The U.S. Federal Reserve’s foreign account holdings recently declined by approximately $118 billion – and it seems likely Russia had something to do with it.

Russia's President Vladimir Putin attends a congress of the Russian Union of Industrialists and Entrepreneurs in Moscow, Russia, on Thursday, March 20, 2014. (AP Photo/ Sergei Chirikov, pool) AP Photo/ Sergei Chirikov, pool

Russia’s President Vladimir Putin attends a congress of the Russian Union of Industrialists and Entrepreneurs in Moscow, Russia, on Thursday, March 20, 2014. (AP)

First, according to recent data, there was a sharp drop in the amount of U.S. government bonds the Fed holds for foreign accounts, from $3.02 trillion in December to $2.97 trillion by Feb. 26. Next, the amount went from $2.95 trillion on March 5 to about $2.85 trillion on March 12, a decline of roughly $104 billion in just one week.

Taken together, the Fed’s foreign account holdings fell by 3.5 percent, or $118 billion in the span of just two weeks, putting its total foreign Treasury holdings at a 15-month low, according to the Wall Street Journal.

The drop would seem to bolster earlier fears that Russia, along with allies like China, could be gearing up for an economic war that could see the U.S. financial system crippled, as noted earlier on TheBlaze TV’s For the Record and by this site as far back as 2011.

See, rather than a decline, the Fed’s foreign account holdings are expected to increase over time.

As the U.S. runs deficits, it creates billions of government bonds every year, the Daily Beast noted, and foreign banks have in the past reliably bought up this debt. In fact, in 2013 alone, the aggregate amount of Treasury securities held by foreign banks increased from $2.88 trillion to $3.02 trillion.

That’s an increase of approximately $130 billion.

But the past few weeks have seen a sharp and unprecedented decline. It’s important to note that the drop in the Fed’s holdings comes at a time when Western power have sanctioned Russia over its recent action in Ukraine and Crimea.

And based on recent remarks made by certain Russian officials, as well as warnings from financial experts, it seems likely Russia is the driving force behind recent bond activity.

“We hold a decent amount of Treasury bonds – more than $200 billion – and if the United States dares to freeze accounts of Russian businesses and citizens, we can no longer view America as a reliable partner,” Russian President Vladimir Putin adviser Serge Glazyev warned this month.

“We will encourage everybody to dump U.S. Treasury bonds, get rid of dollars as an unreliable currency, and leave the U.S. market,” he added.

Now, the New York Fed cannot provide detailed information on individual accounts or countries, meaning there are few details available regarding the sudden decrease. So we can’t say with 100 percent certainty that the decline is because of Russia.

However, as the Daily Beast noted, the Treasury Department’s Treasury International Capital system is a fairly reliable source when it comes to figuring out foreign ownership of U.S. debt by country.

Russia, for example, held about $165 billion in U.S. government bonds in January, according to Treasury Department’s most recent data. Unfortunately, because the data is updated every six weeks, we won’t know about Russia’s March holdings for quite some time.

Still, Russia’s January holdings are roughly equal to the amount of U.S. government bonds that have moved recently.

This could mean two things, the Daily Beast theorized: “Either Russia sold the bonds, and converted the cash back into rubles, Euros, or another currency. Or, it simply moved the bonds away from the Fed to a different custodial account—in Russia, or in the Cayman Islands, or in some offshore banking center where it would be impossible for the U.S. to freeze it.”

The second option seems more likely, according to a few financial analysts.

“It all points to a transfer to custodial holdings offshore, rather than a sale,” said Win Thin of Brown Brothers Harriman. “If the Russians had dumped the bonds, you would have seen more of a reaction in the bond market.”

But there hasn’t been a huge reaction. In fact, the ruble has weakened against the U.S. dollar recently, meaning it’s likely that the government bonds were simply moved offshore.

Are Billions in U.S. Govt Bonds Being Dumped by Russia?

Crimean pro-Russian volunteers in military fatigues line up in a square in front of a statue of Vladimir Lenin, next to the Council of Ministers of Crimea’s building, in Simferopol, on March 14, 2014, two days ahead of the referendum over Crimea’s bid to break away from Ukraine and join Russia. (Getty Images)

Further, it’s worth noting that anything Russia’s central bank does to hurt the U.S. dollar could come back and hurt Russia. Russia relies on U.S. dollars because it relies on oil. See, the rest of the world prefers to buy and sell oil using the dollar, meaning Russia is as dependent on the dollar as it is its oil.

So like many other countries, Russia’s central bank holds a healthy supply of dollars. It can then take these dollars and buy U.S. government bonds. The bonds are then held at the New York Federal Reserve where the Fed makes sure the investor receives their interest payments.

All this is to say that the theory involving Russia simply moving the bonds offshore is the most reasonable theory because, again, it could prove detrimental for the country to sell the bonds and possible damage the currency it needs to sell its main export around the world.

“It’s really hard for Russia to move away from the dollar,” said Win Thin. “It’s just the way their economy is.”

Still, it’s worth pointing out that if Russia is indeed responsible of for all the bond activity, and it has been shifting bonds offshore, it started doing this as far back as December, a few months before the outbreak of the Ukraine crisis.

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