On the eve of the meeting between Biden and Putin, the United States and Russia were already “stuck together.”
Just now, a new round of financial sanctions imposed by the United States on Russia formally came into effect. Since June 14, U.S. companies have been prohibited from buying Russian government bonds issued for the first time, and Russian government bonds issued in euros have also been included in the prohibition of buying, which was once called the “most powerful” punitive measure in the financial market.
Russia’s counterattack was also unrelenting. The Russian Ministry of Finance announced that it would change the structure of the National Wealth Fund in the next month, reducing the share of the US dollar to zero, and Russia almost completely emptied the US long-term national debt.
The timing of this round of competition between the two sides in the financial market is very sensitive. On June 16, local time, US President Biden and Russian President Putin will meet in Geneva, Switzerland for a US-Russian summit. On the eve of the summit, the capitals of the two parties have already released “ruthless words.” Therefore, the market expects that this meeting will be the fiercest political game.
The “most powerful” financial sanctions?The U.S. puts pressure on Russia again
According to CCTV News, since June 14, US financial sanctions against Russia have come into effect. The U.S. government prohibits domestic companies from buying Russian government bonds (in rubles) that are issued for the first time. Russian government bonds issued in euros are also included in the prohibition. However, U.S. companies are allowed to trade Russian government bonds on the secondary market.
So, how much impact will this punitive measure, regarded by the financial market as “the most powerful”, have on the Russian economy?
First, let’s look at the scale of Russian national debt issuance. According to the latest data from the Audit Office of the Russian Federation, as of the first quarter of 2021, Russian national debt has increased by 741.3 billion rubles (approximately RMB 64.4 billion) from the previous quarter. The total scale of Russian debt is as high as 19.7 trillion rubles (about 1.71 trillion yuan), accounting for 17% of Russia’s GDP.
At present, the government bonds of the Russian Federation held by foreign investors are about 2.7989 billion rubles, accounting for about 14% of the total size of Russian bonds, but this part of the government bonds are stocks that are normally traded in the secondary market and are not subject to the US sanctions. limit.
In addition, looking at the issuance of Russian government bonds, Gehrman Greev, President of the Russian Federal Reserve Bank, made it clear that Russia’s related bond issuance plan will be completed as scheduled. According to the Russian Ministry of Finance, starting from June 16, Russia will release its first national debt to the market, and will issue three national debts worth 500 billion rubles on the same day.
The British analyst firm Oxford Economics believes that because the United States only prohibits the purchase of Russian government bonds in the primary market, the sanctions have limited impact on the Russian government bond market, and are more symbolic. If sanctions (the United States against Russia) affect transactions in the secondary market, the threat effect will be very violent.
Faced with the entry into force of US financial sanctions, Russian Finance Minister Siluanov also strongly stated that Russian government bonds will still maintain a high demand rate and that sanctions will only cause losses to US companies.
In fact, this financial sanctions policy began in mid-April this year, when the U.S. government announced a series of measures to sanction Russia, including prohibiting U.S. companies from buying Russian initial treasury bonds, but they can buy and sell Russian treasury bonds on the secondary market. Effective from June 14, 2021.
At that time, the reasons for the sanctions given by the United States were that Russia interfered in the U.S. election, hacked the system, and a series of “hostile acts.” In addition to prohibiting U.S. companies from buying Russian government bonds, it also expelled 10 Russian diplomats. The U.S. Treasury Department Thirty-two Russian entities and individuals were sanctioned.
Fight back! Russia is going to dump the U.S. dollar and U.S. debt?
Russia has already begun to “strike back” against the US financial restrictions. On June 3, local time, Russian Finance Minister Siluanov stated at the St. Petersburg International Economic Forum that the Russian Ministry of Finance will change the structure of the State Wealth Fund within one month, in which the share of the US dollar will be reduced to zero and the share of the British pound will be reduced. At 5%, the yen will remain at 5%, the euro will grow to 40%, the renminbi will grow to 30%, and gold will account for 20%.
It is reported that the Russian National Wealth Fund was established to support the Russian pension system. Its funds can also be used to make up for the budget deficit during the crisis. It has now become an important part of the Russian Federation’s budget assets.
According to data disclosed on the official website of the Russian Ministry of Finance, as of May 1 this year, the total assets of the fund reached 185.87 billion US dollars, or 13.82 trillion rubles (equivalent to RMB 1.2 trillion), accounting for 12% of Russia’s GDP.
As of early May, the fund’s liquid assets were worth approximately US$119 billion, of which one-third (approximately US$41.5 billion) were in US dollars. This means that in the next month, the Russian National Wealth Fund will substantially sell US dollars.
On February 24 this year, the Ministry of Finance of the Russian Federation announced that it would include the RMB and the Japanese Yen in the National Wealth Fund. The two currencies accounted for 15% and 5% of the fund’s foreign exchange structure, respectively. At the same time, the share of the US dollar and the euro both fell to 35%, while the share of the British pound remained unchanged at 10%.
Russian President Press Secretary Peskov said in response to a question about the adjustment of the investment structure of the National Wealth Fund that de-dollarization is a long-term process visible to the naked eye. Not only Russia is de-dollarizing, but many countries in the world are also doing similar things. , Because these countries are beginning to worry about the reliability of the major foreign exchange reserve currencies.
Before March 2018, the U.S. dollar has been one of the most important foreign exchange reserves of the Russian Central Bank, accounting for as high as 43%-48%. Since then, as the United States has tightened sanctions against Russian companies and citizens, in order to minimize the risk of sanctions, the Central Bank of Russia began to continuously reduce the proportion of U.S. dollars in foreign exchange reserves. As of the end of 2020, U.S. dollars and U.S. dollar assets are in Russia’s international The share of reserves has dropped to 21.2%, and the share of gold and RMB has increased to 23.3% and 12.8%.
While Russia is selling the U.S. dollar, it is also reducing its holdings of U.S. Treasury bonds in a “clearing-out” manner. According to the latest data released by the US Treasury Department, in February this year, Russia almost completely emptied long-term US Treasury bonds (only US$306 million left), and reduced its holdings of US debt by US$389 million that month, and the final position dropped to US$5.8 billion. Compared with Russia’s highest holding of US debt, the cumulative sell-off ratio reached 94%.
Biden and Putin are about to meet, how to talk?
Behind the secret rivalry between the United States and Russia may be for the upcoming summit of US-Russian leaders.
According to the official website of the White House, US President Biden will meet with Russian President Putin in Geneva, Switzerland on June 16, local time.
At this point, Biden is already in Europe and has just finished attending the G7 summit. After three days of dialogue and consultation, the leaders of the G7 announced that they have reached a certain consensus on fighting the epidemic, rebuilding the economy, trade reform, and green transformation. It will be announced in the form of a summit communiqué.
China has been mentioned many times in the G7 Communiqué, and it even touched on issues such as Xinjiang, Hong Kong, and Taiwan. Subsequently, the spokesperson of the Chinese Embassy in the United Kingdom said in response to reporters that the G7 Communiqué published distorted and reversed remarks on Xinjiang, Hong Kong, Taiwan and other issues, deliberately slandered China, and arbitrarily interfered in China’s internal affairs. The serious violation of the basic norms of international relations has further exposed the sinister intentions of a few countries such as the United States. We are strongly dissatisfied and firmly opposed to this.
India, which is plagued by the epidemic, is also making small calculations. The Global Times quoted foreign media reports that India may join the G7 infrastructure plan, which aims to provide a so-called “value-driven, high-standard, and transparent” partnership against China. The Belt and Road Initiative.
If the G7 summit is a closed-door game of tongue war, then the probability that the US-Russian summit on June 16 will not make Biden so easy, and the meeting between Biden and Putin will likely be The fiercest political game.
In fact, from the series of signals released by the United States and Russia before the meeting, a strong smell of gunpowder can be smelled.
On June 6, Biden’s signed article in The Washington Post stated that the United States does not seek to conflict with Russia, but will not hesitate to respond to Russia’s harmful activities in the future. When meeting with Putin, he will emphasize again The United States, Europe, and like-minded democracies support the promise of human rights and dignity.
According to CCTV News, on June 4, local time, Russian President Putin spoke at the St. Petersburg International Economic Forum. Speaking of the upcoming summit of Russian-US leaders, he said that Russian-US relations are at a very low level, and he will work with US President Biden to find solutions to the problems of bilateral relations, and will discuss strategic stability, arms reduction, and the new crown epidemic. And other issues.
Putin pointed out that Russia and the United States have no differences, but the United States wants to contain Russia’s development. He said that the relationship between Russia and the United States has largely become a bargaining chip for the United States to govern its internal affairs, and hopes that this situation will end at some point.
In addition to the mutual temptation of the two heads of state on the verbal level, the wrestling of military forces between the United States and Russia has also become more frequent. On June 11, the National Defense Management Center of the Russian Ministry of Defense announced that the US Navy’s “Labourn” guided-missile destroyer had entered the Black Sea and the Russian Black Sea Fleet had begun to monitor it.
On the same day, the U.S. Pentagon suddenly announced that it would allocate 150 million U.S. dollars in security assistance to Ukraine to help Ukraine maintain its territorial integrity and improve its coordination with NATO. On the Russian side, the Russian Navy held the largest military exercise after the collapse of the Soviet Union to show off its muscles.
From this point of view, the secret rivalry between the US and Russia on the financial and military levels may be to increase the weight of the negotiations at the upcoming US-Russian leadership summit.
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