Fallout: The Financial Crisis

Russia’s bond investing cut hurts U.S.

Stephen Beard Jun 10, 2009
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Fallout: The Financial Crisis

Russia’s bond investing cut hurts U.S.

Stephen Beard Jun 10, 2009
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TEXT OF STORY

Kai Ryssdal: Here’s today’s reminder that we live in a global economy. And for parts of it, anyway, a fragile economy it is at that. I’ve got the foreign exchange markets in mind at the moment. And the fate of the U.S. dollar today.

The greenback got beat up a bit earlier this morning after the deputy chairman of the Russian Central Bank did some thinking out loud. He said Moscow might cut back on its investment in U.S. government bonds. At a time, remember, when the U.S. Treasury is trying to sell record amounts of that debt. From the European Desk in London, Marketplace’s Stephen Beard reports.


STEPHEN BEARD: The Russians hold one third of their $400 billion reserves in U.S. treasuries. That gives them a keen interest in the fate of the U.S. dollar. Francis Beddington runs Insparo Asset Management. He says the Russians have a major concern about America’s public finances.

FRANCIS BEDDINGTON: With substantial fiscal deficits going as far as the eye can see that the dollar will come under significant pressure and be forced to devalue, making them significant losses on their foreign-exchange reserves.

The Russian central bank said it would like to shift some of its dollar reserves into bonds issued by the International Monetary Fund. The bonds would be pegged to the IMF’s basket of currencies called Special Drawing Rights. Charles Movit of IHS Global Insight says the Russian motives are political as well as economic.

CHARLES MOVIT: There’s a political aim to reinforce the image across the globe that it’s no longer a unipolar world, that Russia and countries like Russia increasingly matter.

Economically, Russia matters much less than China. But says Movit, China has also cast doubt on the dollar.

MOVIT: Certainly there’s a psychological impact because other countries, namely China, have also expressed their concerns about the focus of the world economy on the dollar.

Russia plans to discuss the role of the dollar next week with its partners in the BRIC group: Brazil, India and China. This is not merely a matter of prestige for the U.S. America needs to sell hundreds of billions dollars worth of bonds, it can ill afford a loss of confidence in its currency.

In London, this is Stephen Beard for Marketplace.

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