Tags: Aslund | Russia | reserves | liquid

Economist Aslund: Russia's 'Liquidity Freeze Won't End Until US Sanctions Lifted'

By    |   Friday, 19 December 2014 11:11 AM

The U.S. imposition of financial sanctions on Russia beginning in July has prevented the rogue nation from receiving any significant international financing since then, and that won't change until the sanctions are lifted, says Anders Aslund, a senior fellow at the Peterson Institute for International Economics.

"Like most of the world after the bankruptcy of Lehman Brothers investment bank on Sept. 15, 2008, Russia suffers from a liquidity freeze," he writes in the Financial Times.

"It will not end until the US financial sanctions are lifted. Without international funding, Russian companies — private or state-owned — are unable to refinance and have to repay all foreign debt due."

Some commentators say Russia's plight is minimized by its $416 billion horde of currency reserves, but it's not quite that simple, Aslund says, explaining that Russia's liquid reserves total only $202 billion.

Gold reserves account for $45 billion of the $416 billion, he writes. Two sovereign wealth funds, which are held by the finance ministry and already committed, account for another $171 billion.

Meanwhile, Steve Forbes, editor-in-chief of Forbes Media, tells Newsmax TV's "America's Forum" that Russia's steps to defend the ruble, which has plunged 46 percent against the dollar since the beginning of the year, are doomed to failure.

The country's central bank lifted a key interest rate by 6.5 percentage points to 17 percent this week and has intervened in the currency market to buy rubles.

"The rate hikes alone won't [work] because you got a collapse of a currency. You can wipe out the income you might earn from that 17 percent interest rate in a day or two," Forbes says.

"The key thing is whether the Russian central bank knows how to defend the ruble. It is very simple to do." What the central bank needs to do is buy rubles and then keep them out of circulation, he says.

"But what Russia has done so far is to pump the rubles they bought back into the domestic economy."

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The U.S. imposition of financial sanctions on Russia has prevented the rogue nation from receiving any significant international financing, and that won't change until the sanctions are lifted, says Anders Aslund, a senior fellow at the Peterson Institute for International Economics.
Aslund, Russia, reserves, liquid
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2014-11-19
Friday, 19 December 2014 11:11 AM
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