“Easily” is the squishy bit here. If they’re settling in dollars, probably not, unless someone’s carting around paper dollars. (This has been done.)
If they’re settling in rubles or yuan, for most definitions of “easily,” yes.
Completely agree with your comment, just wanted to add that the vast majority of international companies will require a settlement in DM currencies (mainly dollar). This ensures that the relative size of the deal stays stable, as these currencies are highly stable and not subject to domestic manipulation. For a deal to be settled in, say, yuan, you would have to be pretty darn sure that your exposure to yuan is highly predominant: your in/outflows will be yuan-relative.
Can you truly call them stable with 7+% official inflation, negative real interest rates, and China owning 3+ trillion USD-nominated assets, which it probably will start to gradually sell in the wake of sanctions against the Central Bank of Russia?
Compared to every other currency, historical and extant, the major trading currencies of the day are highly stable across multiples of even the longest transaction time frames. They aren’t good long-term stores of value because that’s not what they’re built for.
Please explain. I don’t understand how that’s true.
In last night’s SOTU President Biden said inflation was mostly due to car prices or something equally silly. I don’t see any nation seriously addressing inflation which is officially 7.5% but I believe to be much higher for most.
The last time the US had inflation this high Volcker had to raise rates to double-digits in order to break the back of inflation.
Also, don't forget that 20% of all USD ever printed were printed in the past year and the Fed has made no claims that they plan to taper the money printer anytime soon.
However, is it just drawing forward future demand, which would mean the inflation is temporary?
I mean after a 2 year recession caused by the pandemic, in terms of large consumer items, like vehicles, you'd expect that. People want/need to start travelling again.
The problem with Yuan are more with its low convertibility (read: usage rate outside China), but that may change eventually. Using currency sanctions to achieve political goals are simultaneously expending trust in those currencies.
Stable or gaining 20%?
Also its not stable, nor trustworthy. You can't trust china to not manipulate it.
Personally, I've always liked Singapore's approach of anchoring the Singapore dollar to a basket of major currencies. However, they also give themselves leeway by not publishing the basket's constituents or weightings, meaning they can still make the dollar dance by tweaking those.
Rather you 'can* trust China to manipulate it when needed, they need the currency to serve specific macroeconomic policy decisions and they will use the levers on their power to achieve it, the fact that western speculators might get burned for it is not a core government interest at this time, maybe in the future
The Euro had much larger fluctuation in the same time frame.
Lecture me, are your definition of stable tied to data, or is it tied specifically to your own opinion?
How long would it be until you admit it was actually stable? 10 more years? 100? A millennia?
Wires, as the article explains, are just debits and credits. And all non-paper debits and credits of dollars are ultimately governed by the banks’ credits and debits with the Fed. So no, you can’t wire dollars with a phone number if the other side is sanctioned. You can if they’re off SWIFT, but you need someone with an account at the Fed to make those changes.
If I understand it correctly, in this case, isn't the thing prohibiting that transaction the US sanctions (i.e. https://home.treasury.gov/news/press-releases/jy0612), rather than exclusion from SWIFT?
However, transacting through the route that goes from consumer -> Russian Bank -> CBR -> Fed -> US Bank -> US merchant (or in the reverse direction) is not the only route. A Russian bank could also transact with a correspondent bank in another country that transacts with a US bank that transacts with the Fed. So the following transaction might still be possible: consumer -> VTB (Russian bank) -> ABN Amro (dutch bank) -> Citi (US bank) -> Fed -> Bank of America -> US merchant. In fact this is probably the more common path (except VTB might have directly transacted with Citi before last week).
The easiest way to stop these other routes is to ban all Russian Banks from the SWIFT system. This is because pretty much every US bank uses SWIFT to serve as the messaging platform by which they transact with correspondent banks (And they will NOT use any other system -- because of US regulations). So simply preventing SWIFT messaging for all Russian banks makes it enormously difficult for Russian Banks to transact in USD.
Hence the emphasis on blocking SWIFT.
But it is not the end of the world for Russia. They still have three avenues for international trade:
1. Trade in another currency, preferably of a country that is less susceptible to US pressure (e.g. China, and eventually their own) This avoids SWIFT, the US Fed and US controllable financial entities altogether.
2. Use proxies. Have an entity located in another country trade in USD on behalf of a Russian entity. It is usual to keep such proxy relationships secret. However, should US govt. discover the proxy aiding a sanctioned entity, they may sanction the proxy itself, and the jurisdiction in which the proxy does business. So this method of transacting is risky for many entities (both banks and other non-financial entities.) So most won't do it. But some will.
3. Barter. This is not as ridiculous as it sounds. For example India had to use this system to buy critically needed oil from Iran, initially, after the latter was banned from SWIFT. For a very large country like India or (especially) China, that domestically produce a very wide range of goods and services, it can be very viable way to trade. But it is still limiting. Both countries have since moved to their own SWIFT like systems to trade with Iran. But of course, one cannot buy US produced (or more generally western goods) this way. So no iPhones.
I take it that it means there's an account in the Fed that says the CBR has a credit of $650B with it, but it refuses to accept any transactions against that account. So the money is still "there", just can't move.
First off, only a fraction of the CBRs reserves are held as US dollar denominated holdings. Most central banks hold a variety of assets (currencies and gold) to diversify currency risk (and in the case of the CBR sanctions risk)
Secondly, even most of the USD holding are not held as actual deposits at the Fed. For one thing, Fed deposits do not pay interest. There are also relatively illiquid (even if we don't consider sanctions.)
Instead dollar holdings are held as US Treasury bonds. The US Treasury bond market is the largest financial market in the world and extremely liquid. And treasury bonds do pay a small interest. A US treasury bond is the closest thing to being an actual dollar without actually being a currency.
These bonds are held in the bond market accounts of large US and foreign banks. These accounts are frozen too.
However, because US treasury bonds need not be held directly, the vast bulk of the CBRs dollar denominated holdings are probably not directly held by it and so harder to trace. Indeed, only the CBR will know exactly how much USD denominated holdings it actually has.
Are you sure about that? How about USD accounts outside America, commonly known as Eurodollars? Ultimately those dollars originally came from the Fed but they are effectively outside their control.
These accounts, as you point out, are not subject to US regulations in the sense that US laws regarding bank deposits need not be complied with. A domestic USD checking account at Bank of America is regulated by the FDIC with insurance against fraud etc. For Eurodollar accounts these protections don't apply. (Other protections provided by their home-country laws might apply though.)
However, if you were to actually try to transact in USD with that account, the transaction path would still touch an institution that has an account with the Fed. And hence be controllable by the US government.
For example if you were to withdraw $50 in cash from your eurodollar account, the bank would still have to purchase the dollars (or more generally acquire them in some way) to give them to you. They cannot print the dollars themselves. The same thing applies to electronic transactions, except that now, there will be a corresponding set entires in the electronic ledgers of some US bank that has an account with the Fed.
So for the purposes of sanctions-busting, Eurodollar accounts are no good.
Eurodollar accounts are, of course, extremely useful for international trade. Most exporters will need a Eurodollar account to keep transaction costs low. Expats often hold a Eurodollar account with banks in their home countries to insulate them from exchange rate risk. There are a myriad other uses. But evading sanctions is not one of them.