I’m a few days behind on this as I’ve been busy with other parts of this website, but there have been a number of developments since my post last week regarding how Russia discusses its currency maneuvers. The specific language used here is VERY important, so bear with me as I get nitpicky.

First, the facts as reported by various news outlets whose links are embedded within each bullet point:

• Bank Rossii officials announced a plan to swap $10 billion worth of US Treasury holdings.for the equivalent in the proposed IMF bond issue expected in the fourth quarter of this year.

• Brazil and China also expressed interest in buying $10 billion and $50 billion, respectively, of IMF bonds.

• Alexei Kudrin said Russia has full confidence in the dollar, there are no immediate plans to switch to a new reserve currency and the fundamentals of the dollar are still in good shape.

• Japanese Finance Minister Kaoru Yosano said Japan’s confidence in U.S. debt is “unshakeable” and that the currency’s global status is safe.

• The dollar suffered an immediate decline following the announcement of the various plans to buy IMF bonds but then bounced back on Yosano’s comments.

• The U.S. government auctioned off 10-year debt with slightly lower than expected demand, followed the next day by an auction of 30-year debt with higher than expected demand.

• While all of this was happening, Russia’s central bank also announced that in the month of May, it bought 449 million (with an M) euros and $18.6 billion (with a B) dollars.

• Over the weekend, G8 Finance Ministers met in Italy. Here’s Alexei Kudrin:

“We are not going to significantly change the structure of our investments. Ten billion is not a significant change (in currency reserve holdings). A serious change is when we used to invest $100 billion in Freddie Mac and Fannie Mae, but no longer do. In the nearest future, I do not see major changes in our policy in relation to the dollar.”

• And here’s IMF Chief Dominique Strauss-Kahn:

“I don’t see the dollar as being weak, I think the dollar has been today correctly valued by the market. We see a dollar which today is stronger than one year ago….so I don’t see today a weak dollar and I don’t forecast that we would have to expect many changes in the coming time.”

Now for some additional items buried deeper in the above stories that are worth noting:

• Luis Costa, Emerging Market Debt Strategist for Commerzbank in London, essentially echoed my comments on this topic last week:

“As usual the market takes everything at face value and thinks everything will be implemented tomorrow. I don’t believe this will be done on a significant magnitude over the next six to twelve months. It’s something they have in mind in the long term.”

• Maxim Oreshkin, OAO Rosbank’s Research Chief, agreed:

“The central bank has never stood out for making fast moves with its reserves. If it changes certain groups it will happen smoothly.”

• Russia’s total central bank reserves currently stand at about $409 billion, of which 90 percent is split approximately evenly between dollars and euros, with the remainder in sterling and yen. Of the 45 percent in dollars, or $180 billion, $120 billion of this is in US Treasuries, with the remaining $60 billion presumably in cash.

• China and Japan hold SIGNIFICANTLY higher portions of dollars, both in cash as well as US Treasuries. For those of you who want to dig further, 12 months’ worth of trailing data through 2009Q1 on foreign holders of US Treasuries can be found here.

Here’s what did NOT happen regarding the currency issue while all of this was going on:

• There was no confirmation of which currency IMF bonds will be denominated in but preliminary indications point to Special Drawing Rights (SDRs). If it winds up being US dollars, this will do nothing to further diversify any central bank’s foreign exchange reserves allocation. If the bonds wind up being denominated in SDRs, not only are the amounts discussed so far too small to make a significant impact on relative distribution, but the US dollar will still be indirectly supported, due in large part to the United States’ overwhelming quota subscription in the IMF’s funding structure, which in turn dictates SDR pricing.

• Nouriel Roubini, whose prescience regarding the current global economic downturn has gained him household name recognition, offered his prognosis for the dollar’s status as the world’s primary reserve currency. And much like his consistently bearish outlooks for the past number of years, he avoided naming a date or quantitative threshold for the dollar’s pending doom. As the old saying goes, “even a broken clock is right twice a day.”

• Nobody to my knowledge has directly addressed any principal actor’s ulterior political motives in expressing support for the dollar. At a later date, I will take up this particular aspect of Russia’s currency dilemma in greater detail.

• I have not posted any quotes from any principal actors who think the dollar will lose primary reserve currency status in the immediate future because I cannot find any but am absolutely open to any such commentary out there. “Principal actors” in this case means policymakers or market participants.

Finally, some concluding comments and observations of mine:

Recent history is riddled with examples of unfulfilled promises from government officials owing to a variety of reasons. When it comes to economy-related promises, the current state of affairs is such that with new information needs being revealed daily, if not more frequently, the value of any promise or intent is only truly realized upon delivery. The more colloquial way of saying this: Talk is cheap.

Interpreting that notion in the Russian context is entirely subjective. The Russian government may go back on its promise to buy IMF bonds; it may go back on its outlook of having full confidence in the dollar; it may do some combination of both. Either way, it appears very likely that what government officials truly want for the Russian economy will not be executable from a practical standpoint. To the extent that this is the case, no matter what the government does to address the broad array of economic challenges it faces, it will inevitably fall short of getting it 100 percent right. But regrettable outcomes can be minimized if the right questions are asked and courses of action are determined more on the basis of rationality than on catering to semi-informed politically palatable outbursts.

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