Billions of dollars in foreign owned currency holdings have been pulled out of the United States and there’s growing suspicion that the culprit is Russia attempting to circumvent any sanctions that the US may levy against the nation over the intensifying Ukrainian situation.
The Federal Reserve custody holdings report which documents “Foreign central banks’ holdings of U.S. marketable securities” has fallen to the lowest level since December 2012 with more than $100 billion being removed in the week ending on Wednesday, March 13.
The Federal Reserve has not divulged the party or parties responsible, but insiders believe that there is enough circumstantial evidence to point to it being Russia — even though the amount withdrawn hasn’t yet appeared in Russian hands.
Instead of selling US backed treasury bonds that they own, Russia has chosen to remove them from US banks in advance of any sanctions.
According to Marc Chandler, the global head of currency strategy at Brown Brothers Harriman, the intention for this would be to avoid losing control of any assets if the United States imposed sanctions on Russia. “It’s just to avoid being frozen, you don’t let your politics dictate these decisions,” Chandler stated.
In a note written to his clients, the currency strategist says: “The logic now is that Russia is bracing for the next round of sanctions.”
He points out that the same action has happened before. In 1957, Russia transferred funds from the US to London out of fear of a financial retribution from America for the attack on Hungary.
“It could be somebody else, but it does seem circumstantial just on the timing alone.”
Bloomberg reports the Federal Reserve analyst firm Wrightson ICAP as saying, “Escalating talk of sanctions over the Ukraine conflict would give it [Russia] every reason to move those holdings to an off-shore custodian.”
Today, despite six hours of talks, Secretary of State John Kerry and his Russian counterpart, Foreign Minister Sergei Lavrov, were at loggerheads over the upcoming referendum that Russia wishes to hold in the Crimea and that the United States has said it will not recognize after Russia’s invasion. Speaking to the press Kerry said “the foreign minister made it clear that President Putin is not prepared to make any decision regarding Ukraine until after the referendum on Sunday,” and warned Russia that “there will be consequences if Russia does not find a way to change course.” Lavrov was more blunt: “We don’t have a common vision of the situation.”