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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tarabel's picture

 

 

Well, there's one of him calmly stating his opinion and six of you guys piling on and shouting insults and personal attacks, so the audience can surely decide for itself who is really a footslog in the troll army.

nuke ISIS now's picture

czar..how much is Putin paying you to troll this pos Russian haven?

froze25's picture

Other examples are the Congress hearing on regulating information sites like this one, Infowars, Drudge, WND... The establishment Brain washing machine has realized that every time they try to convince people that something must be done (mandatory vaccines) all it does is fuel the Alternative media and their readers to expose the lies and start screaming bloody murder about how its bull shit.  The alternative media than sights sources for their reasonable objections that the middle of the road people that can still think independently check out and than join the alternative media side and grow their numbers.  No amount of trolling can stop that.  The proof is in the recent ratings drop (over the last 5+ years) of all the "mainstream media" channels / websites.  

All they have left is flat out shutting down the competition before its too late, that too will backfire because the alternative folks will scream bloody murder about it.  The tipping point has been reached in the information war, even in their own polls 50% of the people don't trust the Gov't in some form.  The blind follow the leader meme is toast. Bottom line is we are growing they are shrinking you never hear of a person on the alternative side going back after their eyes are open all they do is open the eyes of more people the growth rate is almost exponential.  Hence the soiling of their pants and all the elites leaving to off shore bunkers.  No one who is awake to GMO's goes back, no one that is awake to aspartame (Poison to replace Sugar) drinks it again, no one that experiences firing a rifle or other gun, joins the anti gun side.  Once someone is awake their is absolutely no way to put them back to sleep again.  You can buy them off but never put them back to bed.

Yeah you still have the free shit army but they will exist in a form in any society and aren't big enough to support the system.  The middle class that has been under attack for the last 70 years hasn't broken down as they have hoped.  Yeah they are poorer but the family unit has survived and parents are still teaching their children even against non stop public schooling brain washing.

smacker's picture

Recipe for Latvian Potato Soup to follow...

Rusputin's picture

Latvians do have a varied and healthy diet, just look at their excellent physical appearance, male or female!

 

tarabel's picture

 

 

Let's see a real picture of you so we can compare the two.

smacker's picture

ha-ha. Latvia's top film star (!!!)

tarabel's picture

 

 

Hi Stoogie,

How's the ad hominem attack business going today? Or it it more of a hobby?

I remember Speer's description of Martin Bormann as the "man with the hedge clippers" who trimmed everybody down so they would not appear to be greater than himself.

Really, why is this guy so dangerous to your worldview? You follow him around like a poodle in heat and sniff his butt wherever he goes. If he posts, you will soon be there as well. Do you have some sort of early warning system that allows you to watch his every move and quickly respond? Is it some sort of obsession or something he said about your mom? What?

 

 

nuke ISIS now's picture

tarabel..as you may have already guessed;  the fourth stooge has been diagnosed wih vacancy of the cranium, the poor thing hs the IQ of a mentally challenged clam

TheFourthStooge-ing's picture

Ah, good display of fawning toadyism, Captain Butthole.

Funny duo dancing as it often happens with 'americans'...

tarabel's picture

 

 

You got nothing to say when it's six-on-one-- so long as you're one of the six.

Bunch of fuckin orcs who think they're actually the Knights of the Round Table.

TheFourthStooge-ing's picture

.

If he posts, you will soon be there as well. Do you have some sort of early warning system that allows you to watch his every move and quickly respond?

Best. Makes my day.

Your urge for sanctimony impairs if you would not notice my response is to the guy with smacker as handle. Your eager pecksniffery is without ground and very zero.

Tough luck on another failure.

tarabel's picture

 

 

Still, here you are on your quest for the perfect Latvian putdown. I'm not sure which is really less flattering...

That you spend your day looking for Latvian taco recipes to share with the like-minded, 

Or that you created it yourself and posted it in search of ooohs and ahhhs.

Doesn't matter which post the comment appends to, we both know what the intended target was.

So I'll see your pecksniffery and raise you one pettifoggery.

Plus of course you evade the real issue-- why is it so important for you to silence this man?

Are you going to retreat into some evasive posture that pretends this is not your goal?

Or are you just going to roll down the windows and hope that nobody guesses who's been farting on the road trip's sandwiches?

tarabel's picture

 

 

Take 5 lbs of sirloin steak.

Add the meat from 3 King Crab claws.

Stir in 3 quarts of fresh cream and a touch of Grand Marnier.

Add one potato, neatly sliced into very small pieces resembling Vladimir Putin's thingy.

Cook over low heat for an hour. (The soup, not Vladimir Putin's little thingy)

Serves 1 Latvian on a diet or one group of trolls in a basement on Lubianka Street for a week.

Oh, and don't forget to add a sprig of fresh parsley before serving and, for dessert, a couple quarts of  Strawberries Romanoff.

Niall Of The Nine Hostages's picture

All that's in that last article is some pampered princess from suburban Moscow whinging because she forced her husband to take out a mortgage in dollars to buy a huge house they couldn't really afford and now their monthly payments have doubled. (Why? To make believe to her relatives that she was rich?)

Oh, the fifth column can't afford the latest iTurd from California! The second Russian revolution is at hand!

Hysteria. Shortages of food? I wish my weekly grocery bill for the month was USD38. Even if there were, there's no lack of farmland in Russia. People who aren't too proud to grow their own food will be just fine.

Fuck the fifth column. They never lacked for reasons to talk shit about Putin. If it bothers them this much, they can go to Germany and stay there, and clean Mutti's catbox for a living. Their patriotic neighbours, who are well aware that they live far better today than in the days of debt-peonage under Yeltsin, will live, I'm quite sure.

Volkodav's picture

good post

Moscow is some expensive and excessive cost with foolish spenders like in west

on Volga is better..we (she is lawyer) nor none of our friends have toys like newest iphone, etc but LG's L7 and proven moto V9X

we have 7 freezer and 2 cellar for garden, big house on lake no mortgage

no credit, ever   but frugal   low taxes  americans would laugh at gross income, but jealouse we keep more net

Russians do not spend money they do not have normally   do not waste like americans

correct about farmland, I have long experience agriculture and posted some here about farm Volga regions.

 

blog of American Missouri farm raised married a Russian lady lives near Moscow: 

http://windowstorussia.com/

smacker's picture

[thinks]:

Why is it that people use words which are the direct opposite of what they mean?

There was the old "German Democratic Republic" which was anything but democratic.

There was the Nazi quoted - after Hitler gained power - saying "We Now Have The Freedom To Abolish Freedom".

Now we have a Latvian troll "Freedom123", who is actually a fascist and who has zero commitment to freedom whatsoever.

Latvian Potato Soup recipe to follow.

lincis's picture

oh yes, im from Latvia and its full of degenerates like the bastard above :)

tarabel's picture

 

 

Pure ad hominem attack, completely unsubstantiated, and incidentally tarring yourself as a degenerate, since you say that Latvia is "full" of them (as in completely populated). Nice going, slick.

lincis's picture

ok mrs academica, have you been there? do you speak latvian? do you know mentality and way of life there? yes Latvia is full of people who do not have any bloody clue wtf is going on around them, Im not saying I know everything, or that I have close circle of friends in DC or Kremlin, at least I have some sort of level of critical thinking and, I do not swallow everything what mainstream media tries to put out as the "truth". So clearly oyu do not have a fucking clue what are you talking about. 

tarabel's picture

 

 

Why is it so important to you guys that this man be silenced? He calmly states his opinion and supports his observations with third-party citations. Seems like a pretty rational way to carry on a conversation to me.

Clearly, no dissenting voice anywhere would be safe if you guys were in charge of things. He does not represent any danger to human progress and freedom. You do.

If yo do not agree with his viewpoint, then debate him. Offer your own contravailing facts rather than resorting to the tactics of the brown shirts where you shrilly shriek like a clique of teenage girls, shouting him down and hopefully hounding him off the board.

If you had your way, he would never be heard from again. And the same, no doubt, goes for me as well. Not to mention anyone else who does not share your worldview.

Yes, you are quite the freedom fighters yourselves. You fight it every way you can.

 

malek's picture

Yes, we need more trolls permanently spewing one-sided bullshit, as long as each of them calmly states his opinion and supports his observations with third-party citations !

I mean more propaganda is absolutey essential for discussion culture here on ZH

petkovplamen's picture

and what is the real inflation in USA? Been to a USA supermarket lately to check the prices? Been to ANY USA city to see real people suffering, thousands of them on the street?

 

tarabel's picture

 

 

How about you, dear friend?

"Suffering" in America is the equivalent of living large wherever you are from.

Steroid's picture

Without general circulation of specie coin and functioning Real Bill market any attempt will fail.

I hardly believe Russia is the place for such a place that will do it right.

However, whatever is done involving gold in a currency system might accelerate the demise of the dollar.

Buckaroo Banzai's picture

Nice point on the necessity of a Real Bill marketplace. Russia would have to largely disengage from the world economy to make it happen. Russians are big on autarky, so you can't rule out their possible attraction to the idea, however. One would have to analyze their trade flows to get a better idea how practical this is. Given that their exports are largely oil and gas, those are very fungible commodities in high demand so trading partners might conceivably go out of their way to set up trade appropriate trade mechanisms. It's Russian imports that would be the challenge.

Steroid's picture

If everything is based on oil and gas it will be just a PetroRuble. There is no gold involvment needed for that. 

And almost, they have already built that.It could be a great stable foundation for a later gold based currency though.

On the real bill side. Is Russia more autarchic than England was at its introduction? Surely more nationalistic which can be always be a reason to sweep it aside.

BTW, can half of the world use real bills while the other half fights them? I think you would probably need a very strong market ethics which is rather absent in Russia.

headhunt's picture

Adopting a gold standard sounds warm and fuzzy but, in particular, in a communist country you ensure that the entire country, except the elitists, are destitute.

knukles's picture

Oh to be in the Bourgeoisie, now that the USSA's finally here.

Jethro's picture

Heh.  If Russia adopts a gold standard, then by extension, are we all now kulaks?

Volkodav's picture

for americans? nyet, not all....just the working ones with something left the commissars have not taken yet..

Raging Debate's picture

Volkodav - Your Russian. What does it mean when by 2008 we in America had 38 Czars?

I believe the biggest seat of power is the BIS and the pivot East with a gold standard is a feature, not a bug. China as the new reserve currency will be a gold standard, if history is any guide.

I hope the Russian people find freedom after so many years of manipulation by banking. We here are rapidly losing ours in America.

Jethro's picture

Yes, that is precisely what I was implying.  The Free Shit Army does not frequent this site, and they certainly don't wake up before 10 am.

Malachi Constant's picture

>>> ensure that the entire country, except the elitists, are destitute <<<

In other words, in no way different from what has been going on since forever.

headhunt's picture

The USA was not always the USSA

Rusputin's picture

Fiat started in 1973, and it has been a downhill debt ride since then - for the 99%.

Any other questions?

headhunt's picture

It wasn't the inception of a fiat currency that has provided the 'downhill' ride but the adoption of socialist/communist values that has killed countries and economies. Borrowing fiat currency, gold, silver, or any other collateral without ever repaying it will always kill a country. No consequences for your actions always produces tyrants... and slaves.

Rusputin's picture

Testing, testing, 1, 2, 3.

Rusputin's picture

I agree with you in part headhunt,

but I don't think the last 40 years can be described politically, it can only be described as elite theft!

And as you say, it produces tyrants and slaves - this is what upward and outward wealth sucking does to economies.

God bless.

lakecity55's picture

"Adopting a gold standard sounds warm and fuzzy but, in particular, in a communist country like the USSA, you ensure that the entire country, except the elitists, are destitute."

haha

Volkodav's picture

Russian Federation is not communist.

that idea moved with its masters to west

Sandmann's picture

It was a Western system designed on Jewish Millennialist lines by a journalist living in London off a textile manufacturer in Manchester and imposed on Russia by a German agent in 1917

nuke ISIS now's picture

Volo says "No..Rddddaashaa no communist, but we te fucking proloteriat, hah, we no can sy anything against our leader, or we go missing..fuck...now that is a free cuntry...no communist

 

fuck you

smacker's picture

It seems to me that what you and the Latvian troll "freedom123" (and one or two others who support him) choose to ignore by adopting a vitriolic hatred of Putin & Russia, is that the West is rapidly moving towards totalitarian fascism. Call it communism or Marxism if you prefer, it doesn't really matter because there's not a lot of difference between them. Whether one looks at the US under Obola (and also the Reps to an extent) or the UK (ditto the Conservatives & Labour) and Brussels, one sees the same things happening, only differing occasionally by the specifics, timescale and the scale. But the road they're all going down is there for all to see. Foreign policy is being set by neo-cons, many with dual passports.

Few people on ZH have missed that the wars and civil wars in the Middle East (Iraq, Afghan, Libya, Syria etc), Ukraine have all been instigated by Western elites: Washington, Westminster and Brussels etc. The aim is to create political, civil chaos/regime change and seizure/control of the natural resources/economies to extend the Anglo-American hegemonic empire around the world.

Russia and China are two countries who will not allow this to happen to themselves and are standing up to the West because thy believe in a multi-polar world, not a uni-polar one.

Therein lies the big problem for Washington and its warmongering allies: they realise that Western power can only be enforced by starting and winning WWIII. So they are now preparing for that. Their first target is Russia, hence the well documented plan to install NATO in Georgia, now Ukraine (where they've installed the fascist puppet Poroshenko) with a bunch of other -stans in between. They want to surround Russia to pick it off and stir up regime change so they can parachute in a Western puppet, like they've done in Ukraine. When they've consumed Russia, they will go for China. The recent troubles in Hong Kong were stirred up by the West to destablise China. China spotted this and is also preparing itself for confrontation.

It is Putin's resistance to Western warmongering that has earned him admiration by a lot of people in the West because we do not agree with the fascist empire direction our own governments are adopting domestically and geo-politically. It is not in the best interests of our own citizenry. Admiration of Putin is not because he is seen as some sort of angel.

 

Rusputin's picture

Russia only need to team up with Iran and one other major economy to send fiat currencies into a tail spin...

Starting with EEU nations and then who?  Greece of course is a good one. Turkey, maybe Egypt more likely, even Canada; Syria, Cuba, Venezuala, Angola are givens, but once the dominoes start falling it will be rapid. After all, Russia and China can lend gold on account, if nations do not have sufficient, they don't even need to ship the gold. Italy, Spain, Portugal will all be candidates.

For countries that trade in mostly oil and grain, there could be an Oil and Grain Rouble, to give them the most stable currency arrangement and hedge options.

India and China must be itching to introduce the gold exchange standard.

I reckon the gold exchange percentage and the likely fiat exchange rates have already been established, and the reason this has not happened is because they don't want to destroy us totally in the process. It will be a timed event to minimise or maximise global financial carnage - a strategic decision.

Martian Moon's picture

Yes, the gold standard must be multi-national

Russia-China-India could work

Alone, none of these countries is to be trusted, but watching each other to make sure no one breaks the rules it would work

And make this gold back currency electronic and watch it take off worldwide

The banksters' days would be numbered

Joebloinvestor's picture

The US could throw the biggest spanner in the works on this idea.

Just remove the "peg" of the US dollar to gold (approx. $40 @oz).

That will BS the world into thinking the US is going back to a gold standard (it won't) and it would take at least 20 years for the Russians and China to put something together to compete.

Plus who the fuck is going to trust the Russians or China on currency that isn't a reserve currency?

Don't expect the US to be smart enough.