Russia’s recent accumulation of gold is the most profound seismic shift in the global monetary bedrock in decades. Russia’s use of gold as a reserve asset has been increasing steadily since 2000 and the country now ranks as the 5th largest holder of gold reserves, behind the US, Germany, Italy, and France. Russia’s central bank governor said that Russia’s goal is to have at least half of its international reserves in gold within the next 10 years. The impact of Russia’s accumulation of gold cannot be overstated. Experts believe that Russia’s real intention is to keep its gold holdings secret so that other countries will not be aware of its true wealth.
Russia has been working to boost its domestic gold production and reduce its dependence on foreign supplies. In addition, Russia’s central bank has been buying large amounts of gold, increasing its reserves by nearly 60% in the past year. If Russia does indeed plan to back the ruble with gold, it would be a major shift in global finance. Such a move would likely have far-reaching implications for Russia’s economy and its relationship with the rest of the world.
Why? With Russia backing its ruble with gold, the ruble would have more stability and make it more attractive to investors. This is a major shift in policy for Russia and one that would have profound implications for the future of the global economy.
And now we see China following Russia’s lead. Russia now holds the fifth largest gold reserves in the world, and China is quickly catching up with the sixth largest holdings. So why are these two countries buying so much gold? There are a few possible reasons.
First, both Russia and China have recently been under economic sanctions from the West. By increasing their gold reserves, they are less reliant on Western financial systems. Second, gold is seen as a safe haven investment. In times of market turmoil, investors often turn to gold as a way to preserve their wealth. Finally, Russia and China may be trying to increase their influence in the global economy by establishing themselves as major players in the gold market. Russia has long been one of the world’s leading producers of gold, and in recent years they have been increasing their output. It’s now the world’s second-largest producer of gold, behind only China. And there are indications that Russia is looking to increase its production even further. This increased demand for gold is not just coming from Russia. China is also buying more gold, as are other central banks around the world. It appears that Russia and China are leading the way in this new gold rush.
The ruble being backed by gold represents a dramatic change in the foreign currency market. There are currently no countries adhering to a gold standard, even though gold is still being held in reserve by many countries, as can be seen in the graph below.
March 2022: Worldwide gold reserves in metric tons of largest gold holding countries/ Statista
It’s been a long time coming, but it looks like the global monetary system is finally starting to realign itself. For years, the dollar has served as the world’s reserve currency, allowing the United States to effectively print money and rack up debt with impunity. However, this system is now beginning to unravel, as Russia, China, India, Saudi Arabia, and other countries have started to move away from the dollar and towards commodity-backed currencies.
This has major implications for the global economy, and it’s likely that we’ll see a major shift in the balance of power in the coming years. Russia, in particular, has been stockpiling gold in recent years, and it seems clear it’s positioning itself to be a major player in the new system. With the dollar losing its stature, it’s only a matter of time before the United States is forced to reckon with its debt problem. It will be interesting to see how this all plays out.
Gold is seen as a safe haven asset during times of economic uncertainty. Central banks are diversifying away from US dollars and into other assets, like gold and other commodities, to protect their reserves from potential devaluation if the dollar weakens. Russia’s central bank has been one of the most active buyers of gold this year, with its reserve holdings now worth over $140 billion.
It appears that domestic markets still haven’t accepted the enormity of this situation. Apart from the strengthening of the ruble, the FX market has been quite calm. It seems this changing situation hasn’t yet been taken on-board by financial ‘thought leaders’ or US politicians. But some people are listening and taking note: Last week Ronan Manly, reporting for BullionStar.com wrote the following –
In an interview last week with RG (Rossiyskaya Gazeta), Nikolai Patrushev, Secretary of the Russian Federation’s Security Council, said that experts in Russia are currently working on a project to use commodities, like gold, to back the Russian ruble.
Manly generously offered to translate the interview, which was crystal clear in stating Russia’s intention to use gold to back the ruble.
When asked what needed to be done to guarantee the ruble’s sovereignty, Nikolai Patrushev noted that a number of conditions are necessary for a national financial system to be sovereignized.
Perhaps most importantly, the means of payment must have intrinsic value. This can be gold, silver, or some other commodity that is universally recognized as having value. In addition, the means of payment must be backed by the full faith and credit of the issuing government. This ensures that the currency will be accepted by others in exchange for goods and services. Finally, the currency must be supported by a sound monetary policy that ensures price stability. Without these conditions in place, it would be very difficult for a national financial system to operate independently from the global economy. Experts in the scientific community are now proposing a two-circuit monetary and financial system in which gold circulates in one circuit and paper or fiat money circulates in the other. Today, we have a one-circuit system in which fiat money, not backed by gold, circulates. In a two-circuit system, gold would be circulating alongside fiat money.
With a two-circuit system, there would be no need for gold reserves, as gold would be circulating alongside fiat money. This would allow for a more stable and efficient monetary and financial system.
Manly concluded that it’s becoming clear that the Russian Government is creating a gold and commodity-backed ruble with an intrinsic value outside the sphere of the US dollar. We’re now seeing the Kremlin and Nikolai Patrushev confirming the linking of gold and other commodities to the Russian ruble; in other words, the start of a monetary system that’s multilateral gold and commodity-backed.
Adding to Manly’s analysis, it appears that China will not be far behind Russia when it comes to adopting a gold standard.
Russia has been one of the most vocal opponents of the Western financial system for years. Russia’s central bank has been working on a digital currency that would be tied to gold, and it’s widely believed that Russia was motivated to create this currency in response to the sanctions that have been placed on Russia by the West. Russia’s moves towards a digital currency have been closely watched by China, as China is Russia’s largest trading partner. In recent years, China has been buying more and more oil from Russia, and it’s possible that China could start using Russia’s digital currency in order to trade with Russia. If this happens, it would be a major blow to the Western financial system.
Recent years have seen a dramatic increase in cooperation between China and Russia. The two countries are united by their mutual desire to challenge the dominance of the United States and its allies, and they have been working increasingly closely together to achieve this goal. In particular, Russia has been supplying China with military hardware and technology and the two countries have been conducting joint military exercises.
This close relationship is a direct result of the growing tensions between Russia and the West, particularly NATO and the United States. Russia feels threatened by NATO’s expansion into Eastern Europe and is seeking to build up its own military power in order to offset this threat. At the same time, Russia is also seeking to reduce its dependence on the West by forging closer ties with China. This strategy appears to be paying off, as Russia and China are now closer than ever before.
Russia has been increasingly accepting payment for oil in gold or rubles, rather than US dollars. This shift reflects Russia’s desire to reduce its dependence on the dollar, which it views as a volatile and unreliable currency. Russia’s move away from the dollar is significant insofar as it demonstrates Russia’s growing economic independence from the United States.
China, meanwhile, is in the process of launching its own digital currency, the so-called “digital yuan.” The digital yuan is currently being tested in various Chinese cities, and it’s expected to become more widely available in the second half of 2021. Though the digital yuan is not yet fully operational, it’s already being used for a variety of transactions, including retail purchases and peer-to-peer payments. The launch of the digital yuan represents a major step forward in China’s plans to establish itself as a leading player in the global economy.
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