Is Russia Planning A Gold-Based Currency?

Tyler Durden's picture

Submitted by Marcia Christoff-Kurapovna via The Mises Institute,

The “perfect-storm” of geopolitical instability, diplomatic isolation, severe currency depreciation, and economic decline now confronting Russia has profoundly damaged Moscow's international standing, and possibly for the long-term. Yet, it is precisely such conditions that may push the country’s leadership into taking the radical step that will secure its world-player status once and for all: the adoption of a gold-exchange standard.

Though a far-fetched idea at first glance, many factors suggest that remonetization in gold may be a logical next step for Moscow.

First, for years Moscow has been expressing its unwillingness to remain at the monetary mercy of the US and its NATO allies and this view has been most vehemently expressed by President Putin’s long-time economic advisor, Sergei Glazyev. Russia is prepared to play strategic hardball with the West on the issue: the governor of Russia’s central bank took the unusual step last November of presenting to the international media details of the bank’s zealous gold-buying spree. The announcement, in sharp contrast to that institution’s more taciturn traditions, underscores Moscow’s outspoken dismay with dollar hegemony; its timing suggests coordination with the top rungs of government to present gold as a possible currency-war weapon.

Second, despite international pressure, Russia has been very wary of the sell-off policies that led the UK, France, Spain, and Italy to unload gold over the past decade during unsuccessful attempts to prop up their respective ailing economies — in particular, of then-Prime Minister Gordon Brown’s sell-off of 400 metric tons of the country's reserves at stunningly low prices. Moscow’s surprise decision upon the onset of the ruble’s swift decline in early December 2014 to not tap into the country’s gold reserves, now the world's sixth largest, highlights the ambitiousness of Russia’s stance on the gold issue. By the end of December, Russia added another 20.73 tons, according to the IMF in late January, capping a nine-month buying spree.

Third, while the Russian economy is structurally weak, enough of the country's monetary fundamentals are sound, such that the timing of a move to gold, geopolitically and domestically, may be ideal. Russia is not a debtor nation. At this writing in January, Russia’s debt to GDP ratio is low and most of its external debt is private. Physical gold accounts for 10 percent of Russia’s foreign currency reserves. The budget deficit, as of a November 2014 projection, is likely to be around $10 billion, much less than 1 percent of GDP. The poverty rate fell from 35 percent in 2001 to 10 percent in 2010, while the middle class was projected in 2013 to reach 86 percent of the population by 2020.

Collapsing oil prices serve only to intensify the monetary attractiveness of gold. Given that oil exports, along with the rest of the energy sector, account for 45 percent of GDP, the depreciation of the ruble will continue; newly unstable fiscal conditions have devastated banks, and higher inflation looms, expected to reach 10 percent by the end of 2015. As Russia remains (for the foreseeable future) mainly a resource-based economy, only a move to gold, arguably, can make the currency stronger, even if it does limit Russia’s available currency.

In buying as much gold as it has, the country is, in part, ensuring that it will have enough money in circulation in the event of such fundamental transformation. In terms of re-establishing post-oil shock international prestige, a move to gold will allow the country to be seen as a more reliable and trustworthy trading partner.

The repercussions of Russia on a gold-exchange standard would be immense. Above all, it would mean the first major schism in the world's monetary order. China would quite likely follow suit. It could mean the threat of a severe inflation in the United States should rafts of unwanted dollars make their way back across the Atlantic — the Fed's ultimate nightmare. Above all, the country will avoid the extreme debt leverages which would not have happened had Western capitals remained on gold.

“A gold standard would be politically appealing, transforming the ruble to a formidable currency and reducing outflows significantly,” writes Dr. Enrico Colombatto, economics professor at the University of Turin, Italy.

He notes that the only major drawback would be that the imposed discipline of a gold standard would deprive authorities of discretionary political power. The other threat would be that of a new generation of Russian central bankers becoming too heavily influenced by the monetary mindset of the European Central Bank (ECB) and the Fed.

As Alisdair MacLeod, a two-decade veteran of off-shore banking consulting based in the UK, recently wrote, Russia (and China) will “hold all the aces” by moving away from any possible currency wars of the future into the physical gold market. In his article, he adds that there is currently a low appetite for physical gold in Western capital markets and longer-term foreign holders of rubles would be unlikely to exchange them for gold, preferring to sell them for other fiat currencies.

Mr. Macleod cites John Butler, CIO at Atom Capital in London, who sees great potential in a gold-exchange standard for Russia. With the establishment of a sound gold-exchange rate, he argues, the Central Bank of Russia would no longer be confined to buying and selling gold to maintain the rate of exchange. The bank could freely manage the liquidity of the ruble and be able to issue coupon-bearing bonds to the Russian public, allowing it a yield linked to gold rates. As the ruble stabilizes, the rate of the cost of living would drop; savings would grow, spurred on by long term stability and lower taxes.

Foreign exchange also would be favorable, Mr. Butler maintains. Owing to the Ukraine crises and commodities crises, rubles have been dumped for dollar/euro currencies. Upon the announcement of a gold-exchange, demand for the ruble would increase. London and New York markets would in turn be countered by provisions restricting gold-to-ruble exchanges of imports and exports.

The geopolitics of gold also figure into Russia’s increasingly close relations with China, a country that also has made clear its preference for gold over the dollar. (Russia recently edged out China as the world's top buyer of the metal.) In the aftermath of the $400 billion, 30-year deal signed between Russian gas giant Gazprom and the China National Petroleum Company in November 2014, China turned its focus to the internationalization of its own gold market. On January 15, 2015, the Shanghai Gold Exchange, the largest physical gold exchange worldwide, and the World Gold Council, concluded a strategic cooperation deal to expand the Chinese gold market through the new Shanghai Free Trade Zone.

This is not the first time the gold standard has been seen as the ultimate cure for Russia’s economic problems. In September 1998, the noted economist Jude Wanninski predicted in a far-sighted essay for The Wall Street Journal that only a gold ruble would get the the country out of its then-debt crises. It was upon taking office about two years later, in May 2000, that President Putin embarked upon the country’s massive gold-buying campaign. At the time, it took twenty-eight barrels of crude just to buy an ounce of gold. The gold-backed ruble policy of those years was adopted to successfully pay down the country's external debt.

As a pro-gold stance is, essentially, anti-dollar, speculation about how the US would react raises the question of whether an all-out currency war would follow. The West would have to keep Russia regionally and militarily marginalized, not to mention kept within the confines of the Fed, the ECB, and the Bank of England (BOE).

Nor is that prospect too far-fetched. As Dutch author Willem Middelkoop has written in his 2014 book The Big Reset: War on Gold and the Financial Endgame,

A system reset is imminent. Even before 2020 the world's financial system will need to find a different anchor. ... In a desperate attempt to maintain this dollar system, the United States waged a secret war on gold since the 1960s. China and Russia have pierced through the American smokescreen around gold and the dollar and are no longer willing to continue lending to the United States. Both countries have been accumulating enormous amounts of gold, positioning themselves for the next phase of the global financial system.

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realmoney2015's picture

The western bankers will (and are) trying to stop anyone from not using their fiat currencies. Americans are waking up to the fact that our dollar is becoming absolutely worthless. The BRICS know that the dollar is already worthless. They have been buying tons and tons of gold. What are they planning? Impossible to really know, but it’s obvious they are preparing for the end of the fiat currencies.

It only makes sense for us private citizens to do the same. Most of us can’t afford tons (or even ounces) of gold. We must buy and trade with silver. If you are not already preparing for the end of the dollar, you should buy silver at these discounted prices. A good gift to get someone interested in silver are these candles: https://www.etsy.com/shop/ScentSavers?ref=hdr_shop_menu People realize silver is valuable when they hold it in their hand and research the coins silver value. For example a silver dollar is 17 times more valuable than its face value. That ratio will only get worse with the more dollars that are created out of thin air!

Newager23's picture

A much more likely scenario, if you are going to consider a gold card, would be Russia demanding their royalty payments/taxes for both oil and natgas to be paid in gold. They could create a hoard of gold extremely quickly using this method. Then they could consider backing their currency with gold.

chubbar's picture

Several articles out there postulating that Russia is doing exactly this ^  except they are using the dollars they get from selling oil instead of setting a gold price. They are letting the US suppress the price of gold and taking delivery, essentially allowing the US to hang itself by it's own petard.

Newager23's picture

For those who do not like gold, consider this question. If you inherited 10 gold bars, worth approximately $5 million, what would you do?

Anyone who says they would immediately sell them all is probably in the minority. I think most people would keep at least 1 or 2 bars at the very least. After all, gold might be the best asset to own in the not too distant future.

While very few people would buy gold if they inherited $5 million, I think most people would keep some gold if they inherited a boatload. Once you have your hands on it, you recognize it's value.  

 

Down to Earth Thinking's picture

this article is old news if any news ? maybe 5 years at a minimum 3 . 

ATM's picture

No. Bureaucrats never give up power willingly and creating a gold based currency will reduce the greatest power they hold.

mickeyman's picture

The Americans will ignore it at first. But that will eventually be meaningless.

Down to Earth Thinking's picture

been ignoring so far, but the illusions are breaking down rather quickly and there are many outlier events afloat 

kaiserhoff's picture

Putin looking at things.

Shades of Dear Leader.  For god's sake keep him away from the Swiss cheese;)

Lumberjack's picture

They could easily make a shitload of trillion dollar platinum coins...

 

http://www.zerohedge.com/contributed/2013-01-04/one-trillion-dollar-plat...

angel_of_joy's picture

No need ! The USD is backed by the "full faith and credit" in Obozo's selfies... as seen here

lincis's picture

was about bloody time!!!!

noben's picture
noben (not verified) lincis Feb 12, 2015 4:54 PM

It's probably a tad late. Should've done so a few months ago, when they had more leverage.
Now...

- The Ceasfire/Peace deal with Urkaine and E. Ukraine has been signed
- The Saudis have front-run the Gold-for-Oil scenario, by dumping oil at low prices

It might still work, IF they get other BRIICS to go along: strength in numbers, AND they use their alternative to SWIFT.

All half measures will crash & burn.

sun tzu's picture

Will this peace deal immediately fail like the last one?

The Saudis are buying more equities than gold.

jomama's picture

That'll start a war for sure.

Duc888's picture

 

 

Nooz flash:  Everyone but USA / Fed is already planning a gold based currency.

Squid-puppets a-go-go's picture

i dunno about "planning"... "forced with great reluctance to conceed the inevitability", maybe

LawsofPhysics's picture

I will believe it when I see it, period.  By the way, it does not have to be gold, but credit creation must be backed up by REAL COLLATERAL motherfuckers!!!

angel_of_joy's picture

Gold is the best collateral ! That's the whole point of it... By the way, this obvious reality was discovered about 5000 years ago...

LawsofPhysics's picture

Lots of other good collateral out there.  Gold is the foundation.

Jugdish787's picture

Gold is a fucking rock...

 

 

 

(I wonder how many downvotes I can get)

29.5 hours's picture

 

 

We tend to not down vote people who obviously flunked high school physics / chem. We feel sorry for them instead. Gold is an element.

 

 

Fun Facts's picture

"Gold is an element."

Originating from supernova explosions and nowhere else.

The outer electrons travel so fast that gold would otherwise appear silver if it weren't for the time dilation effect causing it to appear golden.

This is why nothing else looks quite like it.

bracemaker's picture

The new currency will be backed by retired beanie babies, pogs, pictures of hairy men in fairy costumes (for liquidity), potatoes, and potassium.

SilverIsKing's picture

I have some of those retired beanies. I will gladly exchange them for gold.

StupidEarthlings's picture

Kinda like the composition of rocks?..

;)

prefan4200's picture

Gold fucking rocks...

(Fixed it for ya....)

pomlad5's picture

Metal, heavy metal and it rocks

froze25's picture

It's a metal in the noble metal family.  But that may be just semantics to your point.

headhunt's picture

The best collateral is a free country and I do not mean this fucked up husk of a country which used to be the USA. Freedom will always be more valuable than gold or any other collateral, with freedom comes wealth.

Son of Captain Nemo's picture

Freedom will always be more valuable than gold or any other collateral, with freedom comes wealth.

Thx so much for what you just said hh.

Americans for far too long use their money and what they think they know about the economy as the "measuring stick" for everything that they think constitutes wealth and freedom.  They are different.  The laws or lack thereof in our case make the difference.  Suffice it to say without rules that govern those freedoms you're toast -which is where we are right now in our degenerating state!

The rule of law that is wrapped around those "freedoms" are what is priceless.  And a currency backed by Au only makes doing business with someone that embodies the other two will only make you prosper even more! 

For the purposes of this discussion outside of those that are either intellectually handicapped or are paid to visit this site in a lame attempt to sabotage the message with the argument...

The United States as we knew it is gone!  It's up to Russia and China to lead the way with all three of those just mentioned!


Dancing Disraeli's picture

I agree that the US is very far removed from what made her great, but does anyone honestly believe that either Russia or China will have a Constitutional Republic that guarantees individual liberty/property rights?

shovelhead's picture

Nope, I don't.

Face it. We had the best deal going, despite a few flaws, and we let the cocksuckers steal it from us.

Might be getting about time to fix that problem.

Son of Captain Nemo's picture

Agree with the both of you that whatever Russia and China come up with will probably be different then what we had.

Too hard to speculate on what it will look like. But what difference does it make when the torch has been passed when you had it and gave it away completely to fraud and corruption?

But ask yourselves honestly if in the 226 years we've been managing it, did we EVER bring it to it's fullest potential and try our hardest not to diminish it's power in protecting the "inalienable rights" of everyone and by that I mean not just the citizens of this Country?

 

lincis's picture

it would be a good timing, amurrika would have to change its rotten spoiled behaviour, or attack everyne at teh same time, whats it gonna be?

Seasmoke's picture

Talk is cheap. Reading this is repetitive. Actions are all I care about. Just do it Vlad !!

RaceToTheBottom's picture

<<Is it Ruschina?

<<or Chinrus?

tarabel's picture

 

 

Think of it as New Manchuria and its Western Protectorate.

davidalan1's picture

cant happen, the chasm  between fiat debt and the stability of a gold backed currency is one that can only be acheived by a complete implosion and

cooperation of several parties which wont happend.... Dark age shit...

skbull44's picture

This would explain the increasing demonization of Russia by the US.

http://olduvai.ca

29.5 hours's picture

 

 

From the article:

"the only major drawback would be that the imposed discipline of a gold standard would deprive authorities of discretionary political power"

Since when (not in modern times!) has a state limited itself in terms of power?

This all sounds kind of pipe-dreamy.

 

 

Buckaroo Banzai's picture

Exactly, this is why it won't happen anytime soon-- no government voluntarily gives up power. Russia is buying gold simply to prepare for the post-collapse world.

freedom123's picture
freedom123 (not verified) Feb 12, 2015 4:53 PM

Than why it's not implemented already? Where is the problem? :D

 

Why RUB has lost half it's value?

http://www.rferl.org/content/russia-economy-interest-rates-ruble/2682163...

 

Why let people suffer 15% inflation?

http://www.tradingeconomics.com/russia/inflation-cpi

 

Why let people suffer?

http://in.rbth.com/economics/2015/02/01/economic_crisis_hit_rural_russia...

czarangelus's picture

It's over, Hasbara. The fact that they have to resort to such ridiculous measures as paid internet trolling proves that your masters are finished. Why don't you just step aside already and allow the people to know the truth? Don't you realized you're a lot less likely to feel a noose around your neck if people are given a chance and the knowledge to prepare for systematic economic dislocation?

Instead the government lies, prevaricates, and shills, ensuring that the disaster is as complete as possible.

Monty Burns's picture

Short hasbara colleges.  The quality of their graduates has fallen off sharply in recent times.