Thread by @SMerler

In light of interest in yesterday's tweet on central bank sanctions, let me add a few more details. 🧵

Russia has ~USD 630bn in reserves. After invading Crimea in 2014, CBRU has moved reserves out of Europe/USA and into gold and China. Clearly, they were thinking ahead. 1/

https://twitter.com/SMerler/status/1497732415745404928

A similar picture if we look at currency composition of reserves: out of EUR/USD (down from a combined 87% in 03/2014 to 49% in 06/2021, which is the latest figure available) and into gold and Yuan (up from 9% in 2014 to 25% in 2021). 2/

What are reserves needed for? First, trade: ~80% of 🇷🇺 trade is settled in EUR or USD. 🇷🇺 imports are worth ~USD 307bn, 58% of which is from EU/US. Total reserves are worth ~2 years of total imports, and EUR/USD reserves are worth ~1.7 years of EU/US imports (current quantity) 3/

Second, paying external debt (~USD 491bn in Q3 2021). The only Russian sector with NET negative external assets is the Russian government, which had ~USD 25bn of net external debt as at 09/2021 (latest data). Of this, ~20.5bn is Eurobonds held by non-residents. 4/

🇷🇺 banks and corporate/HH sector had ~USD 200bn in external liabilities for loans and deposits at the end of Q3 2021. Both sectors however run positive NET external positions, worth ~2x their debt redemptions between now and Q3-2023. 5/

While we do not know the details of Central Bank sanctioning decided yesterday by 🇪🇺🇬🇧 and allies, these will considerably complicate the calculations above, for 🇷🇺. Based on geographical composition, we can expect ~40% of reserves to become inaccessible. 6/

That almost halves the time you can get by before having to massively curtail quantity of imports. That time could run even thinner if (as likely) banks start experiencing increased demand/runs on FX deposits. 7/

So, more when the full details will be out, but we can already say one thing: Central Bank sanctions are a major escalation, which will severely challenge the fundamental assumptions on which "Fortress Russia" has likely based its war trade-off calculations. 8/