US treasuries gain from war, but some see long-term shift - Times of India

US treasuries gain from war, but some see long-term shift – Times of India


MUMBAI: Even as world growth is challenged by the conflict in Europe and its impact on commodity prices, the dollar has been a gainer despite the US being one of the largest importers of commodities. The strength of the dollar is attributed by traders to circular reasoning where global funds see dollar assets as safe because countries have accumulated so much of it.
The Ukraine crisis has seen global funds rush to the haven of US treasuries, resulting in yields slipping, making it cheaper for the US government to borrow. However, some banks feel that the US decision to seize the Russian central bank’s US dollar assets may have some long-term implications on countries investing in US treasuries.

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According to data released by the US government, of the $7.7 trillion of treasuries that are held internationally, the bulk of $1.3 trillion is held by Japan followed by China ($1 trillion) and the UK ($647 billion). India, although being among the top five in terms of foreign exchange reserves, has only $199 billion worth of treasuries. This is down nearly 10% from a high of $220 billion in June 2021. Bankers say that this is unlikely to be a downsizing of its holding but a part of cash management. The central bank had announced a Rs 99,000-crore dividend to the government in May 2021.
In the past, countries like Afghanistan, Iran and Cuba have found their foreign currency assets impacted by sanctions. According to data released by the RBI, as of end-September 2021, it had $573 billion of foreign currency assets of which 66% was in foreign securities, 25% in the form of deposits with other central banks and 7% in deposits with overseas commercial banks.
As of September 2021, less than 6% of the country’s forex reserves were in the form of gold. Even this is not fully insulated from action by foreign authorities.
Of the 744 metric tonnes of gold held by the RBI, 451 is overseas in safe custody with the Bank of England and the Bank for International Settlements (BIS), while the rest is held domestically.


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