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27 Feb, 2022 12:27

Russia’s vast offshore reserves could roil international money markets

Moscow holds $300 billion abroad, a Credit Suisse strategist estimates
Russia’s vast offshore reserves could roil international money markets

The world’s money markets will suffer if Ukraine-related sanctions target Russia’s huge offshore reserves, according to Credit Suisse as reported by Bloomberg on Thursday.

The Swiss banking giant says Moscow has about $300 billion of foreign currency held abroad – enough to disrupt money markets if the reserves are frozen or if Moscow is forced to suddenly move them due to sanctions over the crisis in Ukraine, the business outlet quotes Credit Suisse Group AG strategist Zoltan Pozsar as saying.

“When flows change, spreads can gap,” Pozsar told Bloomberg. “If things escalate, it’s hard not to see a direct impact on FX swaps and US dollar Libor fixings given Russia’s vast financial surpluses and where those surpluses are deployed.”

Pozsar estimates that Russia’s central bank and private sector are holding $200 billion in foreign-exchange swaps and $100 billion in deposits at foreign banks – enough to substantially shift funding markets. According to his figures, Russia holds almost $1 trillion of liquid wealth, and a large share of that is held in US dollars, even after the country sold all its Treasuries holdings in 2018. Pozsar analyzed data from the Bank of Russia and financial markets to calculate the figures, according to Bloomberg.

The warning comes as the US and the European Union announced sweeping sanctions against Russia in response to its military action in Ukraine. The measures threaten to hit 70% of the Russian banking sector and aim to derail the country’s oil, technology, and airline industries. The EU also seeks to target Russian money in Europe. According to European Commission President Ursula von der Leyen, the measures would curb deposits held by Russia’s elites “so that they cannot hide their money anymore in safe havens in Europe.” She also announced on Saturday that the EU is preparing to cut a number of Russian banks from the SWIFT international system of interbank transfers and “paralyze the assets held by Russia’s central bank.

The regulator reported on Thursday that Russia's international reserves reached a new historical maximum of $643.2 billion as of February 18. The country’s vast holdings of gold and foreign currencies could be used to help offset the impact of sanctions.

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