1 00:00:11,000 --> 00:00:14,440 Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast. 2 00:00:14,520 --> 00:00:18,400 Speaker 1: I'm Tracy Alloway and I'm Joe. Wasn't all so, Joe. 3 00:00:18,480 --> 00:00:22,600 Speaker 1: There's a lot going on at the moment. It is 4 00:00:22,840 --> 00:00:28,320 Speaker 1: truly an extraordinary time, I would say, kind of unprecedented. Already, 5 00:00:28,720 --> 00:00:32,559 Speaker 1: I think just this sort of like this economic environment 6 00:00:32,680 --> 00:00:35,960 Speaker 1: was pretty novel, not many people familiar with it. And now, 7 00:00:36,080 --> 00:00:40,879 Speaker 1: of course the start of Russia's war, the attack against Ukraine, 8 00:00:41,320 --> 00:00:47,120 Speaker 1: making things potentially exponentially more complicated and difficult to understand. Absolutely, 9 00:00:47,320 --> 00:00:50,319 Speaker 1: and there are all sorts of impacts from what's going 10 00:00:50,360 --> 00:00:54,400 Speaker 1: on in Ukraine with the Russian invasion. People have been 11 00:00:54,440 --> 00:00:57,120 Speaker 1: talking at length about the commodities impact, what that's going 12 00:00:57,160 --> 00:01:02,120 Speaker 1: to mean for inflation, but there is also this monetary 13 00:01:02,160 --> 00:01:07,039 Speaker 1: impact and we are starting to see shades of that now. 14 00:01:07,120 --> 00:01:10,680 Speaker 1: So obviously the ruble, I mean, if you look at 15 00:01:10,680 --> 00:01:12,319 Speaker 1: a chart of the ruble right now, I think it 16 00:01:12,440 --> 00:01:17,280 Speaker 1: lost another third just today on the day that we're recording, 17 00:01:17,400 --> 00:01:21,840 Speaker 1: which is Monday, February, it was down at an all 18 00:01:21,880 --> 00:01:24,360 Speaker 1: time low of I think about a hundred nine rubles 19 00:01:24,440 --> 00:01:27,679 Speaker 1: per dollar. But that is after the slide that it 20 00:01:27,760 --> 00:01:32,600 Speaker 1: already encountered last week, so really extreme movements in FX. 21 00:01:32,720 --> 00:01:36,520 Speaker 1: And at the same time, of course, we have the 22 00:01:36,600 --> 00:01:41,840 Speaker 1: Western powers central banks across the world talking about excluding 23 00:01:42,120 --> 00:01:49,000 Speaker 1: Russia from basically the global payment settlement system known as SWIFT. Yeah, 24 00:01:49,160 --> 00:01:53,720 Speaker 1: so that's exactly right. And basically at this point there's 25 00:01:53,760 --> 00:01:58,720 Speaker 1: no indication that other you know, US European powers are 26 00:01:58,800 --> 00:02:04,280 Speaker 1: actually going to get involved in combat directly, so in 27 00:02:04,440 --> 00:02:06,760 Speaker 1: lieu of that, there's been a lot of attempts to 28 00:02:06,840 --> 00:02:10,400 Speaker 1: use economic and financial penalties to go after Russia for 29 00:02:10,520 --> 00:02:13,520 Speaker 1: its aggression, and so that includes both sort of traditional 30 00:02:13,600 --> 00:02:17,720 Speaker 1: sanctions but also as we're seeing some very extreme moves 31 00:02:17,720 --> 00:02:20,600 Speaker 1: to cut off Russia from its own money, from its 32 00:02:20,600 --> 00:02:25,240 Speaker 1: ability to conduct business, from its ability to engage in payments. 33 00:02:25,720 --> 00:02:29,280 Speaker 1: That is a part what's caused the ruble to collapse. 34 00:02:29,600 --> 00:02:31,920 Speaker 1: We've seen lines at a t m s in Russia 35 00:02:32,040 --> 00:02:35,040 Speaker 1: scramble for hard currency and sort of this is a 36 00:02:35,160 --> 00:02:39,000 Speaker 1: very new element of sort of economic and financial warfare 37 00:02:39,320 --> 00:02:45,519 Speaker 1: of sorts against a relatively sophisticated and rich country. That's 38 00:02:45,520 --> 00:02:48,520 Speaker 1: exactly right. It's something that we haven't really seen before, 39 00:02:48,720 --> 00:02:51,799 Speaker 1: and so there are all sorts of questions around what 40 00:02:51,840 --> 00:02:54,960 Speaker 1: this means for the broader financial system, how exactly it 41 00:02:54,960 --> 00:02:57,920 Speaker 1: would work, what it means for the US dollar. And 42 00:02:57,960 --> 00:03:01,200 Speaker 1: we've already seen some signs of a scramble in money 43 00:03:01,240 --> 00:03:04,239 Speaker 1: markets for people to get their hands on the safety 44 00:03:04,360 --> 00:03:08,520 Speaker 1: of the world's reserve currency. There's a lot of uncertainty, 45 00:03:08,680 --> 00:03:11,760 Speaker 1: a lot of questions around the mechanics, and I gotta say, 46 00:03:11,800 --> 00:03:16,320 Speaker 1: whenever we want to go deep into financial market mechanics 47 00:03:16,320 --> 00:03:19,600 Speaker 1: are plumbing. There is one person that we turned to 48 00:03:20,080 --> 00:03:23,880 Speaker 1: the most requested guest by far on odd and somehow 49 00:03:23,919 --> 00:03:25,840 Speaker 1: we have a tendency to speak with him at the 50 00:03:25,880 --> 00:03:30,320 Speaker 1: start of almost every major crisis. This is true. All right, Well, 51 00:03:30,600 --> 00:03:32,680 Speaker 1: we're going to be speaking with Sultan Posar. He is, 52 00:03:32,680 --> 00:03:35,280 Speaker 1: of course the global head of short term interest rate 53 00:03:35,360 --> 00:03:40,320 Speaker 1: strategy at Credit Swiss. So Sultan, welcome to odd Lots again. 54 00:03:40,960 --> 00:03:44,080 Speaker 1: Thank you for having me. Nice to be back, guys. Yeah, 55 00:03:44,120 --> 00:03:48,680 Speaker 1: your timing is impeccable as always. I suppose just to 56 00:03:48,840 --> 00:03:52,440 Speaker 1: begin with, could you maybe give us a sense of 57 00:03:52,520 --> 00:03:57,280 Speaker 1: Russia's place in the global financial system. So in your 58 00:03:57,320 --> 00:04:01,680 Speaker 1: research you've described it as a sur plus agent in 59 00:04:01,760 --> 00:04:05,720 Speaker 1: the financial system. What does that mean exactly? The circlus 60 00:04:05,760 --> 00:04:09,760 Speaker 1: agent means that you are you are a nation with 61 00:04:09,880 --> 00:04:12,960 Speaker 1: a central bank which has a lot of FEX reserves. 62 00:04:13,440 --> 00:04:16,640 Speaker 1: We are not talking about sudden stops, you know, and 63 00:04:16,800 --> 00:04:20,080 Speaker 1: we're not talking about a current account deficit country that 64 00:04:20,120 --> 00:04:24,880 Speaker 1: meets to tap funding markets too import stuff. You're talking 65 00:04:24,920 --> 00:04:30,880 Speaker 1: about a country that is exporting vast amounts of commodities 66 00:04:31,240 --> 00:04:34,919 Speaker 1: and has accumulated a lot of FX reserves on the 67 00:04:34,960 --> 00:04:38,000 Speaker 1: back of that. And so you know, when you sanction 68 00:04:38,880 --> 00:04:41,520 Speaker 1: the central bank of a country with a lot of 69 00:04:41,520 --> 00:04:46,320 Speaker 1: FX reserves, naturally, I think one impact of that is 70 00:04:46,400 --> 00:04:48,520 Speaker 1: that you know, the central bank the way it runs 71 00:04:48,560 --> 00:04:52,640 Speaker 1: its portfolio is going to number one change. I mean, 72 00:04:52,760 --> 00:04:55,719 Speaker 1: you know, the entity is a sanctioned entity. So if 73 00:04:55,800 --> 00:04:59,240 Speaker 1: you have been lending those FX reserves in the f 74 00:04:59,480 --> 00:05:01,760 Speaker 1: S pock mark get, you know what's going to happen 75 00:05:01,960 --> 00:05:03,880 Speaker 1: with all those trades, right, I mean, all the all 76 00:05:03,920 --> 00:05:07,880 Speaker 1: the FX spob creates go through Western financial institutions. When 77 00:05:07,920 --> 00:05:10,920 Speaker 1: you lend dollars in the FEX squab market, you sell 78 00:05:10,960 --> 00:05:13,479 Speaker 1: those dollars and then you get euros and place those 79 00:05:13,480 --> 00:05:16,800 Speaker 1: euros at the bundes Bank. You placed them in in 80 00:05:17,120 --> 00:05:19,920 Speaker 1: various securities which are which are all at euro Clear. 81 00:05:20,000 --> 00:05:22,440 Speaker 1: So when all these things get frozen up. I think 82 00:05:22,440 --> 00:05:26,240 Speaker 1: it's definitely going to have an impact on funding markets. 83 00:05:26,440 --> 00:05:28,680 Speaker 1: And also, you know, don't forget you know, the FFEX 84 00:05:28,720 --> 00:05:33,200 Speaker 1: reserves are partly used by the central bank to be 85 00:05:33,320 --> 00:05:37,360 Speaker 1: able to provide dollars to domestic financial system, and if 86 00:05:37,400 --> 00:05:40,719 Speaker 1: all these balances are frozen, you know, one channel of 87 00:05:40,720 --> 00:05:43,960 Speaker 1: of dollars to help the local banking system drives up. 88 00:05:44,000 --> 00:05:47,040 Speaker 1: So so I think it's quite a complicated situation. The 89 00:05:47,320 --> 00:05:50,919 Speaker 1: present situation has elements of a little bit of everything. 90 00:05:51,400 --> 00:05:55,120 Speaker 1: I think it has, you know, definitely a local currency crisis, 91 00:05:55,480 --> 00:05:59,320 Speaker 1: a local bank funding crisis, you know, a little bit 92 00:05:59,320 --> 00:06:02,120 Speaker 1: of crisis of fex reserves where typically we are used 93 00:06:02,160 --> 00:06:05,320 Speaker 1: to situations where central banks that show they have something, 94 00:06:05,480 --> 00:06:07,680 Speaker 1: they don't have it, and then you know, the market 95 00:06:07,720 --> 00:06:10,800 Speaker 1: gets surprised by it. For example, you know Southeast Asia 96 00:06:12,200 --> 00:06:14,000 Speaker 1: this time around, you know, the central bank they've had 97 00:06:14,000 --> 00:06:16,800 Speaker 1: a lot of reserves, but then these were seized. So 98 00:06:16,839 --> 00:06:19,960 Speaker 1: I think it's, uh, it's it's pretty uncharted territories, and 99 00:06:20,000 --> 00:06:22,080 Speaker 1: it's and it's hard to tell which way this is 100 00:06:22,120 --> 00:06:24,560 Speaker 1: going to go from here. But you know, one day 101 00:06:24,600 --> 00:06:27,000 Speaker 1: into it, we've had a big impact in the f 102 00:06:27,200 --> 00:06:31,240 Speaker 1: X spot market, which has calmed considerably since the overnight 103 00:06:31,240 --> 00:06:34,359 Speaker 1: session began. But again, I think it will take a 104 00:06:34,400 --> 00:06:37,000 Speaker 1: couple of days to figure out where the bodies lie, 105 00:06:37,200 --> 00:06:40,560 Speaker 1: because we're not just talking about the central bank getting sanctioned, 106 00:06:40,600 --> 00:06:44,600 Speaker 1: but also some banks being excluded from swift. We see 107 00:06:44,640 --> 00:06:48,880 Speaker 1: the natural progression where you know, the sanctions were initially 108 00:06:49,200 --> 00:06:51,480 Speaker 1: x and now they are two x um and we 109 00:06:51,560 --> 00:06:54,480 Speaker 1: don't know how the sanctions are going to evolve as 110 00:06:54,520 --> 00:06:57,840 Speaker 1: the week progressive. But we know, for example, that energy 111 00:06:57,920 --> 00:07:02,480 Speaker 1: related payments are still excluded. What happens if energy related 112 00:07:02,480 --> 00:07:05,520 Speaker 1: payments get included as well? So so I think it's 113 00:07:05,520 --> 00:07:08,240 Speaker 1: it's uh, it's it's quite a fluid, fluid situation, as 114 00:07:08,279 --> 00:07:11,560 Speaker 1: we speaks to So, just to back up even a 115 00:07:11,600 --> 00:07:14,080 Speaker 1: little bit further, you know, when we think about a 116 00:07:14,200 --> 00:07:19,160 Speaker 1: country's FX reserves, maybe in our minds, you know, you think, okay, 117 00:07:19,200 --> 00:07:22,679 Speaker 1: this is a work chest, or this is a pile 118 00:07:22,720 --> 00:07:25,720 Speaker 1: of money that's stashed away somewhere, but it's not literally 119 00:07:25,760 --> 00:07:29,160 Speaker 1: a pile of money. It's liabilities of some foreign bankers 120 00:07:29,160 --> 00:07:31,960 Speaker 1: you mentioned the Buddhist bank, and it can be seized. 121 00:07:32,040 --> 00:07:34,360 Speaker 1: It's not something that there's just sits in a pile 122 00:07:34,640 --> 00:07:37,840 Speaker 1: somewhere in Moscow. What are the numbers? What do we 123 00:07:37,880 --> 00:07:41,559 Speaker 1: know about how much there is and where the money 124 00:07:41,680 --> 00:07:45,400 Speaker 1: is right now? And how extraordinary is it to think 125 00:07:45,440 --> 00:07:48,920 Speaker 1: that countries effects re observes, foreign central banks or foreign 126 00:07:48,920 --> 00:07:50,800 Speaker 1: countries can just say no, we're not going to give 127 00:07:50,800 --> 00:07:56,400 Speaker 1: it to you. Okay. So you know, to frame the 128 00:07:56,440 --> 00:07:59,640 Speaker 1: discussion about this, you know there is inside money and 129 00:07:59,680 --> 00:08:03,560 Speaker 1: out side money. You know, inside money are all the 130 00:08:03,600 --> 00:08:07,880 Speaker 1: claims that are someone else's liability, and outside money is 131 00:08:07,920 --> 00:08:10,400 Speaker 1: the type of money that is the liability of no one. 132 00:08:11,280 --> 00:08:16,240 Speaker 1: And you're absolutely right. Most FEX reserves that exists in 133 00:08:16,280 --> 00:08:19,920 Speaker 1: the world today are all forms of inside money, i e. 134 00:08:20,680 --> 00:08:24,640 Speaker 1: They are the liabilities of someone. In the case of Russia, 135 00:08:24,680 --> 00:08:28,120 Speaker 1: I mean, you know, the numbers are quite transparent. I mean, 136 00:08:28,240 --> 00:08:30,680 Speaker 1: you know they are subject to interpretation. But the i 137 00:08:30,880 --> 00:08:34,920 Speaker 1: m F provides monthly data about the FEX reserve composition 138 00:08:34,960 --> 00:08:39,120 Speaker 1: of of every country in the world, and so we 139 00:08:39,200 --> 00:08:42,520 Speaker 1: know from that that you know, Russia has um just 140 00:08:42,640 --> 00:08:45,199 Speaker 1: rough numbers. You know, five billion dollars of f X 141 00:08:45,280 --> 00:08:50,000 Speaker 1: reserves non gold FX reserves. About two hundred billion of 142 00:08:50,080 --> 00:08:54,200 Speaker 1: that is in the form of securities, and about a 143 00:08:54,280 --> 00:08:58,880 Speaker 1: hundred some billion of it is central bank deposits and 144 00:08:58,920 --> 00:09:01,760 Speaker 1: then the rest of it is uh is banked about it. 145 00:09:02,400 --> 00:09:04,800 Speaker 1: And so what this means in practical terms is that 146 00:09:04,920 --> 00:09:09,000 Speaker 1: you know, Russia's effects reserves are basically deposits at Western 147 00:09:09,040 --> 00:09:14,160 Speaker 1: financial institutions. They are securities balances at euro Clear or 148 00:09:14,200 --> 00:09:17,640 Speaker 1: wherever you know the custodian is for the securities that 149 00:09:17,679 --> 00:09:21,400 Speaker 1: they hold. And they also have balances at central banks 150 00:09:21,440 --> 00:09:23,920 Speaker 1: like the bundes Bank. Obviously not the New York FED 151 00:09:24,000 --> 00:09:27,600 Speaker 1: because they've sold out of all their treasuries. So so 152 00:09:27,679 --> 00:09:30,120 Speaker 1: there's that. But but again I think when you look 153 00:09:30,160 --> 00:09:34,439 Speaker 1: at the composition of the currency composition of these effects reserves, 154 00:09:34,440 --> 00:09:39,080 Speaker 1: I think you require some careful interpretation there, because you know, 155 00:09:39,120 --> 00:09:42,400 Speaker 1: the wide the health assumption is that the dollar exposure 156 00:09:42,600 --> 00:09:45,920 Speaker 1: is quite low, and the data exposure you will only 157 00:09:46,080 --> 00:09:48,520 Speaker 1: only be able to the true dallar exposure. You will 158 00:09:48,520 --> 00:09:51,680 Speaker 1: only be able to capture if you if you think 159 00:09:51,679 --> 00:09:54,400 Speaker 1: about things in the context of the f spot market, 160 00:09:54,640 --> 00:09:56,440 Speaker 1: if you have dollars and you lend those in the 161 00:09:56,440 --> 00:09:58,560 Speaker 1: fex spot market, it's a it's a spot sale of 162 00:09:58,559 --> 00:10:02,000 Speaker 1: dollars today and then importance some future point in time 163 00:10:02,240 --> 00:10:05,040 Speaker 1: or ward you purchased those dollars back. But once you 164 00:10:05,120 --> 00:10:08,080 Speaker 1: sold those dollars in the epic spot market, you would 165 00:10:08,120 --> 00:10:12,000 Speaker 1: typically get Swiss franks or euros or yen, and then 166 00:10:12,040 --> 00:10:15,480 Speaker 1: you would take that local currency collateral and you would 167 00:10:15,600 --> 00:10:17,920 Speaker 1: you know, just deposited at the local central banks. In 168 00:10:17,920 --> 00:10:20,360 Speaker 1: the case of euros, that would be that would be 169 00:10:20,400 --> 00:10:24,840 Speaker 1: the Bundesbank. Whether you hold the sovereign debt of a country, 170 00:10:25,080 --> 00:10:27,720 Speaker 1: or you keep a deposit at a central bank of 171 00:10:27,760 --> 00:10:31,520 Speaker 1: a foreign country, or if you keep deposits at Western 172 00:10:31,520 --> 00:10:36,120 Speaker 1: financial institutions. These are all forms of inside money that 173 00:10:36,600 --> 00:10:40,040 Speaker 1: you don't control, someone owes it to you, and and 174 00:10:40,120 --> 00:10:44,960 Speaker 1: these things can be sanctioned. Outside money is something completely different. 175 00:10:45,000 --> 00:10:49,000 Speaker 1: It's gold, and it so happens. I read it somewhere 176 00:10:49,040 --> 00:10:52,319 Speaker 1: that all these gold that Russia has, for example, is 177 00:10:52,360 --> 00:10:55,280 Speaker 1: in the vaults of the central bank in a basement 178 00:10:55,320 --> 00:10:57,920 Speaker 1: in Moscow. So that's real money that they so that 179 00:10:58,040 --> 00:11:02,560 Speaker 1: they can that no one yes, So you know, unlike 180 00:11:02,600 --> 00:11:05,200 Speaker 1: friends in the Second World War, you don't have to enlist, 181 00:11:05,320 --> 00:11:08,280 Speaker 1: you know, the navy to kind of rescue your gold 182 00:11:08,440 --> 00:11:11,640 Speaker 1: arts somehow. And again I think I think there is 183 00:11:11,679 --> 00:11:15,120 Speaker 1: probably a medium to long term lesson in all this 184 00:11:15,280 --> 00:11:18,120 Speaker 1: because this is precedent number two. I mean, we've seen 185 00:11:18,160 --> 00:11:23,080 Speaker 1: what happened with the the FX reserves of Afghanistan, right, 186 00:11:23,559 --> 00:11:27,280 Speaker 1: and we have seen with what happens with inside money 187 00:11:27,600 --> 00:11:31,640 Speaker 1: type FEX reserves in the case of Russia. And so 188 00:11:32,160 --> 00:11:36,280 Speaker 1: what does this mean for gold as a monetary instrument 189 00:11:36,559 --> 00:11:39,880 Speaker 1: going forward? You know, I've I've heard some you know clients, 190 00:11:39,880 --> 00:11:42,520 Speaker 1: for example, what does this mean for dollars or for gold? 191 00:11:42,559 --> 00:11:44,880 Speaker 1: Are they going to sell to get the dollars to 192 00:11:44,960 --> 00:11:47,600 Speaker 1: help the domestic financial system? Far from it, I think 193 00:11:47,800 --> 00:11:50,679 Speaker 1: you know, gold can it doesn't have to be sold. 194 00:11:50,800 --> 00:11:54,880 Speaker 1: It can be rebuild, just like any other financial instrument. 195 00:11:55,000 --> 00:11:58,200 Speaker 1: So you know, if you find the willing financial system 196 00:11:58,240 --> 00:12:01,720 Speaker 1: and a willing central bank to you know, reverse in 197 00:12:01,880 --> 00:12:04,760 Speaker 1: gold in a report transaction for you in exchange for dollars, 198 00:12:05,000 --> 00:12:06,839 Speaker 1: you can you can use it to raise dollars to 199 00:12:06,880 --> 00:12:10,959 Speaker 1: make payments. But again, this inside versus outside reserves, it's 200 00:12:11,000 --> 00:12:13,760 Speaker 1: something to think about because you know, in the case 201 00:12:13,800 --> 00:12:16,880 Speaker 1: of China, for example, uh, it's it's the same setup. 202 00:12:16,920 --> 00:12:19,800 Speaker 1: They have a lot of inside fex reserves. And what 203 00:12:19,840 --> 00:12:22,400 Speaker 1: does that mean in situations like this? So the implication 204 00:12:22,480 --> 00:12:25,760 Speaker 1: here is that if you have a lot of inside reserves, 205 00:12:25,840 --> 00:12:28,280 Speaker 1: these are reserves that are tied up in other financial 206 00:12:28,280 --> 00:12:33,640 Speaker 1: institutions or with other entities, that can ultimately be tied 207 00:12:33,760 --> 00:12:36,960 Speaker 1: up in times of conflict or war or you know 208 00:12:37,000 --> 00:12:39,280 Speaker 1: what we saw in Afghanistan where the reserves were sort 209 00:12:39,320 --> 00:12:43,680 Speaker 1: of frozen and the Taliban no longer has access to them. 210 00:12:43,200 --> 00:12:46,560 Speaker 1: I want to ask a really basic question here, but 211 00:12:46,640 --> 00:12:50,520 Speaker 1: what do central banks actually use reserves for? Like what 212 00:12:50,600 --> 00:12:54,199 Speaker 1: would Russia need these reserves for at the moment? I mean, 213 00:12:54,280 --> 00:12:57,840 Speaker 1: obviously they would want presumably to stop the fall of 214 00:12:57,920 --> 00:13:00,280 Speaker 1: the ruble, but are there other things that it might 215 00:13:00,360 --> 00:13:03,959 Speaker 1: useless for. You know, reserves are are reserves. I mean 216 00:13:04,280 --> 00:13:05,920 Speaker 1: we can go through the basics. You know, if your 217 00:13:05,920 --> 00:13:10,440 Speaker 1: currency is too strong, you buy effects and print local currency. 218 00:13:10,679 --> 00:13:13,360 Speaker 1: If your currency is in a free fall, you sell 219 00:13:13,400 --> 00:13:17,200 Speaker 1: effects and you buy the local currency. If there's a 220 00:13:17,240 --> 00:13:21,840 Speaker 1: dollar shortage in your local banking system and you don't 221 00:13:21,880 --> 00:13:24,720 Speaker 1: have access to the Female report facility and you don't 222 00:13:24,720 --> 00:13:26,480 Speaker 1: have any treasuries, you can reap op with the FED. 223 00:13:26,760 --> 00:13:29,000 Speaker 1: If you don't have swap lines with the FED, you 224 00:13:29,080 --> 00:13:33,120 Speaker 1: tap into these reserves to provide dollars for the local 225 00:13:33,160 --> 00:13:37,679 Speaker 1: banking system. So it's it's basically there to buffer liquidity 226 00:13:37,679 --> 00:13:41,480 Speaker 1: shortfalls and to be able to defend to defend your currency. 227 00:13:42,040 --> 00:13:44,520 Speaker 1: You don't have it, you don't have the ability to 228 00:13:44,559 --> 00:13:48,760 Speaker 1: do any of these. So these are painful. I mean again, 229 00:13:49,000 --> 00:13:54,040 Speaker 1: in the grand scheme of things, energy related flows commodities 230 00:13:54,080 --> 00:13:57,440 Speaker 1: and payments for commodities still continue, So we have not 231 00:13:57,640 --> 00:14:02,199 Speaker 1: completely turned off the pipes yet. You know this, this 232 00:14:02,280 --> 00:14:04,440 Speaker 1: is the way you think about f ex reserves. I mean, 233 00:14:04,679 --> 00:14:08,120 Speaker 1: for example, if you if you go back to March twenty, 234 00:14:08,200 --> 00:14:11,120 Speaker 1: I mean we've seen a number of central banks, the 235 00:14:11,200 --> 00:14:15,040 Speaker 1: Swedes Brazil for example. You know they were lending downars 236 00:14:15,080 --> 00:14:18,400 Speaker 1: to the to the domestic financial system without tapping the 237 00:14:18,440 --> 00:14:20,640 Speaker 1: swap lanes, even even though they had access to the 238 00:14:20,640 --> 00:14:24,400 Speaker 1: swap line. And again the mechanism there was you turn 239 00:14:24,480 --> 00:14:27,480 Speaker 1: into cash some of the inside fex reserves you have, 240 00:14:27,600 --> 00:14:29,520 Speaker 1: and then you get that cash and you lend it on. 241 00:14:30,360 --> 00:14:32,960 Speaker 1: Let you, you lend those U S dollars onto onto 242 00:14:32,960 --> 00:14:36,880 Speaker 1: the domestic connational institutions. But but again you need to 243 00:14:36,920 --> 00:14:39,520 Speaker 1: be able to trade these instruments to to do these 244 00:14:40,160 --> 00:14:44,040 Speaker 1: types of things. I mean, you know the fact that Russia, 245 00:14:44,080 --> 00:14:48,640 Speaker 1: for example, restarted its gold purchases overnight. From what I 246 00:14:48,720 --> 00:14:52,480 Speaker 1: understand on the domestic market, I guess naturally since because 247 00:14:52,480 --> 00:14:54,440 Speaker 1: of all the sanctions, the central bank couldn't could and 248 00:14:54,520 --> 00:14:57,640 Speaker 1: trade on international markets and buy gold there. But I 249 00:14:57,640 --> 00:15:01,480 Speaker 1: think it's just an interesting question again depending on how 250 00:15:01,640 --> 00:15:06,120 Speaker 1: how the geopolitical aspect of all this evolves. You know, 251 00:15:06,200 --> 00:15:09,080 Speaker 1: if if a central bank is in a situation like 252 00:15:09,160 --> 00:15:13,240 Speaker 1: this and the currencies under pressure, would it ever come 253 00:15:13,320 --> 00:15:19,040 Speaker 1: to having to re anchor your currency to something like gold? 254 00:15:19,560 --> 00:15:22,280 Speaker 1: I think I think these are old questions that should 255 00:15:22,360 --> 00:15:24,760 Speaker 1: be top of mind. I don't know if it will 256 00:15:24,880 --> 00:15:28,400 Speaker 1: come to that, but if things get worse, you could 257 00:15:28,440 --> 00:15:32,480 Speaker 1: basically re anchor the ruble to a pile of gold, 258 00:15:32,760 --> 00:15:52,040 Speaker 1: because you need an anchor in situations like this. You know, 259 00:15:52,120 --> 00:15:55,120 Speaker 1: one of the questions that's come up in various forms 260 00:15:55,160 --> 00:15:57,880 Speaker 1: is this idea of, Okay, well, if Russia gets to 261 00:15:58,160 --> 00:16:03,040 Speaker 1: shut off, it may seek totally alternative scenarios, or it may, 262 00:16:03,840 --> 00:16:07,160 Speaker 1: you know, sort of develop something with China or use 263 00:16:07,280 --> 00:16:10,640 Speaker 1: the Chinese un more or something like that, or maybe 264 00:16:10,640 --> 00:16:13,280 Speaker 1: a new swift will emerge and we'll talk about swift 265 00:16:13,320 --> 00:16:16,200 Speaker 1: more in a second. Is there realistic. Are there really 266 00:16:16,240 --> 00:16:18,520 Speaker 1: alternatives to the existing system? I mean, I guess you 267 00:16:18,600 --> 00:16:21,240 Speaker 1: just mentioned the idea of okay, maybe the ruble could 268 00:16:21,280 --> 00:16:26,040 Speaker 1: be goldbacked, but is there actually any realistic opportunity or 269 00:16:26,800 --> 00:16:33,560 Speaker 1: ability to create sort of like a separate financial system. Well, um, 270 00:16:33,560 --> 00:16:37,960 Speaker 1: it's a big question. Yeah, it's open ended. Again, I 271 00:16:38,000 --> 00:16:42,640 Speaker 1: think I think your imagination is the limit to how 272 00:16:42,720 --> 00:16:47,200 Speaker 1: you can devise alternative systems, and then how realistic those are. 273 00:16:47,600 --> 00:16:51,600 Speaker 1: There's another question, obviously. I mean, we all know that 274 00:16:51,640 --> 00:16:55,680 Speaker 1: there is you know, transatlantic task forces that have been 275 00:16:55,800 --> 00:16:59,280 Speaker 1: set up to check if anybody is helping sanction them, 276 00:16:59,320 --> 00:17:04,160 Speaker 1: that the circumvent sanctions. That aside, you know, you have gold, 277 00:17:04,240 --> 00:17:08,840 Speaker 1: and you have commodities, and and so it's it's possible 278 00:17:08,920 --> 00:17:14,040 Speaker 1: to accumulate a new pile of surpluses. It's possible to 279 00:17:14,119 --> 00:17:18,760 Speaker 1: still get US dollars if you have a willing intermediary, 280 00:17:18,840 --> 00:17:22,119 Speaker 1: who's who's willing to give those dollars to you, and 281 00:17:22,320 --> 00:17:25,400 Speaker 1: things can be I'm sure there is ways to kind 282 00:17:25,440 --> 00:17:28,680 Speaker 1: of structure these flows such that they don't really show 283 00:17:28,760 --> 00:17:31,040 Speaker 1: up on balance sheets, or they or if they show up, 284 00:17:31,040 --> 00:17:34,040 Speaker 1: it's not very obvious what's going on. Stigns you want 285 00:17:34,040 --> 00:17:36,480 Speaker 1: to look for because because there's a couple of things 286 00:17:36,520 --> 00:17:40,159 Speaker 1: be there's a couple of things we know is you know, 287 00:17:40,600 --> 00:17:43,960 Speaker 1: Russia doesn't have any more treasuries because they sold all 288 00:17:43,960 --> 00:17:46,520 Speaker 1: of it. It's in a tack data. Because they don't 289 00:17:46,520 --> 00:17:50,440 Speaker 1: have treasuries, they have no ability to use the FEMA 290 00:17:50,520 --> 00:17:53,119 Speaker 1: replies you need treasuries for that. They also don't have 291 00:17:53,119 --> 00:17:56,359 Speaker 1: a swamplan. But they have gold, and so can you 292 00:17:56,400 --> 00:18:01,520 Speaker 1: do gold repos between central banks? Can you provide US 293 00:18:01,600 --> 00:18:05,720 Speaker 1: dollars versus goal? Yes? You can. Are there some central 294 00:18:05,720 --> 00:18:09,280 Speaker 1: banks that are so flushed with EFEX reserves that they 295 00:18:09,359 --> 00:18:11,440 Speaker 1: lend a lot of it in the spot market. So 296 00:18:12,040 --> 00:18:14,639 Speaker 1: exactly if you don't send it on the world market, 297 00:18:14,720 --> 00:18:17,600 Speaker 1: but you send those dollars to do another financial system, 298 00:18:17,640 --> 00:18:20,240 Speaker 1: is you're gonna really show up? Not really? Could it 299 00:18:20,320 --> 00:18:24,840 Speaker 1: be a situation where some large central bank starts to 300 00:18:24,880 --> 00:18:29,280 Speaker 1: pour collateral into the U S report market to raise 301 00:18:29,400 --> 00:18:31,760 Speaker 1: dollars and then you know, take those like these are 302 00:18:31,800 --> 00:18:35,040 Speaker 1: all possible. But I think the point here is that 303 00:18:35,600 --> 00:18:38,399 Speaker 1: it is possible to do these in a way that 304 00:18:38,640 --> 00:18:41,199 Speaker 1: no one's going to find out about them, because you know, 305 00:18:41,240 --> 00:18:44,480 Speaker 1: we're probably talking in orders of magnitude of like a 306 00:18:44,560 --> 00:18:47,880 Speaker 1: hundred two hundred billion dollars, which is you know, possible 307 00:18:47,920 --> 00:18:50,800 Speaker 1: to hide on a Balan sept that it's a couple 308 00:18:51,119 --> 00:18:54,040 Speaker 1: of trillion. Yeah, So so I think these things, these 309 00:18:54,040 --> 00:18:57,199 Speaker 1: things are all possible. But but I think this is 310 00:18:57,240 --> 00:19:00,400 Speaker 1: also again going back to the to the idea of 311 00:19:00,600 --> 00:19:04,960 Speaker 1: you know, Afghanistan and seizing inside reserves. This is probably 312 00:19:05,000 --> 00:19:08,760 Speaker 1: going to leads to you know, seating financial centers in 313 00:19:08,800 --> 00:19:13,520 Speaker 1: the East in friendlier jurisdictions because it's it's pretty obvious 314 00:19:13,600 --> 00:19:18,160 Speaker 1: that that FFX reserves can be used against you. Currencies 315 00:19:18,600 --> 00:19:21,280 Speaker 1: I don't want to say die and are born, but 316 00:19:21,440 --> 00:19:25,200 Speaker 1: you know, the the the prominence of currencies I think 317 00:19:25,400 --> 00:19:29,520 Speaker 1: fades and rises in wartime, you know, stirring to dollar, 318 00:19:30,000 --> 00:19:32,040 Speaker 1: dollar to R and B. I think I think, I 319 00:19:32,040 --> 00:19:35,919 Speaker 1: think it's situations like this that flement a lot of change. 320 00:19:36,280 --> 00:19:39,320 Speaker 1: And these are definitely going to be catalysts in in 321 00:19:39,320 --> 00:19:41,600 Speaker 1: in the in that type of the direction where where 322 00:19:41,640 --> 00:19:44,640 Speaker 1: you have US versus them, and you know, their financial 323 00:19:44,640 --> 00:19:49,760 Speaker 1: system and our financial system and and things change. So 324 00:19:50,640 --> 00:19:54,760 Speaker 1: a related question on this point, but energy exports are 325 00:19:55,040 --> 00:19:58,320 Speaker 1: excluded from a lot of these restrictions. It seems. And 326 00:19:58,400 --> 00:20:03,080 Speaker 1: so one way for Russia to generate reserves at the 327 00:20:03,119 --> 00:20:08,160 Speaker 1: moment is through energy exports. But are those reserves reserves 328 00:20:08,200 --> 00:20:11,560 Speaker 1: generated through energy exports. Are those still going to be 329 00:20:11,640 --> 00:20:14,679 Speaker 1: accessible to the central bank? Is it's still going to 330 00:20:14,720 --> 00:20:22,200 Speaker 1: find willing counterparties for those? As Perimerlin would say, finances hierarchical. 331 00:20:22,880 --> 00:20:26,720 Speaker 1: So there is the central Bank, there is you know, 332 00:20:26,960 --> 00:20:32,000 Speaker 1: the National Wealth Fund, and there's Gospel Bank, a bank 333 00:20:32,200 --> 00:20:36,080 Speaker 1: entity which is not sanction I think the situation itself 334 00:20:36,160 --> 00:20:41,840 Speaker 1: is extremely complex, where You're clearly needs the energy, Russia 335 00:20:41,920 --> 00:20:47,320 Speaker 1: clearly needs the cash, and some parts of this whole 336 00:20:47,320 --> 00:20:50,199 Speaker 1: thing are just carved out and are and are untouched 337 00:20:50,640 --> 00:20:54,880 Speaker 1: by sanctions. So again, for now, I think, I think 338 00:20:54,920 --> 00:21:01,280 Speaker 1: the exclusion of energy related payments is is making things 339 00:21:01,480 --> 00:21:04,320 Speaker 1: a lot less severe than they otherwise would be. I mean, 340 00:21:04,359 --> 00:21:06,840 Speaker 1: gas from banks, just like any other bank can trade 341 00:21:06,880 --> 00:21:09,679 Speaker 1: with domestic Russian banks, right, So if you think about 342 00:21:10,400 --> 00:21:14,200 Speaker 1: the extreme scenarios of okay, about the Russian central banks 343 00:21:14,240 --> 00:21:17,920 Speaker 1: can provide dollars to the local banks anymore gas from 344 00:21:17,960 --> 00:21:22,600 Speaker 1: bank can so. Again, depending on how how tight the 345 00:21:22,640 --> 00:21:26,679 Speaker 1: sanctions get and how wide the net of sanctions is 346 00:21:26,720 --> 00:21:29,000 Speaker 1: cast and you know, it is gas from bank going 347 00:21:29,040 --> 00:21:30,800 Speaker 1: to be a part of it. That is going to 348 00:21:30,880 --> 00:21:33,520 Speaker 1: change things on the ground, and that's going to change, 349 00:21:33,840 --> 00:21:36,280 Speaker 1: you know, the way the rubout trades, the way funding 350 00:21:36,320 --> 00:21:40,560 Speaker 1: markets paid. I don't think we've seen everything yet. How 351 00:21:40,600 --> 00:21:42,840 Speaker 1: prevalent is the dollar and the Russian economy. I mean, 352 00:21:42,880 --> 00:21:46,800 Speaker 1: we've seen these stories people scrambling for dollars. Mentioned gas 353 00:21:46,840 --> 00:21:49,280 Speaker 1: from bank would still be able to supply dollars, but 354 00:21:49,440 --> 00:21:52,359 Speaker 1: how significant and how much dollarization is there in Russia? 355 00:21:52,920 --> 00:21:57,920 Speaker 1: I mean, you know, Russia kind of insulated itself from 356 00:21:58,119 --> 00:22:03,560 Speaker 1: effects liabilities somewhat, not not totally. I don't have exact 357 00:22:03,640 --> 00:22:07,200 Speaker 1: numbers at hand, but I mean I think any commodity 358 00:22:07,280 --> 00:22:10,400 Speaker 1: exporter is going to trade in a lot of dollars. 359 00:22:10,800 --> 00:22:13,400 Speaker 1: I think it's just hard to it's hard to kind 360 00:22:13,400 --> 00:22:16,159 Speaker 1: of go go down this spath of figuring out the 361 00:22:16,240 --> 00:22:19,800 Speaker 1: exact ramification of all this because again I think, I 362 00:22:19,840 --> 00:22:24,720 Speaker 1: think you're you're you're meddling with these flows and and 363 00:22:24,720 --> 00:22:27,199 Speaker 1: and so we'll just see how tight the sanctions are 364 00:22:27,200 --> 00:22:30,280 Speaker 1: going to get. So maybe we should talk a little 365 00:22:30,320 --> 00:22:35,280 Speaker 1: bit more about what this means for the wider financial system. 366 00:22:35,440 --> 00:22:40,160 Speaker 1: So Russia, to some extent is potentially a little bit 367 00:22:40,200 --> 00:22:45,760 Speaker 1: insulated from UM I guess dollarization or dependence on on dollars. 368 00:22:45,880 --> 00:22:48,000 Speaker 1: But what we've seen so far in the rest of 369 00:22:48,040 --> 00:22:50,919 Speaker 1: the world is that all the uncertainty around this situation 370 00:22:51,560 --> 00:22:57,040 Speaker 1: has sparked a scramble for greenbacks, so people are trying 371 00:22:57,080 --> 00:22:59,719 Speaker 1: to get more dollars. We've seen, uh, you know, some 372 00:22:59,760 --> 00:23:02,920 Speaker 1: s of this in money markets, in X swaps um 373 00:23:03,040 --> 00:23:07,320 Speaker 1: which you already mentioned. Where does it go from here? 374 00:23:07,680 --> 00:23:11,000 Speaker 1: Is there going to be enough dollar liquidity to satisfy 375 00:23:11,080 --> 00:23:14,280 Speaker 1: this demand? Make a mistake. There's a lot of downar 376 00:23:14,320 --> 00:23:17,280 Speaker 1: liquidity in the system, especially now you know f X 377 00:23:17,320 --> 00:23:20,600 Speaker 1: swaps created a hundred basis points wider a couple of 378 00:23:20,640 --> 00:23:26,359 Speaker 1: hours ago that colmdown considerably of spreads are much more normal. 379 00:23:26,560 --> 00:23:29,720 Speaker 1: I mean they're still wider, but but more normal as 380 00:23:29,760 --> 00:23:33,440 Speaker 1: we speak, little froll y s y, and I think 381 00:23:33,480 --> 00:23:38,239 Speaker 1: the general posture of any bank in a situation like 382 00:23:38,320 --> 00:23:42,040 Speaker 1: this is exactly what we're talking about. You don't know 383 00:23:42,200 --> 00:23:44,960 Speaker 1: what the sanctions are going to look like tomorrow. You 384 00:23:45,000 --> 00:23:47,639 Speaker 1: don't know what all these means. I think people are 385 00:23:47,760 --> 00:23:50,920 Speaker 1: telling their exposures again not to say that this is 386 00:23:50,960 --> 00:23:54,760 Speaker 1: a Leman moment. But some experienced hands that I spoke 387 00:23:54,800 --> 00:23:58,400 Speaker 1: to last night, you know, reminded me to people actually 388 00:23:59,040 --> 00:24:03,640 Speaker 1: that and things like this happened. Everybody's going to take 389 00:24:03,640 --> 00:24:05,600 Speaker 1: time to tell you of the true exposure. And then 390 00:24:05,600 --> 00:24:07,639 Speaker 1: you don't know where the bodies lie. But you know 391 00:24:07,680 --> 00:24:09,919 Speaker 1: it's going to take at least a week to actually 392 00:24:09,920 --> 00:24:13,200 Speaker 1: find out what all this means. So yes, there there is, 393 00:24:13,320 --> 00:24:17,040 Speaker 1: there is. There is a dash for dollars. There is 394 00:24:17,119 --> 00:24:20,680 Speaker 1: also kind of unwillingness to part with your dollars, and 395 00:24:20,760 --> 00:24:24,760 Speaker 1: so whatever excess liquidity you have, you're keeping it close 396 00:24:24,840 --> 00:24:26,480 Speaker 1: to the vest of the FED, and you don't trade 397 00:24:26,520 --> 00:24:28,840 Speaker 1: it in the f X spot markets because you know, 398 00:24:28,960 --> 00:24:32,520 Speaker 1: you you like to harvest spread these locations where you 399 00:24:32,520 --> 00:24:35,119 Speaker 1: know that you know, someone just had a bad funding 400 00:24:35,200 --> 00:24:37,320 Speaker 1: day and this money is likely to come back tomorrow. 401 00:24:37,880 --> 00:24:41,359 Speaker 1: But you know, these situations are the exact opposite of that. 402 00:24:42,080 --> 00:24:45,480 Speaker 1: Dollars are tighter, and you know, we are learning. The 403 00:24:45,720 --> 00:24:47,800 Speaker 1: last time I was on this call, we were talking 404 00:24:47,800 --> 00:24:50,480 Speaker 1: about all the sexcess liquidity and funding being extremely boring 405 00:24:50,520 --> 00:24:54,160 Speaker 1: for a while. You know, the year and turn wasn't 406 00:24:54,200 --> 00:24:58,480 Speaker 1: that boring. I mean, you know, the market did press 407 00:24:58,560 --> 00:25:02,240 Speaker 1: some some premium for for your dollar basis despite all 408 00:25:02,280 --> 00:25:05,200 Speaker 1: the security in the system, the basis did kept as 409 00:25:05,240 --> 00:25:09,240 Speaker 1: much as it did overnight. And and so you know, 410 00:25:09,359 --> 00:25:11,280 Speaker 1: having a lot of money doesn't mean that you're going 411 00:25:11,359 --> 00:25:14,000 Speaker 1: to be you know, lending to harvest every basis point. 412 00:25:14,040 --> 00:25:15,719 Speaker 1: You need to you need to have confidence you're going 413 00:25:15,760 --> 00:25:18,159 Speaker 1: to be able to get that money back. Another another 414 00:25:18,200 --> 00:25:21,719 Speaker 1: line of arguments that I'm hearing again from from experienced 415 00:25:21,760 --> 00:25:24,560 Speaker 1: hands is Okay, well, if you freeze Russia's FFEX reserves, 416 00:25:24,600 --> 00:25:26,840 Speaker 1: what does it mean they don't have access to it? 417 00:25:27,080 --> 00:25:30,080 Speaker 1: But it's still with someone, and that someone is still 418 00:25:30,119 --> 00:25:33,560 Speaker 1: probably going to be trading that money, I mean, not 419 00:25:33,680 --> 00:25:36,640 Speaker 1: on behalf of Russia. And so the interest you earn 420 00:25:37,160 --> 00:25:39,360 Speaker 1: on those FEX reserves is not going to a crew 421 00:25:39,480 --> 00:25:43,640 Speaker 1: back to the Bank of Russia. But whatever custodian has 422 00:25:43,720 --> 00:25:47,320 Speaker 1: that money, or whatever dealer is stuck with the dollars 423 00:25:47,480 --> 00:25:51,800 Speaker 1: of Russia, it's still going to kind of deploy that. Okay, interesting, 424 00:25:51,800 --> 00:25:53,600 Speaker 1: but again, you know, what what are what are the 425 00:25:54,680 --> 00:25:57,160 Speaker 1: what are the legal aspectable this? I mean, I think 426 00:25:57,240 --> 00:25:59,720 Speaker 1: another team that I that I've heard from a number 427 00:25:59,720 --> 00:26:01,639 Speaker 1: of part discipline is that there is a lot of 428 00:26:01,640 --> 00:26:05,439 Speaker 1: self regulation in the marketplace at the moment, whether you 429 00:26:05,520 --> 00:26:08,760 Speaker 1: are a Western financial institution or if you are a 430 00:26:08,760 --> 00:26:15,160 Speaker 1: commodity trader moving ships with with with Russian oil, or 431 00:26:15,320 --> 00:26:19,960 Speaker 1: you know, processing payments for energy related payments for for Russia, 432 00:26:20,160 --> 00:26:23,239 Speaker 1: which again are still not sanctioned. In the back of 433 00:26:23,240 --> 00:26:26,919 Speaker 1: your mind you are thinking about whether it will be 434 00:26:27,000 --> 00:26:30,520 Speaker 1: sanctioned by the end of this week, and do you 435 00:26:30,560 --> 00:26:34,200 Speaker 1: want to deal with the headache you know, having doubled 436 00:26:34,240 --> 00:26:37,879 Speaker 1: with having moved Russian oil and Russian money and having 437 00:26:37,880 --> 00:26:40,920 Speaker 1: treated that, and so what does that mean? So you 438 00:26:41,000 --> 00:26:44,120 Speaker 1: just don't trade them and you don't don't don't move 439 00:26:44,320 --> 00:26:46,960 Speaker 1: oil around. So so again I think the self regulation 440 00:26:47,040 --> 00:26:50,240 Speaker 1: aspect of all this, despite the fact that energy related 441 00:26:50,280 --> 00:26:54,400 Speaker 1: payments and blows are not excluded, are making things difficult. 442 00:26:54,440 --> 00:26:57,760 Speaker 1: So so again we will see. So at the beginning 443 00:26:57,760 --> 00:27:00,440 Speaker 1: of that answer, at the very beginning of that, aswer 444 00:27:00,520 --> 00:27:03,960 Speaker 1: you said, it's not a layman moment. But and then, 445 00:27:04,440 --> 00:27:07,200 Speaker 1: which is sort of ominous, what does that mean like? 446 00:27:07,320 --> 00:27:08,960 Speaker 1: And then you say, Okay, it's going to take a 447 00:27:09,000 --> 00:27:12,000 Speaker 1: week before we see the true effects of that. So, 448 00:27:12,040 --> 00:27:15,000 Speaker 1: in other words, over the next several days, what are 449 00:27:15,000 --> 00:27:18,119 Speaker 1: we going to be watching for who who has maybe 450 00:27:18,119 --> 00:27:22,560 Speaker 1: protect systemically or at least somewhat significant who it turns 451 00:27:22,560 --> 00:27:26,440 Speaker 1: out as big Russian exposure in some way that will 452 00:27:26,480 --> 00:27:29,400 Speaker 1: be taking huge losses. Like is that what people are 453 00:27:29,400 --> 00:27:32,240 Speaker 1: watching for over the next several days, Well, I think 454 00:27:32,280 --> 00:27:34,000 Speaker 1: I think the first thing we are going to watch 455 00:27:34,040 --> 00:27:38,240 Speaker 1: for is how the war evolves. That is going to 456 00:27:38,359 --> 00:27:41,560 Speaker 1: drive the severity of sanctions. So I don't think that 457 00:27:42,840 --> 00:27:47,560 Speaker 1: we freeze in the moments in times package of sanctions. 458 00:27:47,880 --> 00:27:50,639 Speaker 1: Let's see who gets hit. The sanctions are a moving 459 00:27:50,680 --> 00:27:55,199 Speaker 1: gold posts. More and more entities can be added, so 460 00:27:55,320 --> 00:27:58,760 Speaker 1: things can be wretched it up, So it's dynamic. Number one. 461 00:27:59,280 --> 00:28:02,800 Speaker 1: Number two, we will tell you of exposures. I mean 462 00:28:03,440 --> 00:28:08,080 Speaker 1: it's just basic things like, okay, you know that we've 463 00:28:08,119 --> 00:28:12,760 Speaker 1: seen headlines on Bloomberg. Certain Russian affiliated banks in Slovenia 464 00:28:12,800 --> 00:28:16,119 Speaker 1: and Croatia, according to the e c D are are 465 00:28:16,200 --> 00:28:20,159 Speaker 1: likely to going through a difficulties. We know that you 466 00:28:20,280 --> 00:28:24,800 Speaker 1: have a number of European banks with sizeable Russian exposures, 467 00:28:25,440 --> 00:28:29,640 Speaker 1: corporate exposures. I mean, I think anyone and anyone who 468 00:28:30,000 --> 00:28:33,040 Speaker 1: who claims to have a view that you know we 469 00:28:33,080 --> 00:28:34,600 Speaker 1: are in the clear, and this is as bad as 470 00:28:34,600 --> 00:28:37,800 Speaker 1: it gets, is probably not right. You know, I probably 471 00:28:38,200 --> 00:28:42,880 Speaker 1: overuse the Lehman analogy just just perhaps, you know, to 472 00:28:42,960 --> 00:28:46,440 Speaker 1: shock ourselves into thinking. But you know, let me just 473 00:28:46,440 --> 00:28:49,200 Speaker 1: say that last week we were not talking about from 474 00:28:49,600 --> 00:28:51,959 Speaker 1: S widening and f x O I S blowing up 475 00:28:52,520 --> 00:28:54,640 Speaker 1: a hundred basis points. I mean, I think you know 476 00:28:54,680 --> 00:28:57,160 Speaker 1: that my first piece on this was Russia is a 477 00:28:57,160 --> 00:28:59,960 Speaker 1: surplus agent. You will mess with these surpluses and that's 478 00:29:00,120 --> 00:29:03,480 Speaker 1: not going to have zero impact and funding markets. And 479 00:29:03,560 --> 00:29:06,400 Speaker 1: now here we are in this situation, which is I 480 00:29:06,440 --> 00:29:09,200 Speaker 1: think far worse than anyone thought we would be in 481 00:29:09,280 --> 00:29:11,960 Speaker 1: last week. And and and I'm sure that there will 482 00:29:12,000 --> 00:29:16,160 Speaker 1: be some some some repercussions of this. Not nearly as 483 00:29:16,200 --> 00:29:22,480 Speaker 1: bad as um as Lehman, obviously, but still an impact nonetheless. 484 00:29:22,640 --> 00:29:24,920 Speaker 1: I mean, but perhaps where where I got the Lehman 485 00:29:25,320 --> 00:29:29,640 Speaker 1: uh analogy from just you know, kind of thinking things true? Yeah, 486 00:29:29,720 --> 00:29:32,520 Speaker 1: I mean, you guys know the plumbing quite well. So 487 00:29:32,960 --> 00:29:37,040 Speaker 1: you know that Lehman at its heart was some clearing 488 00:29:37,080 --> 00:29:42,600 Speaker 1: bank unwilling to unwind repose in the morning, because if 489 00:29:42,600 --> 00:29:44,520 Speaker 1: you give all that cash back to the money funds, 490 00:29:44,600 --> 00:29:46,880 Speaker 1: you are stuck with the inter day exposure to Leman. 491 00:29:47,440 --> 00:29:51,600 Speaker 1: There is I'm sure some parallel at some level with 492 00:29:52,080 --> 00:29:56,840 Speaker 1: Swift excluding you know, excluding certain banks from Swift people 493 00:29:57,160 --> 00:30:00,600 Speaker 1: being unable to make payments and the Clearing bank decision 494 00:30:00,640 --> 00:30:03,880 Speaker 1: to not online repose, and and again, you know, Lehman 495 00:30:04,040 --> 00:30:07,520 Speaker 1: was not obvious the Monday after uh, it took the 496 00:30:07,640 --> 00:30:10,320 Speaker 1: entire to kind of have a read on how bad 497 00:30:10,440 --> 00:30:14,800 Speaker 1: damages you know Switzerland. Switzerland for example, just adopted the 498 00:30:14,960 --> 00:30:18,240 Speaker 1: use sanctions. I mean, that's that's another new iteration. I 499 00:30:18,240 --> 00:30:20,480 Speaker 1: don't know what that means. But there's a lot of 500 00:30:20,480 --> 00:30:24,840 Speaker 1: commodity traders Switzer. So, I mean, we've been talking about 501 00:30:24,840 --> 00:30:29,440 Speaker 1: settlement risk all during this episode, but Russia certainly would 502 00:30:29,440 --> 00:30:35,360 Speaker 1: not be the first financial institution or entity to encounter this. 503 00:30:35,480 --> 00:30:38,720 Speaker 1: And there is a history of banks that have been 504 00:30:39,480 --> 00:30:42,920 Speaker 1: um not just caught up in, but basically destroyed by 505 00:30:42,920 --> 00:30:46,040 Speaker 1: settlement risk. Lehman is sort of one of them, if 506 00:30:46,080 --> 00:30:47,880 Speaker 1: you think about the repo market. But there are a 507 00:30:47,880 --> 00:30:51,880 Speaker 1: couple others that you've mentioned. What does history tell us 508 00:30:52,040 --> 00:30:56,040 Speaker 1: about this kind of risk? Well, history tells us that 509 00:30:56,760 --> 00:31:01,400 Speaker 1: the safety net around the world, why there, it's the 510 00:31:01,480 --> 00:31:05,200 Speaker 1: swap lines are standing, Reeple facility or discount discount in 511 00:31:05,280 --> 00:31:08,760 Speaker 1: those or you know, any central being able to provide 512 00:31:08,760 --> 00:31:13,200 Speaker 1: local currency to the financial system. Is that you know, 513 00:31:13,200 --> 00:31:16,440 Speaker 1: there's obviously a solution for all these things. Again, I 514 00:31:16,440 --> 00:31:20,400 Speaker 1: think the big context is Russia has its own problems, 515 00:31:20,440 --> 00:31:23,600 Speaker 1: which talked about earlier. If there is a spill back 516 00:31:24,240 --> 00:31:28,800 Speaker 1: from that onto Western financial institutions, there is all sorts 517 00:31:28,800 --> 00:31:32,240 Speaker 1: of ways to kind of back stuff, you know, settlement 518 00:31:32,320 --> 00:31:35,560 Speaker 1: risk and the curaritly hiccups that the bank experiences because 519 00:31:35,760 --> 00:31:39,600 Speaker 1: the payments didn't come from Russia. You know. The FIC 520 00:31:39,680 --> 00:31:44,280 Speaker 1: swap market again is a reflection of those types of 521 00:31:44,400 --> 00:31:46,920 Speaker 1: fears and money getting gumed up. But I think the 522 00:31:46,960 --> 00:31:49,720 Speaker 1: solution to all this is is quite simple. The swap 523 00:31:49,800 --> 00:31:52,920 Speaker 1: lines are there, and you should be ready to provide 524 00:31:53,120 --> 00:31:57,040 Speaker 1: whatever currency needs to be provided in whatever jurisdiction on 525 00:31:57,080 --> 00:32:00,840 Speaker 1: a daily basis. So far it wasn't necessary. Uh, if 526 00:32:00,880 --> 00:32:03,360 Speaker 1: it comes to that, I think that liquidity will be 527 00:32:04,080 --> 00:32:25,400 Speaker 1: forthcoming and and from and from pretty obvious space. You know, 528 00:32:25,520 --> 00:32:29,000 Speaker 1: one thing that we haven't fully touched on, but you 529 00:32:29,040 --> 00:32:32,280 Speaker 1: mentioned before we've been sort of talking around it is 530 00:32:32,640 --> 00:32:36,600 Speaker 1: swift specifically, and there's a lot of it's not a 531 00:32:36,640 --> 00:32:39,360 Speaker 1: household name, although everyone is sort of like trying to, 532 00:32:39,800 --> 00:32:41,520 Speaker 1: you know, get up to speed on what it is. 533 00:32:42,400 --> 00:32:45,760 Speaker 1: Not all of Russia is going to be disconnected, it appears, 534 00:32:45,800 --> 00:32:48,280 Speaker 1: but they're gonna be. It appears that at least part 535 00:32:48,360 --> 00:32:51,480 Speaker 1: some Russian banks will lose access. What does it mean 536 00:32:51,600 --> 00:32:55,320 Speaker 1: specifically to lose access to Swift, which I understand there's more, 537 00:32:55,760 --> 00:32:58,200 Speaker 1: you know, a messaging system to make the payments happen. 538 00:32:58,720 --> 00:33:02,840 Speaker 1: How much does the short of that disconnection specifically how 539 00:33:02,880 --> 00:33:08,000 Speaker 1: disruptive and powerful is that it throws sends in the wheels. 540 00:33:08,040 --> 00:33:11,320 Speaker 1: I mean, it's the messaging system for for inter bank payments. 541 00:33:11,520 --> 00:33:15,640 Speaker 1: I think it is uh material the more banks you exclude, 542 00:33:16,000 --> 00:33:20,480 Speaker 1: And again it's just your inability to I mean, you 543 00:33:20,480 --> 00:33:22,280 Speaker 1: know you can take your email account and you can't 544 00:33:22,280 --> 00:33:26,320 Speaker 1: communicate to the world. How is that? And so again 545 00:33:26,360 --> 00:33:29,800 Speaker 1: you are you are freezing assets of banks. You are 546 00:33:30,800 --> 00:33:36,320 Speaker 1: making it harder, not impossible, to alternative channels to to 547 00:33:36,480 --> 00:33:40,160 Speaker 1: wire money to do the various parts of the world 548 00:33:40,520 --> 00:33:42,560 Speaker 1: Central Bank sanctions. So I think I think these are 549 00:33:42,600 --> 00:33:45,240 Speaker 1: these are these these things are cumulated. I think it's 550 00:33:45,320 --> 00:33:48,320 Speaker 1: it's it's you know, it's a quote unquote I t 551 00:33:48,480 --> 00:33:54,040 Speaker 1: backbone of the international payment system. So one thing we 552 00:33:54,080 --> 00:33:59,400 Speaker 1: haven't spoken about is what this means specifically for the 553 00:33:59,440 --> 00:34:04,920 Speaker 1: Federal Reserve. And before all of this happened, you actually 554 00:34:05,640 --> 00:34:08,960 Speaker 1: published a piece of research that got everyone on the 555 00:34:09,000 --> 00:34:12,920 Speaker 1: street talking where you were discussing the idea of the 556 00:34:12,920 --> 00:34:16,319 Speaker 1: fed's exit strategy and what it actually needs to do 557 00:34:16,560 --> 00:34:20,359 Speaker 1: to bring down inflation and things like that, and you 558 00:34:20,520 --> 00:34:24,800 Speaker 1: argued that the FED should perhaps engineer, or maybe not engineer, 559 00:34:24,880 --> 00:34:30,520 Speaker 1: but allow a controlled correction in the market in order 560 00:34:30,560 --> 00:34:35,399 Speaker 1: to reintroduce volatility. So I guess the point I'm trying 561 00:34:35,440 --> 00:34:37,800 Speaker 1: to make is, you know, even before all of this happened, 562 00:34:38,040 --> 00:34:41,560 Speaker 1: we were at this very strange and interesting juncture for 563 00:34:41,680 --> 00:34:43,799 Speaker 1: the Central Bank, and Joe and I have recorded a 564 00:34:43,800 --> 00:34:47,320 Speaker 1: bunch of episodes on this. Now we have the Ukraine 565 00:34:47,400 --> 00:34:52,000 Speaker 1: Russia situation to throw into the mix. How difficult is 566 00:34:52,040 --> 00:34:55,040 Speaker 1: it going to be for the FED to actually raise 567 00:34:55,120 --> 00:34:58,399 Speaker 1: interest rates and start winding down its balance sheet this year? 568 00:35:00,000 --> 00:35:02,799 Speaker 1: So we will see. Let me let me take a 569 00:35:02,840 --> 00:35:07,160 Speaker 1: step back. The whole notion of the basically the idea, 570 00:35:07,239 --> 00:35:10,799 Speaker 1: the basic idea of that piece was we need to 571 00:35:10,840 --> 00:35:17,320 Speaker 1: inject volatility into the system mechanically by adding duration risks 572 00:35:17,360 --> 00:35:21,520 Speaker 1: back into the system in a massive kind of you know, 573 00:35:21,600 --> 00:35:26,480 Speaker 1: surprise way. And so that's going to take some wind 574 00:35:27,000 --> 00:35:30,200 Speaker 1: out of the sales of asset markets. And you know, 575 00:35:30,400 --> 00:35:33,160 Speaker 1: a surprise is correct, and you know, maybe maybe that'll 576 00:35:33,200 --> 00:35:37,160 Speaker 1: bring about some some increase in in labor force participation. 577 00:35:37,239 --> 00:35:39,600 Speaker 1: But you know, this whole idea that we have this 578 00:35:40,120 --> 00:35:43,080 Speaker 1: dynamic ever since Greenspan where we hike a little bit 579 00:35:43,760 --> 00:35:47,319 Speaker 1: and be flattened if not invert the curve. And so 580 00:35:47,480 --> 00:35:51,040 Speaker 1: something's up with that, right because you're hiking, but that 581 00:35:51,280 --> 00:35:54,480 Speaker 1: followed through that the real meaningful follow through in the 582 00:35:54,480 --> 00:35:56,759 Speaker 1: back end, it's just not it's just not occurring. So 583 00:35:57,000 --> 00:36:00,399 Speaker 1: that was two weeks ago. Today. What does it mean 584 00:36:01,320 --> 00:36:05,960 Speaker 1: for inside FX reserves demands? What does all this means 585 00:36:06,000 --> 00:36:10,560 Speaker 1: for that? It means you probably buy more gold and 586 00:36:10,640 --> 00:36:14,960 Speaker 1: you diversify away from treasuries. So when you think about 587 00:36:15,960 --> 00:36:22,439 Speaker 1: scenarios that can bring about surprise injections of duration and 588 00:36:22,640 --> 00:36:25,319 Speaker 1: through that, you know, interest rate volatility in the in 589 00:36:25,360 --> 00:36:29,280 Speaker 1: the back end of the market over the medium term, 590 00:36:29,320 --> 00:36:32,560 Speaker 1: it's not just you know, the FED going from passive 591 00:36:32,600 --> 00:36:35,440 Speaker 1: to active duty. It is now I think going to 592 00:36:35,520 --> 00:36:40,120 Speaker 1: be decisions of ex reserve managers as to how much 593 00:36:40,160 --> 00:36:45,120 Speaker 1: money to keep wear inside versus outside. It is the 594 00:36:45,200 --> 00:36:49,120 Speaker 1: threat of war, and you know, there's no more peace depends. 595 00:36:49,280 --> 00:36:51,640 Speaker 1: I mean, I think what we've seen in Germany, but 596 00:36:51,719 --> 00:36:53,799 Speaker 1: for the first time since the Second World War, you 597 00:36:53,840 --> 00:36:57,560 Speaker 1: basically are talking about massive defense spending on the back 598 00:36:57,600 --> 00:36:59,800 Speaker 1: of all this. It's also going to mean that the 599 00:37:00,080 --> 00:37:03,320 Speaker 1: europe you will probably have a lot of fiscal spending 600 00:37:03,560 --> 00:37:06,080 Speaker 1: on the back of this. I think the kind of 601 00:37:06,320 --> 00:37:09,960 Speaker 1: theme I touched on with you know, let's do a 602 00:37:10,000 --> 00:37:13,200 Speaker 1: Volker moment and go from passive to active duty at 603 00:37:13,239 --> 00:37:17,440 Speaker 1: the end of the day, is about injecting supply of 604 00:37:17,560 --> 00:37:21,239 Speaker 1: long term treasuries into the market, whether that's going to 605 00:37:21,320 --> 00:37:25,319 Speaker 1: come from the FEDS or now. In this you know 606 00:37:25,600 --> 00:37:30,640 Speaker 1: Brave New Environment ethics, reserves diverse, diversifying on the margin 607 00:37:31,040 --> 00:37:36,040 Speaker 1: the West, increasing defense spending um and and increasing issuance 608 00:37:36,239 --> 00:37:38,640 Speaker 1: on the back of that. I don't know, but I 609 00:37:38,640 --> 00:37:42,640 Speaker 1: think over the past two weeks since since I've put 610 00:37:42,640 --> 00:37:45,680 Speaker 1: out that piece, a lot of things have changed, and 611 00:37:45,719 --> 00:37:48,840 Speaker 1: all of them are kind of pointing in the same direction, 612 00:37:49,320 --> 00:37:54,560 Speaker 1: which is more supply and higher rates. And perhaps in 613 00:37:54,560 --> 00:37:56,040 Speaker 1: the midst of all this I think. I think one 614 00:37:56,080 --> 00:37:59,080 Speaker 1: of the most interesting things to me in in watching 615 00:37:59,520 --> 00:38:02,879 Speaker 1: the screens over the past a week or so is 616 00:38:03,320 --> 00:38:06,000 Speaker 1: I mean, just for context, you know, it's North Korea 617 00:38:06,440 --> 00:38:09,680 Speaker 1: shut up a rocket without a warhead. I think the 618 00:38:09,760 --> 00:38:13,799 Speaker 1: tenure like really massively in the past. Here we have 619 00:38:13,880 --> 00:38:18,760 Speaker 1: open war in the heart of Europe and the tenure 620 00:38:18,800 --> 00:38:22,279 Speaker 1: isn't really really I think that's huge, that there is 621 00:38:22,320 --> 00:38:28,320 Speaker 1: this underlying kind of fear of inflation, and in addition 622 00:38:28,360 --> 00:38:31,440 Speaker 1: to that, you know central that's going to do about inflation, 623 00:38:31,920 --> 00:38:37,520 Speaker 1: higher rates, potentially more issuance, potentially diversification away from inside 624 00:38:37,520 --> 00:38:40,880 Speaker 1: effects reserves, perhaps in the favor of outside effects reserves. 625 00:38:41,320 --> 00:38:44,080 Speaker 1: I think the world is is a very different place. 626 00:38:44,560 --> 00:38:47,279 Speaker 1: You know. My sense would be that there's there's a 627 00:38:47,280 --> 00:38:52,040 Speaker 1: tremendous amount of pressure on long term interest rates going 628 00:38:52,640 --> 00:38:56,919 Speaker 1: higher from here than any time over the past ten 629 00:38:57,040 --> 00:39:00,800 Speaker 1: fifteen years. So that that's that's what I think oldest 630 00:39:00,880 --> 00:39:04,800 Speaker 1: oldest means for for central banks and and long term 631 00:39:05,000 --> 00:39:07,359 Speaker 1: long term interest rates. I mean, it does feel like 632 00:39:07,560 --> 00:39:13,640 Speaker 1: already even prior to this particular moment, obviously we weren't 633 00:39:13,640 --> 00:39:16,720 Speaker 1: getting the ten year yield response that we normally get. 634 00:39:16,760 --> 00:39:19,360 Speaker 1: The market downturn. I mean, we had pretty intense selling 635 00:39:19,400 --> 00:39:22,360 Speaker 1: and a lot of stuff really starting the middle of November, 636 00:39:22,800 --> 00:39:25,000 Speaker 1: not much of a flight to treasuries because of the 637 00:39:25,719 --> 00:39:28,799 Speaker 1: because of the elevated inflation. Does it change, I mean, 638 00:39:28,960 --> 00:39:31,440 Speaker 1: it's a It still seems like a tricky spot for 639 00:39:31,480 --> 00:39:36,040 Speaker 1: the FED, Sitting aside the reintroduction of duration, whether they 640 00:39:36,040 --> 00:39:40,919 Speaker 1: do it passively or actively, this general effort to hike 641 00:39:41,080 --> 00:39:47,200 Speaker 1: rates normalized fight inflation in general, wars or supply chain disruptions, 642 00:39:47,280 --> 00:39:51,560 Speaker 1: increased commodities seems like going to be uh complicate that 643 00:39:52,360 --> 00:39:55,680 Speaker 1: just the rate hike part of normalization quite a bit. Yeah, 644 00:39:56,200 --> 00:39:59,719 Speaker 1: for sure. I mean, you know, everything everything that is 645 00:39:59,760 --> 00:40:04,080 Speaker 1: had is also highly inflationary, potentially even more again depending 646 00:40:04,120 --> 00:40:08,160 Speaker 1: on how how sanctions and energy related stuff goes. And yes, 647 00:40:08,200 --> 00:40:12,040 Speaker 1: I mean I think these are these are extremely complicated situations. 648 00:40:12,440 --> 00:40:15,719 Speaker 1: I don't think that central banks are particularly able to 649 00:40:15,800 --> 00:40:18,840 Speaker 1: do anything about any of this kind of inflation. But 650 00:40:19,360 --> 00:40:22,800 Speaker 1: you know, the markets and and are kind of pricing 651 00:40:22,800 --> 00:40:26,440 Speaker 1: in more more inflation and and and more more hikes 652 00:40:26,440 --> 00:40:28,480 Speaker 1: on the back of this. I think, I think the 653 00:40:28,520 --> 00:40:32,080 Speaker 1: situation is extremely complicated. I just want to go back 654 00:40:32,120 --> 00:40:34,359 Speaker 1: to you know, I thought One of the sort of 655 00:40:34,960 --> 00:40:38,120 Speaker 1: more striking things you said is that in periods of 656 00:40:38,160 --> 00:40:43,239 Speaker 1: war we sometimes see a handoff from what you know, currencies, 657 00:40:43,280 --> 00:40:46,360 Speaker 1: as you mentioned the end of the British pound, you know, 658 00:40:46,480 --> 00:40:50,440 Speaker 1: midst the war. You know, there's no immediate prospect as 659 00:40:50,440 --> 00:40:54,080 Speaker 1: far as I can tell, for a real like new 660 00:40:54,160 --> 00:40:58,759 Speaker 1: global currency to replace the US dollar, But can you 661 00:40:58,800 --> 00:41:01,280 Speaker 1: talk about that a little bit further, just this idea. 662 00:41:01,280 --> 00:41:05,319 Speaker 1: It's like, okay, we're seeing the essentially the uh the 663 00:41:05,360 --> 00:41:09,520 Speaker 1: weaponization of source of ffex reserves of central banks, and 664 00:41:09,760 --> 00:41:12,520 Speaker 1: this idea what you said about, could this mark a 665 00:41:12,600 --> 00:41:16,680 Speaker 1: sort of significant turning point for the role of the 666 00:41:16,719 --> 00:41:21,800 Speaker 1: US dollar on the international stage. Yes, I mean again 667 00:41:21,840 --> 00:41:27,520 Speaker 1: it's it's US versus them. You can probably imagine a 668 00:41:27,600 --> 00:41:31,040 Speaker 1: response on the back of this where a lot of 669 00:41:31,680 --> 00:41:37,400 Speaker 1: exporters of whatever commodities and widgets decides to invoice things 670 00:41:38,360 --> 00:41:42,279 Speaker 1: in a different currency because because you know that all 671 00:41:42,280 --> 00:41:45,319 Speaker 1: these dollars you're earning and all the money you keep 672 00:41:45,360 --> 00:41:48,400 Speaker 1: in the West is at risk. Just to think out loud, 673 00:41:48,520 --> 00:41:51,239 Speaker 1: you know, the one belt one wrote sphere of influence. 674 00:41:51,440 --> 00:41:56,000 Speaker 1: I mean, should that all be invoiced in dollars or 675 00:41:56,040 --> 00:42:01,200 Speaker 1: should it be invoiced in in R and B. I 676 00:42:01,239 --> 00:42:04,280 Speaker 1: think you know these these types of things are because 677 00:42:04,320 --> 00:42:08,719 Speaker 1: again we are talking about seizing assets you thought you had, 678 00:42:09,040 --> 00:42:12,960 Speaker 1: so we know how to diversify away from that modity reserves, 679 00:42:13,000 --> 00:42:16,200 Speaker 1: gold reserves, what have you. Again, you can see new 680 00:42:16,239 --> 00:42:21,840 Speaker 1: financial centers by invoicing a bunch of trade in a 681 00:42:22,360 --> 00:42:25,279 Speaker 1: different dominant currency. And there's all sorts of reasons to 682 00:42:25,280 --> 00:42:29,080 Speaker 1: do that. Now. So would you expect China to accelerate 683 00:42:29,160 --> 00:42:33,280 Speaker 1: its own efforts of the internationalization of the RMB? Probably? 684 00:42:33,400 --> 00:42:35,800 Speaker 1: I think, you know, to two points make a straight 685 00:42:35,840 --> 00:42:39,799 Speaker 1: line in geometry. So we had one example, we have 686 00:42:40,719 --> 00:42:45,040 Speaker 1: another example, and so and so it will go like that, 687 00:42:45,680 --> 00:42:47,680 Speaker 1: all the old, all the payments for all the all 688 00:42:47,760 --> 00:42:50,920 Speaker 1: the all the gas. You know what, what are some 689 00:42:51,000 --> 00:42:53,800 Speaker 1: of the left field options? I mean, maybe maybe you 690 00:42:53,840 --> 00:42:58,560 Speaker 1: just don't accept payments for this gas in euros and dollars, 691 00:42:58,600 --> 00:43:01,359 Speaker 1: please pay me in R and B, right, I think 692 00:43:01,360 --> 00:43:05,040 Speaker 1: that could be a very interesting variation on all this, 693 00:43:05,719 --> 00:43:09,919 Speaker 1: and clearly the ural daughter market would probably feel bad 694 00:43:10,200 --> 00:43:13,879 Speaker 1: over time. Um, all right, well, Resultan, it's been great 695 00:43:13,960 --> 00:43:16,280 Speaker 1: having you back on the show as always, really appreciate 696 00:43:16,280 --> 00:43:18,520 Speaker 1: you coming on. That was great resultan thank you so much, 697 00:43:18,640 --> 00:43:35,520 Speaker 1: thank you for having me so Joe. There was so 698 00:43:35,600 --> 00:43:40,520 Speaker 1: much in that conversation, um, And I feel infinitely smarter 699 00:43:40,640 --> 00:43:43,000 Speaker 1: for having spoken with Sultan. But one of the things 700 00:43:43,040 --> 00:43:45,880 Speaker 1: that struck me was he mentioned this idea of a 701 00:43:45,960 --> 00:43:50,040 Speaker 1: lot of the financial institutions self regulating before the sanctions 702 00:43:50,160 --> 00:43:53,640 Speaker 1: even came into effect. And this kind of and I 703 00:43:53,680 --> 00:43:55,799 Speaker 1: wrote about it a little bit in the Odd Lots 704 00:43:55,800 --> 00:43:58,920 Speaker 1: of newsletter last Friday, but it kind of reminds me 705 00:43:59,239 --> 00:44:04,240 Speaker 1: of the fed Or Reserve when it started buying corporate bonds, um. 706 00:44:04,360 --> 00:44:07,480 Speaker 1: And you know, after it made the announcement, that was 707 00:44:07,600 --> 00:44:10,880 Speaker 1: enough to settle the market and to backstop it, and 708 00:44:10,920 --> 00:44:12,759 Speaker 1: it didn't even have to buy that much debt in 709 00:44:12,800 --> 00:44:16,280 Speaker 1: the end. It's sort of a similar effect playing out 710 00:44:16,480 --> 00:44:20,920 Speaker 1: right now. So because sanctions might becoming a lot of 711 00:44:21,000 --> 00:44:25,600 Speaker 1: financial market counterparties have stepped away from Russian assets altogether. 712 00:44:25,920 --> 00:44:29,640 Speaker 1: But I guess the tricky thing in terms of inflation 713 00:44:29,760 --> 00:44:33,640 Speaker 1: and financial stability is whether or not they, you know, 714 00:44:33,760 --> 00:44:38,520 Speaker 1: decide to step away from everything, including commodities, even when 715 00:44:38,520 --> 00:44:41,640 Speaker 1: those should be exempt, or whether they start stepping away 716 00:44:41,680 --> 00:44:45,320 Speaker 1: from things in a disorderly manner. Yeah, I mean I 717 00:44:45,400 --> 00:44:48,319 Speaker 1: think that's a key thing. Financial conditions are going to 718 00:44:48,400 --> 00:44:51,120 Speaker 1: tighten and at least un at least at the margin. 719 00:44:51,320 --> 00:44:54,320 Speaker 1: And of course there is the there are the sanctions, 720 00:44:54,360 --> 00:44:56,200 Speaker 1: there are they're cutting off of the banks their swift 721 00:44:56,480 --> 00:44:59,439 Speaker 1: and then of course there's the war. And nobody knows 722 00:45:00,000 --> 00:45:02,560 Speaker 1: actually how this is going to unfold the fact that 723 00:45:02,600 --> 00:45:04,839 Speaker 1: there is a war in Europe right now. We don't 724 00:45:04,840 --> 00:45:06,200 Speaker 1: know whether it's gonna be short. We don't know that 725 00:45:06,239 --> 00:45:08,560 Speaker 1: it's gonna be long. We don't know anything about how 726 00:45:08,600 --> 00:45:11,719 Speaker 1: it's gonna end. You know, you just think as we 727 00:45:11,719 --> 00:45:15,600 Speaker 1: were talking about two weeks ago the conversation, as you know, 728 00:45:15,640 --> 00:45:19,240 Speaker 1: ass all talking about introducing more duration into the market 729 00:45:19,400 --> 00:45:23,200 Speaker 1: to introduce now we have now we have volatility. Yeah. Yeah. 730 00:45:23,239 --> 00:45:28,600 Speaker 1: And so even setting aside the financial restrictions, periods of 731 00:45:28,640 --> 00:45:32,719 Speaker 1: a war are not typically when financial institutions, banks, etcetera 732 00:45:33,280 --> 00:45:38,400 Speaker 1: become a sort of liberal with their lending. No, of course, 733 00:45:38,480 --> 00:45:43,080 Speaker 1: and um, if you combine that with a central bank 734 00:45:43,160 --> 00:45:47,200 Speaker 1: that is supposedly still on course for quantitative tightening and 735 00:45:47,360 --> 00:45:50,640 Speaker 1: interest rate hikes, um, it's going to be I know, 736 00:45:50,760 --> 00:45:54,080 Speaker 1: we we overuse that word interesting, but I really don't 737 00:45:54,120 --> 00:45:55,960 Speaker 1: know how else to describe it because of all the 738 00:45:56,000 --> 00:45:58,480 Speaker 1: uncertainty involved, but it is certainly going to be an 739 00:45:58,520 --> 00:46:01,279 Speaker 1: interesting moment. The other a big thing. And you know, 740 00:46:01,640 --> 00:46:05,480 Speaker 1: hearing Saltan talk about like wars potentially are turning points 741 00:46:05,480 --> 00:46:09,719 Speaker 1: for currency, and you know, obviously one hopes that this 742 00:46:09,760 --> 00:46:14,759 Speaker 1: war is short and somehow comes to a resolution. But 743 00:46:14,880 --> 00:46:18,920 Speaker 1: the weaponization of FX reserves, the fact that it's like, Okay, 744 00:46:19,120 --> 00:46:22,440 Speaker 1: you have euros or you have dollars in the bank, 745 00:46:22,760 --> 00:46:24,560 Speaker 1: and now you don't have them. And you thought you 746 00:46:24,600 --> 00:46:26,960 Speaker 1: had this money and now you don't. And so do 747 00:46:27,000 --> 00:46:28,920 Speaker 1: you want to trade or do you want to have 748 00:46:29,160 --> 00:46:32,800 Speaker 1: a currency that's of the denomination or of the nation 749 00:46:33,040 --> 00:46:36,560 Speaker 1: that's potentially going to be a rival or hostile towards you. 750 00:46:37,320 --> 00:46:39,879 Speaker 1: And what does that mean for every other central every 751 00:46:39,880 --> 00:46:42,160 Speaker 1: other country that has FX reserves, Like do you really 752 00:46:42,200 --> 00:46:44,960 Speaker 1: want to hold dollars? Now that it's made clear? And 753 00:46:45,000 --> 00:46:47,719 Speaker 1: I thought it was interesting that Saltan brought up Afghanistan 754 00:46:47,800 --> 00:46:53,000 Speaker 1: as well as like, Okay, the precedent is being set 755 00:46:53,080 --> 00:46:56,200 Speaker 1: that what is your money may not be your money. 756 00:46:56,600 --> 00:46:59,160 Speaker 1: Hard to see how that wouldn't have affect the thinking 757 00:46:59,200 --> 00:47:03,480 Speaker 1: of a reserve managers all over the world. Totally. You 758 00:47:03,480 --> 00:47:08,480 Speaker 1: could definitely see a rethink of reserves as a as 759 00:47:08,480 --> 00:47:11,520 Speaker 1: a result of these two instances, and I suppose to 760 00:47:11,600 --> 00:47:16,960 Speaker 1: some extent we have We've seen um shades of that already, right, 761 00:47:17,040 --> 00:47:19,360 Speaker 1: like the fact that Russia does hold so much of 762 00:47:19,400 --> 00:47:21,879 Speaker 1: its reserves in gold and that it's sold down its 763 00:47:21,880 --> 00:47:24,840 Speaker 1: treasuries and things like that. But definitely wanted to watch 764 00:47:25,160 --> 00:47:30,600 Speaker 1: and the gold conversation was also particularly because God has 765 00:47:30,640 --> 00:47:34,239 Speaker 1: felt well like a barbarous relic. But you think, like 766 00:47:34,320 --> 00:47:36,120 Speaker 1: you know, Salton is one of the best, and talking 767 00:47:36,160 --> 00:47:39,399 Speaker 1: about the difference between inside and outside money. The years 768 00:47:39,440 --> 00:47:43,439 Speaker 1: a bigger, big demand for outside money at a time 769 00:47:43,480 --> 00:47:46,440 Speaker 1: when like your inside money can just be uh, can 770 00:47:46,480 --> 00:47:50,480 Speaker 1: just be shut off. Absolutely, shall we leave it there? 771 00:47:51,080 --> 00:47:53,640 Speaker 1: Let's leave it there? All right? This has been another 772 00:47:53,680 --> 00:47:56,640 Speaker 1: episode of the All Thoughts podcast. I'm Tracy Alloway. You 773 00:47:56,640 --> 00:47:59,560 Speaker 1: can follow me on Twitter at Tracy Alloway and I'm 774 00:47:59,640 --> 00:48:02,759 Speaker 1: Joe Asthal. You can follow me on Twitter at The Stalwart. 775 00:48:03,160 --> 00:48:07,080 Speaker 1: Follow our producer Laura Carlson, She's at Laura M. Carlson. 776 00:48:07,360 --> 00:48:11,240 Speaker 1: Follow the bloomberghead of podcast, Francesco Levi at Francesco Today, 777 00:48:11,640 --> 00:48:14,439 Speaker 1: and check out all of our podcasts at Bloomberg under 778 00:48:14,480 --> 00:48:17,040 Speaker 1: the handle at podcasts. Thanks for listening.