The Kremlin has been working overtime to make the Russian economy as ‘sanction proof’ as possible. This agenda was most likely behind the significant reduction of U.S. Treasury holdings in recent months, as Moscow looks to prevent consequences from any further American financial penalties, which Congress or the administration may impose.
Obviously a big part of the strategy is to reduce any impact of Russia being removed from the global ‘USD’ financial system, set up since the end of World War II. Moscow and Beijing specifically are working together to remove the dollar from their global trade transactions. The current American sanctions being reimposed on Iran show that dollar hegemony is still alive and well. Tehran is now cut off from trading in important commodities due to their trade being conducted in dollars.
Ratings agencies have notice the Russian efforts.
Measures to cut down holdings of Treasuries and reduce exposure to the dollar have made the economy less vulnerable to the threat of deeper penalties, Moody’s analyst Kristin Lindow said in an interview. The country could even weather the unlikely scenario of sanctions on sovereign debt recently proposed by U.S. lawmakers, she said.
The central bank has accelerated efforts to safeguard its financial system since Washington blocked the country’s biggest aluminum producer from accessing capital markets in April, sending investors fleeing from the country’s assets. Since then Russia appears to have sold four fifths of its cache of U.S. government debt, an amount totaling $81 billion.
“When sanctions were imposed in April, it became clear that transactions in dollars could be problematic to entities and individuals in Russia, so they are planning accordingly,” Lindow said by phone from New York. “I think that is something any responsible policy maker would do”, reported Bloomberg.
Last month Russian President Vladimir Putin attempted to put a happy face on the U.S. Treasury sale, saying Russia would not abandon the dollar, or make any sharp moves, but it is clear Moscow wants out from under Washington’s financial thumb, as does China, Iran, North Korea, and others.