The most recent (publicized) response Vladimir Putin has made regarding sanctions against Russia and the CIS because of his military intervention in Crimea is that he will direct his nation and his friends to sell US Government Bonds. Were that to happen, along with the direct impacts of our other sanctions, i.e. visa disruption for Russian politicians, non-utilization of Russian natural gas, closure of schools to Russian students, etc. etc., what would be the damage to the West's economy? Who would suffer more - the EU/USA or Russia/CIS?

  • 4
    Off the top of my head, and with no research whatsoever, I'd have to say "Well, if they're selling them, then someone is buying them." That's probably horribly inaccurate and doesn't address what might happen to the price, though.
    – Bobson
    Commented Mar 7, 2014 at 18:52
  • Bonds are a debt instrument with a guaranteed return, so the issuer isn't really affected by re-sale of existing bonds. The bond price at re-sale is determined largely by the risk of the issuer defaulting on payments, and the remaining term.
    – Phil Lello
    Commented Apr 1, 2016 at 19:00

2 Answers 2


I'm only going to answer the US vs. Russia, because otherwise the answer is far too long and much too inexact.

Russia would suffer more probably. It's difficult to know how much, but it wouldn't be as useful as traditional sanctions, such as those imposed on North Korea, because Russia has much more support and does not have an absolute requirement for outside trade.

US Bond Sales

The Russians and most of Russia's close allies don't hold enough US bonds for the threat to be relevant. The Chinese are the only exception and here it seems a bit of an idle threat or propaganda. The US has severe structural problems its must address in regards to its debt, but the Chinese have been selling US bonds since 2009 in large amounts. After the financial crises, they decided US government debt was risky and they lost a lot of money in their investments. They have been trying to diversify. The US government has so far been able to cover this sell-off although it is stressing the system. The Chinese policy may be slowly eroding the value of the US dollar, since the US is sometimes creating money to cover the shortfall or having its bonds purchased by highly leveraged governments that itself buys bonds from in a reciprocal fashion. It's a bit of a shell game, if you will, but its been working. There may be damage to the US and Western economies occurring, but its debatable, and its due to bad policy, which may hopefully still be reversed. Read for example this news item describing that Belgium as increased its holdings of US bonds. http://www.zerohedge.com/news/2014-02-18/china-sells-second-largest-amount-us-treasurys-december-and-guess-who-comes-rescue

Unless China really tried to dump all its US bonds at the same time, there won't be much effect. Doing that would be really bad for China too since holding US debt helps its exports by keeping down the value of the Chinese yuan. The Chinese economy is centralized and purposefully export driven. This isn't China's fight, so I think its unlikely they would be willing to do this.


First, what is Russia's balance of trade?

Russia runs regular trade surpluses primarily due to exports of commodities. Russia main exports are oil and natural gas (58 percent of total exports), nickel, palladium, iron and chemical products. Others include: cars, military equipment and timber. Russia imports food, ground transports, pharmaceuticals and textile and footwear. Main trading partners are: China (7 percent of total exports and 10 percent of imports), Germany (7 percent of exports and 8 percent of imports) and Italy.

Sanctions really only work when a nation is isolated. The more help it receives from allies, the less effective they are. The disruption of Russian visas and oversees education is supposed to help this goal, but it will only be somewhat effective, since nations that support Russia won't follow it. Russia has many allies. From its balance of trade its obvious that Russia trades with many nations and doesn't depend too heavily on only a handful. This makes sanctions harder to implement.

The Russian economy is still in a weak state and the ruble is weak, so even pretty ineffective sanctions may be very harmful to it. Russia also has the potential to be much more isolated than the US and EU are, since they have more control over important international organizations, such as the United Nations, World Bank and G8. As well these nations have more access to international markets due their liberal institutions.

China and Brazil have large economies and large trade networks, though, so Russia would be able to get all the basic material to make war and care for the welfare and comfort of its citizens. Russia is a natural resource rich state as well so it doesn't require imports either, per say. Footwear is one of its main imports for example.

It wouldn't have as much trade, so it would lose jobs and the people would have a lower standard of living. The Russian economy is highly dependent on gas revenues, 58% seen above. A European sanction on purchases of Russian gas would cause losses of many jobs and lower GDP. Russia wouldn't have as much access to aid if its economy began to stumble under sanctions, either. Many-not all- believe aid provided earlier can sometimes prevent larger and longer term damage to a national economy by preventing long term unemployment and loss of job skills and prevent a lack of investment in infrastructure, health, and education.

  • 2
    Russia has few "allies". It has trading partners who need access to its raw materials.Allies imply that nation have strong defense and trade treaties with one another.
    – Mistah Mix
    Commented Mar 9, 2014 at 15:01
  • Most of Russian investors, and rich people save money in dollar and outside of the country.. so freezing this actives may be another shock for goverment Commented Mar 11, 2014 at 16:11
  • Could it be that sanctions will actually act as stimulus to domestic economy? Russia's industry can't compete with others in normal conditions - maybe economic isolation is what Russia actually need?
    – lowtech
    Commented May 13, 2014 at 13:49

Razie's answer is great, but let me think from another side and bring some numbers to the table.

An idea to sell all foreign bonds is quite popular in Russian mass media. According its authors, it is supposed to:

  • Bring down the U.S. government bond market, thus harming the economy;
  • Get rid of foreign bonds;

According to the Bank of Russia, by Apr/01/2014 Russia held $429 billion the foreign currency (cash + securities) in the international reserves. Of these, $76 billion is cash and $352 billion is in securities.

Not all of this $352 bn. is invested in U.S. government bonds. As of Nov/11/2013, “more than 40% of gold reserves are nominated in EUR, 45% is in USD, the rest is in other currencies.”

Nevertheless, let us assume that Russia is going to hit not only the U.S., but Europe as well, so it sells an entire amount.

U.S. is currently running the third Quantitative easing, redeeming up to $85 billion monthly or $1.02 trillion annually. Discussed $352 billion is not a large amount in these terms.

The same applies to EU. During the recent 5 years, ECB has emitted more than EUR 2 trillion.

Moreover, during the course of such drastic sellout, the price for US bonds will most likely drop temporarily, so the seller would suffer additional losses.

As of China. It should not be expected that Bank of China joins this affair. Since they have U.S. Government Bonds worth $1 trillion, losses of China in case of dramatic sellout will amount to tens of billions.

Not yet the end of the story. Let’s assume U.S. bonds have been sold. What to do with $352 billion foreign currency? One can:

  • Repay external debt;
  • Purchase foreign goods;
  • Purchase foreign assets;

Repay of external debt

Losses due to large advance repayments (as is happened in 2000-2001). Local currency loses any security, the Bank of Russia would have nothing to oppose attacks on the ruble, its rate drops, unless the country prohibits all forms of trade in foreign currency.

Purchase foreign goods

As above, plus some benefit of obtaining foreign goods worth roughly an amount of annual trade. Plus, obviously, purchase of goods can be hardly considered a harm to Western economy. :-)

Purchase foreign assets

Assets are gold, natural resources, or businesses.

Gold is more volatile than U.S. Government Bonds. The gold prices are controlled by national banks. Even if Russia buys entire supply of gold on the market, all other players will most certainly start playing against it.
Also, in current price, it would be roughly 8,000 tons of gold. Such amount is not available on the market.

Natural resources are not needed for a country that actually has 25% of world's natural resources.

Businesses. In the confrontation with the West, Russia will not be allowed to purchase anything really valuable. In case if Russia builds some artful schemes involving intermediaries, this would introduce barely acceptable risks.

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