the Treasury bulletin.

No doubt, China is the 800 pound gorilla of the US bond market.    Hedge funds may dominate the market for spread products.  But a few central banks dominate – or at least set the background conditions – for the US treasury market.   See Bill Pesek.

Incidentally, if China has already diversified away from a hugely dollar heavy portfolio to a somewhat dollar heavy portfolio, as the head of SAFE suggested over the weekend, the US data suggests it did so between June 2003 and June 2004.   Both US data sets -- the survey and the TIC data – suggest that there was a big gap between the total increase in Chinese reserves (counting reserves shifted to the banks) and flows to the US during this period.

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