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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lakecity55's picture

Dear Vlad,

I have always admired you, but not in a gay way.
I wish we had a man who loves his country instead of, well, you know who.

Hold off until we can stack moar.

Yours, respectfully,

ZH Stackers.

nuke ISIS now's picture

translation of lakecity55 post

 

Vlad, i want to blow you, badly, because I lakecity55, have nothing in my worthless life othr than the cold gherkin i keep up my lakecity55 ass

 

basho's picture

what a mental giant you are.

never get your mind beyond your crotch do you. imbecile LOL

erk's picture

I think gold backing the ruble would be a great idea, I doub't if they have the guts to do it, too much orginization for such a radical shift even for Putin. It would certainly bring stability.

 

Volkodav's picture

straight backing now would get the vaults drained..

Rock On Roger's picture

Value of energy should be stored in gold.

For example one gigajoule of energy is represented by one microgram of gold.

 

Gold has been undervalued for a very long time, since bauers took over western banking.

 

Stack On

Atticus Finch's picture

Depending on their tonnage. The only threat to any gold based currency is the demand for gold in exchange for rubles. If the tonnage is sufficient, than there is no problem.

Rubbish's picture

I look forward to the day I can walk into the bank and leverage my physical 100-1.

 

PERMANENT VACATION !

 

Gold Bitchezzz....I pick up pennies

are we there yet's picture

A few months ago I was In Sochi Russia at a bank exchanging dollars and noticed that the bank had a prominent display promoting the sale of various gold russian coins.

Atticus Finch's picture

"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."

Not following at all. The Fed and ECB hate gold. How would a gold central banker fall under their influence. It seems that opposite would be true.

fredquimby's picture

The ECB loves gold. It marks to market it's gold on it's balance sheet every quarter. (Known as the mark to market party in some circles...).

Here is the last one:

http://www.ecb.europa.eu/press/pr/wfs/2015/html/fs150113.en.html

Cheers!

StrawberryBlonde's picture

The following observation is proof that Russia is, indeed, involved in the fighting in the eastern part of the Ukraine...Putin wouldn't be included in the so called, "peace talks" if Russia wasn't involved in the "war against Ukraine," now would he!...think about it...

nuke ISIS now's picture

S&P Downgrades Russian credit to JUNK

http://www.sprottmoney.com/news/standard-poors-slashes-russian-credit-to...

The reason?

"Standard and Poors cites poor leadership and its ability to manage its economy in a way that the market would consider productive to growth."

Yes thats right the leader you propagandists so desire to Blow, has crippled your cuntry

corsair's picture

Last I heard, S&P ratings are not very reliable.

They tend to end up in court.

DIGrif's picture

Wonder how they are rated on the UCRG? In case you don't know, that is Russia and China's "S&P" if you will. I would be willing to bet the USA is rated at junk status there. But do we care? Do you think they care about our S&P? Give you a hint, it is a two letter word starting with N and ending with O.

basho's picture

S&P has been downgraded to junk after buying off the ussa.

corsair's picture

 Putin wouldn't be included in the so called, "peace talks" if Russia wasn't involved in the "war against Ukraine," now would he!...think about it...

Does that mean that France and Germany are also involved in the "war against Ukraine"?...think about it...

No rush...take your time

basho's picture

no, you think about it.

who should be there?

maybe kerry'

naive logic, rewind.

Pascal1967's picture

Rehash alert! didn't you post this EXACT SAME bullshit story a year ago? WTF? Zerohedge used to mean something ....

billwilson's picture

Got to agree ... really starting to question the judgement of whoever picks the posts here. They must be real short of good material to publish this and so much of the other rubbish that has shown up lately.

Rock On Roger's picture

Been here a real long time, eh Bill?

Ditch's picture

No. That might enrich non-oligarchy.

kchrisc's picture

Directly, or indirectly, Russia's BTU exports get turned into to gold.

Almost too funny to watch.

The banksters need to repay us.

NickVegas's picture

Gold fever, the barbaric relic.

q99x2's picture

The big dog barks.

cherry picker's picture

If I am not mistaken, when a fiat fails and hyperinflation takes place, they replace it with another fiat after a country goes bankrupt.

 

bid the soldiers shoot's picture

And yet Nixon was a thing of beauty compared to Obama

BlackVoid's picture

"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."

 

NO, it did not. That is mostly just wishful thinking.

BlackVoid's picture

"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."

 

NO, it did not. That is mostly just wishful thinking.

bid the soldiers shoot's picture

off topic

 

In case you're wondering where Jumbotron has been.

http://sputniknews.com/us/20150212/1018190668.html

walküre's picture

Don't know about you guys but I've been feeling for a while now that money seems worth less and less. I don't even like the look of it anymore. I tip the waitress and hairdresser really well because what's a ten or  twenty really worth anymore? I buy better food and don't even look at prices because money doesn't seem to run out. I know there's an end to this and all that but part of me thinks, this is so surreal and it can't just be me doing and feeling this. That's not my nature at all. I used to be alot more tight with money and saving up. What's the point? I buy silver regularly and occasionally some gold when the price is right.

One thing I won't spend money on is stocks. Can't hold or feel 'em. Valuations are so bizarre. Compensation of the top shelf is out of this world already. Governments operating on trillion Dollar budgets and throwing numbers around in the billions and trillions like it doesn't mean anything.

Guess what, it doesn't mean anything. Money is being created from thin air and being loaned out at ZERO percent for 6 years now. You don't think that has any effect on our economy or our collective psyche?

Eventually the cattle class will wake up to this and won't work for Dollars or can't buy anything with their Dollars anymore.

THE VALUE OF MONEY IS WORTH LESS AND LESS.

That is the loss of faith. When that spreads, guys watch out. We're hyperinflating from one day to the next and nothing can stop it.

Sad, really. Our kids will have to cope with it. Only thing we can do is prepare them for a society where the "official" currency doesn't buy anything.

GoldIsMoney's picture

A long long time ago I wrote:

"There is but one thing (I’m just wishing for) which could change things considerably. This would be the end of the Fiat-money fractional reserve system… I predict for the country breaking this taboo, will prosper beyond any imagination. Some countries currently have this chance, I bet they will not see it and do the same mistakes we’ve done with your federal banks. I do not expect it in the EU nor US. This countries still have no clue about “earning” money any more. The sums mentioned in the area investment banking etc, have not “foundation”, but they have much influence and you see what happens if the do wrong. The countries will fail them out. And the politicians do profit massively from this…"

 

It would surprice me as hell if it would be Russia, but well at least it's not the EU or the USA.....

 

I'm still bound to believe the following also:

"This leads to my last prediction. We will hear more often the Phrase (it’s as all just a word we have for that in German “alternativlos” (you can roughly translate it as “we have no choice”, unparalleled, the one and only choice) . If it comes to more control they will probably not name it as such. It will be “laws against speculation”, “program-to-enhance-competion”, “law-for-equal-opportunities” or such but in fact it means. “We are right, you have to comply or we bring you to jail! (7 th Prediction)"

Well if you just have to go to jail you may be still lucky. Who will bet it will not end with the death sentence?

GuusjA's picture
GuusjA (not verified) GoldIsMoney Feb 13, 2015 6:32 AM

Yanis Varoufakis, de Griekse minister van Financiën, hanteert blijkbaar het script van Schoppen8 en vertelt tegen nieuwsuur dat  Eurogroepvoorzitter Jeroen Dijsselbloem en de Griekse premier Alexis Tsipras een verstandig compromis hebben gesloten om de aanpak van het Griekse schuldenprobleem te bezien als een ParadigmaConflict. Ofwel welke 'CONTrACTEN' zullen de 3e SpinozaGolf overleven en welke niet.

 

http://www.blikopnieuws.nl/2015/miljoenenpremie-voor-36-vooraanstaande-w...

 

Een commissies van gerenommeerde wetenschappers uit de verschillende MuntUnies zijn al aan het bekijken welke contracten niet voldoen aan de 'Logica van de 1'. Het selecteren van de voorstellen van de eurozone is nogal problematisch, omdat KoeneBert wil blijven investeren om 'de verdachten van de MH17-ramp' in de publiciteit te krijgen. Blijkbaar wil netwerk @MinPres geen akkoord voor amnestie voor misdaden die zijn gepleegd om het systeem 'Liegen om te Leven' in de lucht te houden. Volgens de ‘centrale bank der centrale banken’, de Bank for International Settlements in Basel, zijn er voor maar liefst $ 26,45 biljoen (ruim € 23 biljoen) aan derivaten –speculatieve financiële producten met een zeer hoog risico- direct verbonden aan de euro. De totale wereldwijde derivaten zeepbel bedraagt overigens een duizelingwekkende $ 700 biljoen. Dit alles zal als sneeuw voor de zon verdwijnen, wanneer Yanis Varoufakis zijn zin kan doordrijven.

 

http://nos.nl/artikel/2019021-koenders-geen-complicaties-vervolging-mh17...

 

BloemigeJeroen: "Het is heel ingewikkeld. Je kunt alleen geld uitgeven als je het hebt. Griekenland wil heel veel maar er is heel weinig geld. Dat is echt een probleem voor de Grieken". 

 

http://nos.nl/artikel/2019018-dijsselbloem-pessimistisch-over-snelle-sta...

 

Varoufakis: "We gaan nu kijken aan welke oude afspraken we ons moeten houden en welke van onze eigen ideeën we ervoor in de plaats kunnen brengen. Het gaat daarbij niet om de middelen (geld kan naar believen worden bijgedrukt), maar het gaat om het doel (hoe gaan we het systeem 'Leven en Laten Leven' invoeren). We moeten ervoor zorgen dat de Griekse economie weer gaat groeien, dat Griekenland in staat is zijn schulden te betalen en dat er een einde komt aan de humanitaire crisis die de afgelopen jaren is ontstaan."

 

Het is duidelijk dat Dijsselbloem voor de wekelijkse ministerraad nog niet wil denken volgens de structuren van het DAB-systeem. Blijkbaar wil hij zijn kruit droog houden, wanneer hij maandag met de andere ministers van Financiën van de eurolanden weer bij elkaar gaan zitten. Volgens hem zijn de ambities van de nieuwe Griekse regering torenhoog en "de mogelijkheden gezien de toestand van hun economie heel beperkt".

basho's picture

"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. "

BS

Quaderratic Probing's picture

Flogging this dead horse is not going to get it to run

fredquimby's picture

".....has profoundly damaged Moscow's international standing"

Personally I have never regarded Moscow as highly as I do at the moment. Mainly, for not retaliating against the blatant EU/US/UK acts of war (the sanctions) and the tales they have been spreading about Russian involvement in MH17 and the Ukraine.

Whatever happened to the MH17 black box anyway? Oh yeah, it went to England for analysis......

 


DonGenaro's picture

my law of mainstream "news":
if it's covered in the MSM, then it's either misleading, an outright lie, or is of no importance.

Izznogood's picture

If Russia would go to the Gold Standard their gold reserves would be depleted before you could say "Vladimir" ...

Jano's picture

based on your statement, it seems, that you did not read the article, or you did not grasp the problem, or you are a shill.

GMadScientist's picture

It wouldn't just be them and their partner in crime has you by your trillion dollar debt balls.

FXD's picture

Russia will definitely embrace the gold standard unless Russia's reserves are (have already been?) misappropriated by Putin's crony friends lol

Firewood's picture
Firewood (not verified) Feb 13, 2015 5:53 AM

"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." 

 

First propaganda blast was enough to prove this shill has nothing to say.

GMadScientist's picture

Just don't ask which isotope when you redeem.

GoldSilverBitcoinBug's picture

Golden Rubble ?

Bring it on !

Check your nuke readiness just in case.

USA would never abandon her hegemony without a fight.

Clowns on Acid's picture

With the level and velocity of illegal immigration in the US in the last 5 years the fight over hegemopny will be domestic before it becomes foreign. Putin and China know this. Why don't you?