Russia holds vast foreign exchange reserves, a large chunk of which are held offshore, having the potential to upend money markets.
The country had international reserves totaling $630 billion at the end of January, consisting of $467 billion in foreign exchange and $132 billion in gold. The rest consists of special drawing rights (SDRs) and IMF reserves, Bank of Russia data showed.
With the country’s invasion of Ukraine Thursday, a critical question is how much of these reserves are outside of Russia.
Credit Suisse strategist Zoltan Pozar, crunched the numbers to determine just that. The resulting figure using Bank of Russia data with that from financial markets was that $300 billion is being held offshore, according to the report.
Pozar estimates around $200 billion is held in swap agreements with an additional $100 billion in overseas bank deposits, a sum more than enough to cause a shift in funding markets.
If things escalate, it’s hard not to see a direct impact on FX swaps and U.S. dollar Libor fixings given Russia’s vast financial surpluses and where those surpluses are deployed, he said.
On Thursday, the Bank of Russia announced emergency measures to maintain financial market stability, including intervening in the foreign exchange markets.
Markets are likely hoping the mountain of cash doesn’t turn out to be an erupting volcano.