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Leonid Bershidsky

Why Russia Should Buy Back Its Debt

Bad-news countries should try to keep their bonds out of foreign hands as much as possible.

Keeping the exchange rate stable.

Keeping the exchange rate stable.

Photographer: Andrey Rudakov/Bloomberg

Russia, according to Deputy Finance Minister Vladimir Kolychev, is ready to buy back its own domestic debt on the open markets if the U.S. sanctions it or if volatility becomes substantially higher than normal. The idea makes sense if one views foreign bondholders as a source of instability — and that’s how a country like President Vladimir Putin’s Russia should see them.

In February, UniCredit said in a research note that in some emerging markets, foreign ownership of a country’s domestic debt is highly correlated with its currency’s nominal exchange rate. A 1 percent increase in foreign ownership leads to a 0.47 percent appreciation of the national currency in Hungary, 0.8 percent in Indonesia and Mexico, and 1.4 percent in Turkey.