How Russia’s $ 300 billion in foreign exchange can shake markets

About $ 200 billion is in foreign exchange swaps and another $ 100 billion in foreign bank deposits
Credit Suisse’s strategic analyst Zoltan Pozsar, who shows that Russia has about $ 300 billion in foreign currency swaps abroad, reveals the difficulty Western governments face in imposing sanctions on Russia. This is money that can shake the financial markets if they “freeze” in the context of sanctions or if they move abruptly to avoid them, the analyst stressed.

It estimates that about $ 200 billion is in foreign exchange swaps and another $ 100 billion in foreign bank deposits.

“When (cash flow) changes, spreads can change dramatically. “If things escalate, it is difficult not to see a direct effect on exchange rate swaps and the Libor dollar’s interbank rate, given Russia’s huge surpluses and where these surpluses are located,” Pozsar explained.

Russia’s central bank and private sector have almost 1 trillion. dollars of liquid wealth, with a much larger share in dollars than most believe, even after the country sold all the US bonds it held in 2018, wrote Pozsar. It estimates that about $ 200 billion is held in foreign exchange swaps and another $ 100 billion in deposits in foreign banks.

That’s enough to drive money markets significantly, according to Pozsar. The Bank of Russia’s exposure to dollars is about 50%, compared to the 20% it reports, Credit Suisse estimates.