Amid Russia’s sell-off of U.S. securities in the past few months, the biggest so far, the country’s Central Bank didn’t dump all its holdings of United States securities, but simply moved the ownership of part of the holding to offshore domiciles, Intellinews reports citing a blog post by Council of Foreign Relations fellows Benn Steil and Benjamin Della Rocca.
The experts dug into the numbers and found that some $46 billion of the bond sales were “missing” but concluded the money had most likely been moved to Belgium and the Cayman Islands, the report says.
“Let us start with U.S. Treasury Department data on holdings of Treasury securities. These do indeed show an $81 billion (84%) plunge in Russian-held Treasury debt—from $96 billion in March to $15 billion in May. Other figures, however, suggest that Russia’s actual selloff was much smaller than this,” the blog post says.
One indicator is Treasury data that track sales between U.S. and foreign entities, of long-term Treasuries—the sole component of Russia’s Treasury holdings that has dropped since March. From March to May, these data show just $35 billion of Russian sales. This figure, however, likely underestimates Russia’s sales somewhat, the post’s authors say. Russia may have sold some Treasuries to non-U.S. parties, or executed some sales through foreign financial intermediaries, that the data do not capture. Still, by this measure, roughly $46 billion in securities remain unaccounted for.
Russian data show a similar amount missing. The country’s central bank reports that, between March and May, its total stock of foreign debt fell by $50 billion. Since March, however, dollar appreciation has lowered the dollar value of Russia’s non-dollar debt assets. According to the Council of Foreign Relations experts, this explains about $7 billion of the decline, implying $43 billion in actual Treasury sales. This is $8 billion more than the U.S. data indicates, which likely reflects about $8 billion in Russian sales to non-U.S. entities, or sales made through foreign intermediaries.
This leaves $38 billion in “missing” Treasuries, with the most logical explanation being that Russia moved these assets outside of the United States to protect against U.S. seizure, the report’s authors say.
The two most likely destinations would be Belgium, home to custodian bank Euroclear, and the Cayman Islands. So we looked at data from both.
Sure enough, during April and May, as shown in the right-hand figures, Belgian holdings of Treasuries rose $25 billion, while Cayman Islands holdings rose $20 billion. That sum, $45 billion, is more than enough to account for the missing Russian $38 billion.
In short, Russia appears to have sold only about 45% of its Treasury holdings—substantial, but far less than the 84% the media is reporting. 16% remain registered as Russian holdings in the United States, and the remaining 39%, the experts believe, are hidden in Belgium and the Cayman Islands.
“With U.S.-Russia tensions increasing, we would not be surprised by further such ‘offshoring’ of Russian Treasuries in the coming months,” the authors conclude.
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