Mr Bessent’s actions may not amount to much over the long term, but they may well squeeze yields down a little, at least until the midterms: a brazen politicisation of the Treasury market. Unfortunately for Mr Bessent, markets have other release valves. The dollar tumbled after his buy-back announcement (see chart 4), while gold surged: both signal investors’ increased scepticism about American assets. Ultimately, lower yields plus a weaker dollar equals economic stimulus, akin to an interest-rate cut. That is not what America’s economy needs, whatever the politics. Markets think the Fed may, if anything, raise rates at its next meeting in September. Mr Warsh insists he “will not waver” in returning inflation to the Fed’s 2% target. He will have a chance to set out his own thinking more fully on August 28th at the Fed’s annual jamboree in Jackson Hole, Wyoming. Easing by the Treasury and tightening by the Fed could lead to a curious monetary-policy tug-of-war over the next few months. President Trump has long groaned about high interest rates. Mr Bessent may have calculated that trying to jawbone yields down could show the boss he is trying, even if markets rebuff his efforts. But the further he goes, the more pressure he piles on Mr Warsh.

Mr Bessent’s interventions may reflect his macro-trader past, Mr Trump’s quirky views on economics, and midterm politics. But they are more than mere Trumpian aberrations. Messing with markets becomes more tempting as countries’ debt situation worsens—just look at Japan’s constant meddling in the yen and in its own bond market. Governments, including America’s after the second world war, have often dealt with debt through financial repression: intervening to cap yields, stuffing bonds onto domestic savers and allowing inflation to eat away at their value. Now investors are deciding if they still see the Treasury market as a stable place, free from political intervention and financial repression. Market moves caused by changes in fundamentals have a habit of overwhelming even the most determined governments. If he continues to fiddle, America’s top bond salesman may find his wares ever harder to hawk. ■ This article was downloaded by zlibrary from https://www.economist.com/finance-and-economics/2026/08/27/scott-bessent-takes-on- the-bond-market

Finance & economics | Rouble trouble Why is Russia deliberately weakening its currency? A strong rouble was hurting the budget Aug 27th 2026 GOVERNMENTS AND central banks usually insist that they want a strong currency. Not, just now, in Russia. On August 5th the Ministry of Finance declared that it would increase its daily purchases of foreign currencies and gold by around 20%, from 5.4bn roubles (then $69m) in July to 6.5bn roubles. The rouble duly slid, from around 80 to the dollar in early August to 85 by the middle of the month, its lowest level since March (see chart).

A stronger currency means cheaper imports, lower inflation and less pressure on interest rates; a weaker one means the opposite. As Russians know well, a sudden slide can trigger financial panic, as it did after their country invaded Ukraine in February 2022 and Western countries imposed sanctions. In just over a fortnight the rouble lost two-fifths of its value against the dollar. Russians rushed to buy foreign currency and pulled cash out of banks, much of which they splurged on consumer durables and other goods. But lately a strong rouble has been a curse—notably for the federal budget. In the first half of the year it averaged 77 to the dollar; the budget had assumed a rate of 92. Because Russian oil exporters (which are mostly state- owned or otherwise linked to the government) earn their revenue in dollars, their income translated into fewer roubles than expected. Oil and gas provide 20% of budget revenue. Granted, the Gulf war, by gumming up the Strait of Hormuz and disrupting global oil distribution, has pushed oil prices higher: in the first half of the year the average oil price used by the government for tax calculations was $68 per barrel, against the $59 assumed in the budget. Even so, oil and gas revenue, at 3.7trn roubles, was 23% lower than a year earlier. The first-half deficit alone was 5.7trn roubles, or 2.5% of annual GDP, against a projected

3.8trn (1.6%) for the full year. A persistently strong rouble would make the shortfall bigger. As well as weakening the rouble, the government is looking for cash elsewhere. The Russian parliament has given the finance ministry the right to increase borrowing above the statutory limit without further approval. More inventively, the government has been demanding that Russian businessmen make “voluntary” contributions to the federal budget, including money to help pay for the war against Ukraine. This initiative emerged from a meeting in March with Vladimir Putin, Russia’s president, about a windfall tax on past profits. Since the start of the year public-spirited bosses have coughed up 384bn roubles. A weaker rouble could provide some short-term relief to Russia’s budget, but in the long run, it carries the usual downsides: higher inflation, dearer imports and lower real household incomes. The inflation rate has already ticked up, to 6% in June. This was partly due to a petrol shortage caused by Ukrainian strikes on Russian oil infrastructure. Nevertheless, a weaker rouble could push it higher. ■ This article was downloaded by zlibrary from https://www.economist.com/finance-and-economics/2026/08/26/why-is-russia- deliberately-weakening-its-currency

Finance & economics | Free tiffin How India’s central bank subsidised the diaspora The scheme has helped to stabilise the rupee Aug 27th 2026 “GOVERNOR: THE Silent Saviour”, a Bollywood film released earlier this year, manages to make a hero out of a central banker. It follows a fictionalised version of Sri Venkitaramanan, head of the Reserve Bank of India (RBI) between 1990 and 1992, coping with the fallout from an American war in the Middle East. He persuades the government to let American fighter jets refuel in Mumbai, a sop to the IMF’s largest shareholder, and secretly arranges to have Indian gold flown to Switzerland and Britain as collateral for an IMF loan. In a revision of history, he convinces Manmohan Singh, the reformist finance minister, of the need to dismantle the socialist, growth-sapping Licence Raj.

Sanjay Malhotra, the current governor, does not have the benefit of a sympathetic film-maker. Still, he has had a good war—not least in stabilising the rupee. The currency fell by 4.2% against the dollar in the first month of America’s latest Gulf conflict, a consequence of India’s huge oil- import bill. Since mid-May, however, it has traded sideways. That is partly due to a scheme to attract dollars from India’s 37m-strong diaspora. The RBI’s Foreign Currency Non-Resident (Bank) (FCNR(B)) programme provides subsidised hedging to retail banks on dollar deposits, allowing them to pay higher rates and entice Indians abroad to shift greenbacks to India. Despite the scheme’s success, Mr Malhotra said on August 14th that it would close at the end of August, a month ahead of schedule. It is expected to have secured around $100bn (2.5% of GDP) for India’s banks. “Flows have been stronger than we expected,” Mr Malhotra told the Financial Express, a newspaper, noting that each dollar had a diminishing marginal benefit. For the diaspora it amounted to a rare free lunch. Although they had to keep the money tied up for three to five years, they could earn 7% a year by shifting their dollars to India, against just 4% on deposits in America. Encouraged by the RBI, Indian banks then used leverage to let them make annual returns of 15-27% with no foreign-exchange risk (but a lot of interest-rate risk).

The RBI has tapped overseas Indians before. Amid the 1991 crisis it launched “development bonds”. In 2013 Raghuram Rajan, its boss then, first devised a subsidised FCNR(B) scheme during the "taper tantrum” in the American Treasury-bond market. Capital streamed out of emerging markets as long-term dollar rates rose. The disapora’s free lunch comes at the RBI’s expense. Economic theory says that any difference in interest rates between two countries must be equal to the cost of providing a “forward swap” (an agreement to deliver the foreign currency at a specified date). Otherwise arbitrageurs could lock in a risk-free profit by taking the higher (ie, Indian) interest rate and just signing a forward contract, without having to worry about the rupee losing value against the dollar. Instead, the RBI provides the swap for free. That is worth around 2.8 percentage points a year, or $8.4bn over three years on a $100bn book. The RBI’s foreign-exchange reserves of $717bn compare with $1.2bn or so available to the governor in the Bollywood film. So whereas he resorts to all sort of chicanery to avert catastrophe, India has had no such need during this Gulf war. The scheme was meant to be a circuit-breaker, suggests Sajjid Chinoy of JPMorgan Chase, a bank. India risked falling into a vicious cycle as importers hedged their exposure and investors feared further depreciation. The RBI has bought the country time. India was facing a third year of balance-of-payments deficit. International investors shunned the country, perceiving that its equities were overpriced and (unlike other Asian emerging markets) offering little gain from artificial intelligence. Flows of foreign direct investment have also been negative, as Indian firms have been keener to deploy capital abroad than vice versa. Inflows from the FCNR(B) should mean India runs a surplus this year instead. Whether politicians in Delhi can use the time a central banker has bought them to attract investors back remains to be seen. But outside the cinema, it is the politicians who have to be the saviours. ■ This article was downloaded by zlibrary from https://www.economist.com/finance-and-economics/2026/08/27/how-indias-central-bank- subsidised-the-diaspora

Finance & economics | The fiscal contrarian China should be loosening budgetary policy. It’s doing the opposite Its belt-tightening is good micro, but bad macro Aug 27th 2026 THE WORLD is full of governments that should tighten their belts but won’t. China is an exception. Domestic spending is weak. Government-bond yields are falling. The curse of deflation could return. Under these conditions, its government should ease fiscal policy to stimulate demand. Even the IMF thinks so. Instead China is stumbling into austerity. According to figures released on August 21st, tax revenues rose by more than 13% in July, compared with a year earlier, the biggest jump in over three years. China’s budget deficit, broadly defined, also narrowed. China is raising revenue not by increasing its tax rates but by repairing its tax net. Earlier this month the cities of Beijing and Hangzhou told residents