1/6
Russia is considering a plan to buy as much as $70 billion in yuan and other “friendly” currencies this year to slow the ruble’s surge, according to Bloomberg.
bloomberg.com via @markets
Russia is considering a plan to buy as much as $70 billion in yuan and other “friendly” currencies this year to slow the ruble’s surge, according to Bloomberg.
bloomberg.com via @markets
2/6
This isn't a huge number, but it's worth considering the limited number of ways in which China (or other "friendly" countries) can balance higher Russian purchases of their currencies. There are basically two things they can do.
This isn't a huge number, but it's worth considering the limited number of ways in which China (or other "friendly" countries) can balance higher Russian purchases of their currencies. There are basically two things they can do.
3/6
One is to do nothing, in which case their currencies will strengthen by just enough to reduce their trade surpluses or increase their trade deficits by the amount of Russian purchases. This has economic consequence that they might not want to see.
One is to do nothing, in which case their currencies will strengthen by just enough to reduce their trade surpluses or increase their trade deficits by the amount of Russian purchases. This has economic consequence that they might not want to see.
4/6
The other way is for them to recycle Russian inflows by increasing official purchases of other foreign currencies. They're unlikely to buy more developing-country currencies, in which case they must buy dollars, or the currencies of the EU, Japan or other western countries.
The other way is for them to recycle Russian inflows by increasing official purchases of other foreign currencies. They're unlikely to buy more developing-country currencies, in which case they must buy dollars, or the currencies of the EU, Japan or other western countries.
5/6
Russian purchases of "friendly" currencies, in other words, means that either these friendly countries must absorb the trade consequences of Russian mercantilist policies, or they must take the political currency risks that Russia doesn't want to take.
Russian purchases of "friendly" currencies, in other words, means that either these friendly countries must absorb the trade consequences of Russian mercantilist policies, or they must take the political currency risks that Russia doesn't want to take.
6/6
The point is that balance-of-payments arithmetic is pretty strict: if you want to run a surplus, you can only do so directly or indirectly with countries that are willing and able to run deficits.
The point is that balance-of-payments arithmetic is pretty strict: if you want to run a surplus, you can only do so directly or indirectly with countries that are willing and able to run deficits.
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