Russia's Kudrin questions dollar's reserve role

[Katseye]

UPDATE 2-Russia's Kudrin questions dollar's reserve role
Fri Apr 21, 2006 2:02 PM ET

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By Kevin Plumberg

WASHINGTON, April 21 (Reuters) - Russian Finance Minister Alexei Kudrin on Friday questioned the dollar's pre-eminence as the world's "absolute" reserve currency, given its recent volatility and the size of the U.S. trade deficit.

The remarks helped send the dollar lower against major currencies and caused Wall Street analysts to wonder whether central banks will increasingly diversify their holdings out of dollars.

Kudrin, in Washington for the semiannual meetings of the International Monetary Fund and World Bank, told reporters at a news briefing the dollar's value had not been very stable in the past several years, particularly against the euro.

"This causes significant changes in the international situation and that is why we do not understand the U.S. dollar at the moment as the universal or absolute reserve currency," he said. "The international community can hardly be satisfied with this instability."

"Whether it is the U.S. dollar exchange rate or the U.S. trade balance, it definitely causes concerns with regard to the dollar's status as a reserve currency," Kudrin added.

The euro initially jumped nearly half a cent against the dollar <EUR=>to a session high around $1.2360 after Kudrin's comments, but later pared these gains to trade around $1.2335, still up a little on the day.
Russia's foreign currency and gold reserves of $212 billion are the largest of any country outside of Asia.

Currency traders were especially sensitive to any remarks regarding the dollar's reserve status after the Swedish central bank earlier Friday said it had decreased its holdings of dollars to 20 percent from 37 percent of total holdings.

It increased its euro reserves to 50 percent from 37 percent. The dollar declined more than 30 percent against a basket of major currencies <.DXY> from 2002 to the end of 2004, largely on concerns over the growing U.S. trade deficit -- which last year widened to $723 billion, nearly 6 percent of gross domestic product.


However, last year the dollar rallied 13 percent, thanks largely to the Federal Reserve's campaign of steady interest rate increases.

A LOT IN RESERVE
The dollar composes around two-thirds of the foreign currency reserves of central banks around the world, while the euro makes up nearly a quarter, according to the latest data from the International Monetary Fund.
Some of Russia's oil revenues are being kept in a budget stabilization fund, currently worth $60 billion, and the Finance Ministry has proposed investing the money in highly-rated fixed income assets denominated in dollars, euros and British pounds.

Asked whether Russia will continue to recycle its so-called petrodollars back into U.S. financial assets, Kudrin only said, "We are developing cooperation in the international arena."

Russia's central bank rejigged its guide to daily reserve weightings in March but did not reveal how the basket of currencies would be composed. Last year, the central bank tweaked its guide to 60 U.S. cents for every 40 euro cents from 65/35.

The country's central bank continues to accumulate additional reserves at a rapid rate as it soaks up windfall oil revenues and prints roubles to maintain a competitive exchange rate.

Turning to the issue of Russia's proposal to repay around $12 billion of debt owed to the Paris Club of international creditors, Kudrin said he expects a decision as early as next month.

Russia, which has benefited from the skyrocketing price of oil, paid back $15 billion of debt last year. But Kudrin did not comment on the $28 billion of additional debt owed to the Paris Club and a potential schedule of repayment.
U.S. crude oil futures rose to a record $75 per barrel on Friday <CLC1>.


http://today.reuters.com/investing/financeArticle.aspx?type=bondsNews&storyID=2006-04-21T180323Z_01_N21256689_RTRIDST_0_ECONOMY-RUSSIA-DOLLAR-UPDATE-2.XML

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I thought this article very fascinating and appropriate for this forum....discuss!

 

[sharon sanders]

Re: Russia's Kudrin questions dollar's reserve role

Kat- This is an exciting article. I am glad you called me about it.

"UPDATE 2-Russia's Kudrin questions dollar's reserve role
Fri Apr 21, 2006 2:02 PM ET

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By Kevin Plumberg

WASHINGTON, April 21 (Reuters) - Russian Finance Minister Alexei Kudrin on Friday questioned the dollar's pre-eminence as the world's "absolute" reserve currency, given its recent volatility and the size of the U.S. trade deficit."

HERE WE HAVE THE NEW DOMINION. Russia wants to change the balance of power. Russia is one of the world's largest oil producers and will use the U.S. dependence on China's cash to become more dominant in the world economic scene.

"The remarks helped send the dollar lower against major currencies and caused Wall Street analysts to wonder whether central banks will increasingly diversify their holdings out of dollars.

Kudrin, in Washington for the semiannual meetings of the International Monetary Fund and World Bank, told reporters at a news briefing the dollar's value had not been very stable in the past several years, particularly against the euro.

"This causes significant changes in the international situation and that is why we do not understand the U.S. dollar at the moment as the universal or absolute reserve currency," he said. "The international community can hardly be satisfied with this instability."

Political rhetoric... for now.

"Whether it is the U.S. dollar exchange rate or the U.S. trade balance, it definitely causes concerns with regard to the dollar's status as a reserve currency," Kudrin added.

The euro initially jumped nearly half a cent against the dollar <eur=>to a session high around $1.2360 after Kudrin's comments, but later pared these gains to trade around $1.2335, still up a little on the day.
Russia's foreign currency and gold reserves of $212 billion are the largest of any country outside of Asia.

Currency traders were especially sensitive to any remarks regarding the dollar's reserve status after the Swedish central bank earlier Friday said it had decreased its holdings of dollars to 20 percent from 37 percent of total holdings.

It increased its euro reserves to 50 percent from 37 percent. The dollar declined more than 30 percent against a basket of major currencies <.DXY> from 2002 to the end of 2004, largely on concerns over the growing U.S. trade deficit -- which last year widened to $723 billion, nearly 6 percent of gross domestic product.


However, last year the dollar rallied 13 percent, thanks largely to the Federal Reserve's campaign of steady interest rate increases.

A LOT IN RESERVE
The dollar composes around two-thirds of the foreign currency reserves of central banks around the world,"

And, these Central Banks will not let the dollar fall greatly while they hold so many.

"while the euro makes up nearly a quarter, according to the latest data from the International Monetary Fund.
Some of Russia's oil revenues are being kept in a budget stabilization fund, currently worth $60 billion, and the Finance Ministry has proposed investing the money in highly-rated fixed income assets denominated in dollars, euros and British pounds.

Asked whether Russia will continue to recycle its so-called petrodollars back into U.S. financial assets, Kudrin only said, "We are developing cooperation in the international arena."

This is World Bank speak for "Let us in the club, or else."

"Russia's central bank rejigged its guide to daily reserve weightings in March but did not reveal how the basket of currencies would be composed. Last year, the central bank tweaked its guide to 60 U.S. cents for every 40 euro cents from 65/35.

The country's central bank continues to accumulate additional reserves at a rapid rate as it soaks up windfall oil revenues and prints roubles to maintain a competitive exchange rate.

Turning to the issue of Russia's proposal to repay around $12 billion of debt owed to the Paris Club of international creditors, Kudrin said he expects a decision as early as next month.

Russia, which has benefited from the skyrocketing price of oil, paid back $15 billion of debt last year. But Kudrin did not comment on the $28 billion of additional debt owed to the Paris Club and a potential schedule of repayment.
U.S. crude oil futures rose to a record $75 per barrel on Friday <clc1>.


http://today.reuters.com/investing/..._RTRIDST_0_ECONOMY-RUSSIA-DOLLAR-UPDATE-2.XML

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I thought this article very fascinating and appropriate for this forum....discuss!"

The United States is in a poor position economically due to the dependence of a continuous cash infusion. We can now be blackmailed geo-politically. If we do not "bow" to the cash rich nations then we could see interest rates climb much higher when they do not buy treasuries and other U.S. assets. Of course, this affects the value of the dollar.

What is keeping the dollar strong is the fact that so many countries have so many dollars. The Central Banks are keeping an equilibrium situation, for now. As long as the U.S. military is seen as strong and can enforce certain problem situations, the U.S. is percieved as one of the most stable economies to invest in, as compared to most of the world, even with the obvious problems.</clc1></eur=>

 

[sharon sanders]

Re: Russia's Kudrin questions dollar's reserve role

* OCTOBER 23, 2008, 11:34 A.M. ET

Russia CDS Trading at Distressed Levels

LONDON -- Russia's sovereign credit-default swaps traded at 1,000 basis points Thursday, weighed down by the gloomy outlook for commodity prices as global recession fears deepen.

"(The) most relevant fears for Russia are of a global recession and the negative impact that will have on commodity prices across the board -- which are of crucial importance for the Russian sovereign and Russian oil and gas and basic resources companies, which play in (the) world's top league," said Stefan Kolek, corporate credit strategist at UniCredit SpA for Eastern Europe, Middle East and Africa.

After widening over 200 basis points Wednesday, Russia CDS are now trading at distressed levels, or above 1,000 basis points, for the first time in several years. This indicates that market participants are very concerned about the outlook for Russia.

In terms of price it now costs over $1 million a year to insure a notional $10 million of Russian sovereign bonds against default for five years, up from $257,000 it cost a month ago and $75,000 it cost this time last year.
"The credit-default swap levels don't seem to make sense from an economic point of view as the ability to service debt isn't in question," said Beat Siegenthaler, emerging-market strategist at TD Securities in London.

Mr. Kolek agreed. "Russia CDS levels are unjustified given the fundamentals -- the moves are driven by psychological factors," he said

Russia has $530 billion in foreign-exchange reserves -- the third-largest in the world, Mr. Siegenthaler said, adding that it has enough not only to cover its entire monetary base but also enough to cover "most of, if not all of, the country's private-sector vulnerabilities."

Despite this, ratings agency Standard and Poor's Corp. Thursday revised to negative from stable its outlook on Russia's long-term sovereign debt rating, citing threats from increasingly expensive government efforts to rescue the country's battered financial markets.

"The outlook revision reflects the likelihood of a downgrade if costs to the Russian government of the bank rescue operations continue to increase amid rising capital outflows as confidence in the financial system and the monetary regime declines," S&P's credit analyst Frank Gill said in a statement

more...


http://online.wsj.com/article/SB122477537461162733.html?mod=googlenews_wsj

 

[sharon sanders]

Re: Russia's Kudrin questions dollar's reserve role

Developing Nation Bond Yields Soar on Russia Rating-Cut Outlook

By Lester Pimentel and Laura Cochrane


Oct. 23 (Bloomberg) -- Developing nations' borrowing costs neared a six-year high after Standard & Poor's threatened to cut Russia's debt ratings as the global credit crisis deepened.

The extra yield investors demand to own emerging-market government bonds instead of U.S. Treasuries surged 55 basis points, or 0.55 percentage point, to 8.57 percentage points, the biggest since November 2002, according to JPMorgan Chase & Co.'s EMBI+ index. The annual cost to protect Russia's bonds from default soared as S&P lowered Russia's ratings outlook to negative on concern the cost of the government's bank rescue will climb.


Russia has committed as much as 15 percent of its gross domestic product to propping up banks, including a $50 billion credit line to development bank Vnesheconombank. Russia's international reserves, the world's third largest, declined by $14.9 billion last week after the central bank sold currency to support the ruble as investors pulled money out of the country.


``There is now no safe haven globally other than a deeply indebted U.S. government,'' said Jim Reid, head of fundamental credit strategy at Deutsche Bank AG in London. ``The events of the last few days are categorical evidence of the globalization of the credit crunch and its subsequent problems.''


Ex-Soviet republic Belarus added to requests from Iceland, Pakistan, Hungary and Ukraine for at least $20 billion of emergency loans from the International Monetary Fund as the financial crisis leaves nations unable to repay their debt. Belarus has requested ``no less than'' $2 billion and may also seek funds from central banks and commercial banks in other countries, said central bank spokesman Anatoly Drozdov.



more....



http://www.bloomberg.com/apps/news?pid=20601087&sid=aAXz7yGSpXM4&refer=home