Saturday, February 28, 2015

Sputnik News: Is Russia Preparing to Move to the Gold Standard?

Just a few days ago we ran this blog post about an article on the Mises Institute site. That article suggested that Russia might consider some kind of return to a gold standard. Now the Sputnik News has run a review of the Mises article which you can read here. This is interesting because Sputnik News is a Russian media outlet which means Russian officials are certainly aware of this article.

We have noted here that we have not found any indication from articles we research that either Russia or China are in the process of moving to a gold standard, despite both countries continuing to buy large amounts of gold. We also said if we did see any information supporting the idea that they might be moving towards a gold standard, we would cover it here. So this Sputnik News article is posted here for readers to consider. However, even this article still concludes with a quotation from a Russian expert that a return to a gold standard is unlikely. Below are quotes from this Sputnik News article and then a few added comments.


"Mises Institute contributor Marcia Christoff-Kurapovna believes that Russia may be in the process of planning for the introduction of a gold-based currency, and would be better off for it."

"The columnist notes that several factors may play into the decision, including Russia's recent partial detachment from Western economic and financial structures, sanctions, the ruble's devaluation and economic decline."

. . . . 

"The expert argues that "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." The expert echoes commentary made by Russian economists and financiers, including recently by Central Bank Head Elvira Nabiullina,  namely, that Russia's debt to GDP ratio is low (equivalent to $478 billion in a $2 trillion economy), with most of its external debt in private hands, which has also declined by $100 billion, and with a budget deficit projected at less than 1 percent of GDP."

. . . . 

"Pointing out the potential benefits of the switch, the columnist argues that a gold-backed currency would turn the ruble into a more respectable world currency, while also making Russia "a more reliable and trustworthy trading partner."

. . . . .

"Christoff-Kurapovna points out that the transition to the gold standard would not be easy for Russia: "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)."
. . . . . 

Broaching the subject of Russia's possible switch to the gold standard, columnist Evgeni Lihachev noted recently that even Russia's moves to shift its reserves to non-dollar-based assets and to trade energy resources in ruble-denominated valuations have been viewed with hostility by Washington. An attempt to transition to a gold reserve would be much more serious, Lihachev says, explaining that "the fates of [Iraq's Saddam] Hussein and [Libya's Muammar] Gaddafi in these matters serving as a litmus test." Many Russian geopolitics and economics experts are convinced that the 2011 Western military campaign against Gaddafi was related directly to the latter's plans to stop selling oil in US dollars and to introduce a gold-backed regional currency which would have devastated Western fiat currencies. The earlier invasion of Iraq is similarly believed to be linked to the country's move toward independence from the dollar.  Lihachev points out that the United States cannot "act like in Iraq and Libya in relation to Russia…and those measures which it could take it have already been taken."

. . . . . 

"In light of China's continued agreement to ruble denominated gas contracts, Lihachev notes that "one gets the feeling that China knows more than they let on." The expert further notes that "this is indirectly confirmed by the almost synchronous launch by Russia, China and Kazakhstan in actively buying physical gold for national reserves." Ultimately, Lihachev notes that "of course, we still have a long way to go to reach the 'official gold reserves' held by the US, but in the event of a transition to the gold standard, what is important is not so much the amount of gold as the ratio of the reserves to the money supply."

. . . 

In a bid to counter gold-rush sentiment among both the Russian government and Russian citizens, Former advisor to the Chairman of the Central Bank, financial Obudsman Pavel Medvedev recently told Russia's Svobodnaya Pressa that a gold-based currency is "absolutely impossible" for Russia or for any other country in the world, due to the precious metal's limited supply. He noted that the modern economy needs far more financial liquidity than a gold standard backed currency can provide. "In a word," he stated, "entering the gold standard is not possible –there is not enough gold to achieve it." It remains to be seen what the Russian leadership really thinks about the idea.

My added comments:

This article is noteworthy because it comes from a Russian media source that we know Russian officials endorse. The article not only discusses a return to a gold standard for Russia, it quotes a Russian journalist as saying that the US attacks against Iraq and Libya were done to protect the US dollar. Of course, a Russian (or Chinese) move to a gold backed currency would be a direct attack on the US dollar. This journalist also notes that what matters in a gold standard is not how many ounces of gold you own, but the ratio of the gold you own to the total money supply (this is similar to a point Jim Rickards made in a recent article that a gold to GDP ratio is what matters).

While all this is interesting, keep in mind that the concluding paragraph of the article quotes a former advisor to the Chairman of the Russian Central Bank as saying, "a gold based currency is absolutely impossible for Russia or for any other country in the world" . . . 

After reading all that, keep in mind Jim Rickards article (The Fix is In) saying that Russia and China are buying gold not to back their own currencies, but to have more gold reserves later when there is a global conference to reset the monetary system. He says the movement of more gold to these nations is needed to to get them closer to what the western nations have when the monetary reset takes place. He believes that the SDR used at the IMF will become the new currency, with each nation's gold reserves giving them more stake in the negotiations. 

Whatever Russia's (and China's) intentions are related to gold, we will cover it here.

Added note: Here is an article about another BRIC's nation (India) preparing to monetize gold in that country.

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