Odd Lots Zoltan Pozsar on Russia, Gold, and a Turning Point for the U.S. Dollar
Mar 2, 2022
Zoltan Pozsar, Credit Suisse's global head of short-term interest rate strategy, shares insights on the evolving financial landscape shaped by the Ukraine conflict. He discusses the severe impact of sanctions on Russia and the depreciation of the ruble. Pozsar emphasizes the resurgence of gold as a key asset amid geopolitical tensions and explores the strategic importance of central bank reserves. He also delves into how these developments could signal a turning point for the U.S. dollar in the global economy.
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Russia's Role as Surplus Agent
- Russia, a surplus agent, holds substantial FX reserves, impacting sanctions' effects.
- Sanctioning a central bank with large FX reserves affects its portfolio management and ability to provide dollars domestically.
Inside vs. Outside Money
- Russia's FX reserves are mostly inside money (liabilities of foreign entities), subject to sanctions.
- Unlike inside money, outside money like gold, held domestically, cannot be easily seized.
Purpose of FX Reserves
- Central banks use FX reserves to manage currency strength, defend against freefall, and address domestic dollar shortages.
- Without access, they lose the ability to buffer liquidity shortfalls and stabilize their currency.