In the summer of 2016, Russia increased its investments in US government bonds and brought them up to $ 91 billion, although only two years ago, in August 2014, with the first imposition of sectoral sanctions against the Russian Federation by the West, investments decreased to $ 66 billion. Why does Russia need US government bonds? We will try to understand this issue.
The first reason: maintaining the ruble
No matter how many different “trolls” on the Internet shout and patriots on the streets who poorly understand what the economy is about supporting the “enemy” and US government bonds are extremely necessary.
First you need to dispel the main myth: money for such purposes does not come from the state budget. Securities for US debt obligations come from the reserves of the Central Bank of the Russian Federation (Central Bank of the Russian Federation), which are spent on maintaining the ruble exchange rate, providing currency to importers, debtors, etc.
If someone thinks that some grandmother receives less than a pension due to the fact that the Government lends to “enemies”, then he is very mistaken. The Central Bank of the Russian Federation is an independent financial institution, one of the functions of which is the issue of rubles. It, in turn, depends on the state of the economy as a whole, and more precisely on the trade balance.
The more economically developed the country, the more it is necessary to print the domestic currency. If the balance is not respected and the CBR prints a lot of money, then they will turn into ordinary confetti, candy wrappers.
Let's imagine that each citizen was given a million dollars, what will happen then? The answer is obvious: prices will simply soar, as no one will sell scarce goods for pieces of paper. In economics, this is called hyperinflation.
The second reason: maintaining the liquidity of the national currency
Depending on the state of the economy, the Central Bank issues rubles to the reserve. But the main trading operations are carried out in euros, US dollars, Japanese yens, British pounds. Also today, the Chinese yuan has been added to them.
In order for the rubles to have liquidity (weight), it is necessary to monetize them, otherwise they will remain ordinary confetti. Previously, gold served as a security measure. It was the dollar, backed by this precious metal, that gained world dominance until French President S. de Gaulle, one fine day, brought to the United States a whole ship with American currency, for which gold was demanded. After such a flagrant action, it was decided to abandon the provision of “bucks” with precious metal. Instead, the currency began to be provided with US guarantees that “everything will be fine, ” and this, in fact, is US government bonds.
In other words, the ruble should be provided with something, so as not to be ordinary pieces of paper that any child from a notebook can cut. In this role are US government bonds, which are provided in the literal sense with the honest word of the American government.
Securities of US debt instruments are a guarantee that rubles can be exchanged for dollars at any time and vice versa. Considering that all trading operations take place precisely in the foreign currency of several countries, including the United States, this is a guarantee of the stability of trade operations.
To make it more clear why to buy US government bonds, we simulate the situation: three children are playing in the room. Two of them print their own money, and the third buys. The first cuts out his own currency from the sheets of the notebook, and does not provide anything, the second - more cunningly, he changes his paper "bucks" for real rubles at a certain rate, for which you can buy something real in the store. Thus, the second child just will not give them out, unlike the first, which can print "money" in any quantity.
As for the issue of cash, the situation is approximately similar with the second child in our situation: the Central Bank issues rubles, backed by securities called US government bonds. By themselves, dollars are also purchased from the Federal Reserve by the US Government for the same bonds, which together form an external debt.
Reason Three: Profit
In addition to the two reasons already mentioned, do not forget that investments in US government bonds bring real income.
Central banks, national governments, commercial institutions, and private investors can act as investors. Profitability on them fluctuates around 2-3% per year. At first glance, the figure is very small, but there is one advantage - a low percentage is offset by confidence in the return of both its capital and profit. Not a single financial instrument, unlike government bonds of the most developed countries, gives absolutely no guarantees, that is, you can not only not get the percentage of expected high profit, but also lose all your capital.
In the world of such investment instruments that provide guarantees for profit, in fact, very few. These are US government bonds, with the most authoritative government in the world.
Reason Four: Retention
Everyone in our country knows that storing money in a glass jar is equivalent to burning it at the stake.
Inflation in a few years will reduce them significantly, despite the fact that the number of zeros on banknotes does not change.
But it’s easier for an ordinary citizen: if he has funds that he wants to keep for several years, then it’s enough to come to any bank and open a deposit account, on which you can put the accumulated money at interest. Of course, you won’t earn much from this, but the main goal is to preserve the funds in real terms and not in nominal terms. In other words, it doesn’t matter how many zeros you have on the banknote, it’s important how many products you can buy in the store.
Naturally, banks go bankrupt, close, they can withdraw their license, but today the state after the crisis of 2008 reliably insures all deposits within a reasonable amount.
All banks, in turn, depend on the Central Bank, which issues a license, sets a refinancing rate, etc. But what about the CBR itself? Nobody canceled inflation directly for him, which means that reserves in rubles are tantamount to storing some citizen's savings in a glass jar - it’s stupid and senseless. Similar instances of preserving reserves are government bonds of “enemies”.
Why exactly the USA?
Of course, you can talk about the greatness and power of Russia as much as you like, but today it is precisely the US government debt securities that meet three key requirements:
- reliability;
- liquidity;
- profitability.
The USA is one of the few countries in the world where the economic policy of the state does not depend on the "owner" of the White House.
Whoever comes to power in this country, the situation does not change. In addition, the state is not in a fever from various riots, revolutions, regime changes, financial reforms, wars, etc. In this country, they know the main rule in the economy - money loves silence.
When is the end of the "era of the dollar"?
Today you can see various films, television shows, speeches by politicians about the imminent collapse of the "American financial pyramid."
Many "gurus" in the economy say that this is about to happen, we must wait another couple of years. But real economists, even in the medium term (the next half century), do not see such chances.
US Government Debt Amount
Of course, the amount of the US government debt is impressive - more than 19 trillion dollars, which is 109.9% of GDP.
For example, the debt of Greece, Ireland and Iceland as a percentage of GDP is greater than the US, and the debt of Ukraine in the coming years can also surpass these figures. Here it is necessary to take into account not the volume of nominal debt, but the percentage of GDP and its servicing, which for the US Government costs only $ 250 billion. If you compare it with budget revenues of almost $ 3.5 trillion, the amount will be scanty. Therefore, it is too early to trumpet publicly about the imminent default of the United States in the next 50-100 years.
Russia: US government bonds are the most profitable
As for the third key factor - profitability, here the US government bonds come first. Now many will be surprised, but the five leaders in three-year government bonds include those for which the income is negative. This is not a joke at all: Japan's securities lose about 0.2% per year, France - 0.5%, but American can earn up to 1% per year.
Why then invest? The answer is simple - not to lose even more from inflation.
Reason Four: Political Influence
In fact, those countries that have in their hands a significant percentage of government bonds of another country can influence it politically. Throwing away all your reserves of securities, you can collapse the price of them, thereby she will not be able to sell other bonds, which is equivalent to a financial collapse.
But we have nothing special to be proud of - the share of Russia is only 5% of the US public debt.
In 2014, the Central Bank of the Russian Federation, during the period of sanctions against certain sectors of the Russian economy, threw almost 2/3 of US government bonds to the market. One version of such actions is an attempt to bring down the financial system of Americans. But Russia is not China, which has half of all overseas debt obligations. China is enough to hint that they are going to think about dumping all American assets, as the latter begin to panic on currency exchanges.
