Gold-backed ruble could be a game-changer

[Hydrogen]

Linking the currency to gold and energy is a paradigm shift for the global economy, a precious metals analyst tells RT

The Bank of Russia has resumed gold purchases this week, but more importantly, the regulator is doing so at a fixed price of 5,000 rubles ($59) per 1 gram between March 28 and June 30, raising the possibility of Russia returning to the gold standard for the first time in over a century.

If the country takes the next step, as has been proposed this week, to sell its commodities priced in rubles, these combined moves could have huge implications for the ruble, the US dollar, and the global economy.

To get some answers, RT spoke to precious metals analyst Ronan Manly at BullionStar Singapore.

— Why is setting a fixed price for gold in rubles significant?

By offering to buy gold from Russian banks at a fixed price of 5,000 rubles per gram, the Bank of Russia has both linked the ruble to gold and, since gold trades in US dollars, set a floor price for the ruble in terms of the US dollar.

We can see this linkage in action since Friday 25 March when the Bank of Russia made the fixed price announcement. The ruble was trading at around 100 to the US dollar at that time, but has since strengthened and is nearing 80 to the US dollar. Why? Because gold has been trading on international markets at about US$62 per gram which is equivalent to (5,000 / 62) = about 80.5, and markets and arbitrage traders have now taken note, driving the RUB/USD exchange rate higher.

So the ruble now has a floor to the US dollars, in terms of gold. But gold also has a floor, so to speak, because 5,000 rubles per gram is 155,500 rubles per troy ounce of gold, and with a RUB/USD floor of about 80, that’s a gold price of around $1,940. And if the Western paper gold markets of LBMA/COMEX try to drive the US dollar gold price lower, they will have to try to weaken the ruble as well or else the paper manipulations will be out in the open.

Additionally, with the new gold to ruble linkage, if the ruble continues to strengthen (for example due to demand created by obligatory energy payments in rubles), this will also be reflected in a stronger gold price.

— What does it mean for oil?

Russia is the world’s largest natural gas exporter and the world’s third largest oil exporter. We are seeing right now that Putin is demanding that foreign buyers (importers of Russian gas) must pay for this natural gas using rubles. This immediately links the price of natural gas to rubles and (because of the fixed link to gold) to the gold price. So Russian natural gas is now linked via the ruble to gold.

The same can now be done with Russian oil. If Russia begins to demand payment for oil exports with rubles, there will be an immediate indirect peg to gold (via the fixed price ruble – gold connection). Then Russia could begin accepting gold directly in payment for its oil exports. In fact, this can be applied to any commodities, not just oil and natural gas.

— What does that mean for the price of gold?

By playing both sides of the equation, i.e. linking the ruble to gold and then linking energy payments to the ruble, the Bank of Russia and the Kremlin are fundamentally altering the entire working assumptions of the global trade system while accelerating change in the global monetary system. This wall of buyers in search of physical gold to pay for real commodities could certainly torpedo and blow up the paper gold markets of the LBMA and COMEX.        

The fixed peg between the ruble and gold puts a floor on the RUB/USD rate but also a quasi-floor on the US dollar gold price. But beyond this, the linking of gold to energy payments is the main event. While increased demand for rubles should continue to strengthen the RUB/USD rate and show up as a higher gold price, due to the fixed ruble - gold linkage, if Russia begins to accept gold directly as a payment for oil, then this would be a new paradigm shift for the gold price as it would link the oil price directly to the gold price.  

For example, Russia could start by specifying that it will now accept 1 gram of gold per barrel of oil. It doesn’t have to be 1 gram but would have to be a discounted offer to the current crude benchmark price so as to promote take up, e.g. 1.2 grams per barrel. Buyers would then scramble to buy physical gold to pay for Russian oil exports, which in turn would create huge strains in the paper gold markets of London and New York where the entire ‘gold price’ discovery is based on synthetic and fractionally-backed cash-settled unallocated ‘gold’ and gold price ‘derivatives.

— What does it mean for the ruble?

Linking the ruble to gold via the Bank of Russia’s fixed price has now put a floor under the RUB/USD rate, and thereby stabilized and strengthened the ruble. Demanding that natural gas exports are paid for in rubles (and possibly oil and other commodities down the line) will again act as stabilization and support. If a majority of the international trading system begins accepting these rubles for commodity payments arrangements, this could propel the Russian ruble to becoming a major global currency. At the same time, any move by Russia to accept direct gold for oil payments will cause more international gold to flow into Russian reserves, which would also strengthen the balance sheet of the Bank of Russia and in turn strengthen the ruble.

Talk of a formal gold standard for the ruble might be premature, but a gold-backed ruble must be something the Bank of Russia has considered.    

— What does it mean for other currencies?

The global monetary landscape is changing rapidly and central banks around the world are obviously taking note. Western sanctions such as the freezing of the majority of Russia’s foreign exchange reserves while trying to sanction Russian gold have now made it obvious that property rights on FX reserves held abroad may not be respected, and likewise, that foreign central bank gold held in vault locations such as at the Bank of England and the New York Fed, is not beyond confiscation.  

Other non-Western governments and central banks will therefore be taking a keen interest in Russia linking the ruble to gold and linking commodity export payments to the ruble. In other words, if Russia begins to accept payment for oil in gold, then other countries may feel the need to follow suit.

Look at who, apart from the US, are the world’s largest oil and natural gas producers - Iran, China, Saudi Arabia, UAE, Qatar. Obviously, all of the BRICS countries and Eurasian countries are also following all of this very closely. If the demise of the US dollar is nearing, all of these countries will want their currencies to be beneficiaries of a new multi-lateral monetary order.  

— What does this mean for the US dollar?

Since 1971, the global reserve status of the US dollar has been underpinned by oil, and the petrodollar era has only been possible due to both the world’s continued use of US dollars to trade oil and the USA’s ability to prevent any competitor to the US dollar.

But what we are seeing right now looks like the beginning of the end of that 50-year system and the birth of a new gold and commodity backed multi-lateral monetary system. The freezing of Russia’s foreign exchange reserves has been the trigger. The giant commodity strong countries of the world such as China and the oil exporting nations may now feel that now is the time to move to a new more equitable monetary system. It’s not a surprise, they have been discussing it for years.  

While it’s still too early to say how the US dollar will be affected, it will come out of this period weaker and less influential than before.      

— What are the ramifications?

The Bank of Russia’s move to link the ruble to gold and link commodity payments to the ruble is a paradigm shift that the Western media has not really yet grasped. As the dominos fall, these events could reverberate in different ways. Increased demand for physical gold. Blowups in the paper gold markets. A revalued gold price. A shift away from the US dollar. Increased bilateral trade in commodities among non-Western counties in currencies other than the US dollar.



https://www.rt.com/business/553099-gold-backed-ruble-gamechanger-west/

....


I am skeptical of claims russia will back the ruble with gold.

Other nations have made similar announcements in the past only a few years ago.

Gold-backed yuan may challenge flagging dollar

 AUGUST 12, 2020

One of President Xi Jinping’s top priorities is increasing the yuan’s role in global trade. That, of course, would mean making the currency fully convertible and foregoing all capital controls – things that aren’t going to happen in 2020.

All this has observers getting creative. Among them is economist Liu Shanen, secretary-general at the Beijing Gold Economic Development Research Center. In a recent interview with news portal Guancha, Liu detailed a plan to “revive the gold standard” as the US dollar loses luster.

https://asiatimes.com/2020/08/gold-backed-yuan-may-challenge-flagging-dollar/

So it seems we have proposals made by china and russia to back their currencies with gold over the last 2 years.

As part of a strategy to quicken their replacement of the US dollar as a diminishing global reserve currency.

Economic sanctions and financial war waged against russia could serve as incentive for them to fast track their adoption of a gold standard before china does.

This appears to be one aspect of russia's economic situation which is being neglected atm which could use some attention from crypto and precious metals sectors.

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[jackg]

I'd say, since it comes from rt, they're probably scrambling to find something to give people hope the ruble will stay strong enough to not be devalued further (or back to where it was).

Pegging the ruble to gold or oil might do something useful but it might also cause an issue since the country is at war because they might have to work out how to actually access the gold they accept.

It'd be hard to facilitate high volume trading of assets like gold in this case imo and the chance of anything carrying it or the physical gold being confiscated might be high (although I think India and China have high reserves of gold themselves).

I think we'll see a lot of threats that rubles should be accepted while seeing no actual efforts put into doing that much. As much as the US government can't be trusted that well, they have an economy to keep strong - Russia's economy is tiny in comparison.

[avikz]

Russia has to find another way to continue with the global trade and since they have been thrown out of the SWIFT system, they would certainly want to continue with their own currency. But I think it's only a proposal for now and no concrete decision has been made yet. While Russia is demanding only Rubble payments in exchange of their gas and oil which will force some countries to buy Rubble to support its value. Also he has proposed to peg 5000 Rubbles with the value of 1 gram of fine gold. It's a masterstroke from where I see it!

Russia is the second highest global natural gas supplier just after Unites states and even during the war, they were not replaced from its position. So seeking only Rubble payments for their gas supply and pegging the Rubble value with Gold, will reduce dollar dominance from this sector of world trade. Also it will support the value of Rubble from falling down. It is indeed a game changer in many aspects!

[Poker Player]

Linking the currency to gold and energy is a paradigm shift for the global economy, a precious metals analyst tells RT

The Bank of Russia has resumed gold purchases this week, but more importantly, the regulator is doing so at a fixed price of 5,000 rubles ($59) per 1 gram between March 28 and June 30, raising the possibility of Russia returning to the gold standard for the first time in over a century.

If the country takes the next step, as has been proposed this week, to sell its commodities priced in rubles, these combined moves could have huge implications for the ruble, the US dollar, and the global economy.

To get some answers, RT spoke to precious metals analyst Ronan Manly at BullionStar Singapore.

— Why is setting a fixed price for gold in rubles significant?

By offering to buy gold from Russian banks at a fixed price of 5,000 rubles per gram, the Bank of Russia has both linked the ruble to gold and, since gold trades in US dollars, set a floor price for the ruble in terms of the US dollar.

...

Talk of a formal gold standard for the ruble might be premature, but a gold-backed ruble must be something the Bank of Russia has considered.    

There is an essential difference between buying gold with rubles at a fixed price and what is being said about tying the ruble to gold. To really tie it would be to commit to giving x amount of gold per ruble, as was done before with the gold standart but that is not what we are talking about.

I agree that it is a move that can help strengthen the currency in the short term but it seems to me that the news has been overhyped in some media.

I am skeptical of claims russia will back the ruble with gold.

Me too.

[be.open]

I am skeptical of claims russia will back the ruble with gold.

I think you are right in your doubts, especially since this is not a peg of the ruble to gold, but an obligation to buy gold at a fixed price in rubles, that is, support for the ruble from below.

I think a full return to the gold standard in a single country is impossible and impractical. Partly because the price of gold is determined by a consortium of several banks and this mechanism is not entirely market driven, not 100% determined by the current balance of supply and demand (therefore, spreads between the prices of "paper" and "physical" gold are regularly observed).

Pegging the ruble to gas is a more interesting phenomenon, because money in itself is a kind of life force equivalent and tying a specific currency to a specific energy resource does not look too artificial, and therefore the "gas_ruble" can be successful and viable, like the "oil_dollar" for example.

[NeuroticFish]

Linking the currency to gold and energy is a paradigm shift for the global economy, a precious metals analyst tells RT

The Bank of Russia has resumed gold purchases this week, but more importantly, the regulator is doing so at a fixed price of 5,000 rubles ($59) per 1 gram between March 28 and June 30

Do they have enough gold for backing for real all the rubles in circulation? I highly doubt it.
I see it as a desperate PR stunt to show why they forcefully keep the ruble "price" high.
And as I said, it's PR. They're lying (what's new?). They don't have the gold for it, hence it's somewhere between advertising and actual scam.

[be.open]

Linking the currency to gold and energy is a paradigm shift for the global economy, a precious metals analyst tells RT

The Bank of Russia has resumed gold purchases this week, but more importantly, the regulator is doing so at a fixed price of 5,000 rubles ($59) per 1 gram between March 28 and June 30

Do they have enough gold for backing for real all the rubles in circulation? I highly doubt it.
I see it as a desperate PR stunt to show why they forcefully keep the ruble "price" high.
And as I said, it's PR. They're lying (what's new?). They don't have the gold for it, hence it's somewhere between advertising and actual scam.

I don't understand the reason for your doubts. From 2014 to 2020, the Central Bank of Russia actively increased the share of gold in its gold and foreign exchange reserves, buying up all the gold that is mined in Russia. As of February 1, 2022, the Central Bank has gold worth $132 billion (about 2,300 tons).

Name at least one major economy in the world that is living within its means with a sustainable budget surplus and does not have a large external debt. Only Russia, there is no other answer. Russia can at any time immediately fully repay its foreign debt in gold and withdraw from the external borrowing market, and this will not affect its current cash flows in any way.

[NeuroticFish]

I don't understand the reason for your doubts.

Because they have a solid history of lying about.. basically everything.

From 2014 to 2020, the Central Bank of Russia actively increased the share of gold in its gold and foreign exchange reserves, buying up all the gold that is mined in Russia. As of February 1, 2022, the Central Bank has gold worth $132 billion (about 2,300 tons).

By the data I've found in a very quick search, the money supply in 2020 was 12.431 trillion rubles and I expect in 2022 the number is bigger. So a simple math tells that at this rate they're at least 186.2 tons of gold short. It's much better than expected (although I have my strong doubts about how correct/real those numbers are), but still not covered 100%.

Name at least one major economy in the world that is living within its means with a sustainable budget surplus and does not have a large external debt. Only Russia, there is no other answer. Russia can at any time immediately fully repay its foreign debt in gold and withdraw from the external borrowing market, and this will not affect its current cash flows in any way.

Russia is - by far - not something I would boast as major economy. They don't produce almost anything desired by the other economies, almost all they sell is resources. What's the merit in that?!
Also I live in a country that - before the iron curtain has fallen - tried hard to pay its external debts in full. I do remember how bad it was for the population, so, again, I would not boast this unless I am indoctrinated and don't want to see the reality in full.


So no, you didn't convince me.

[be.open]

From 2014 to 2020, the Central Bank of Russia actively increased the share of gold in its gold and foreign exchange reserves, buying up all the gold that is mined in Russia. As of February 1, 2022, the Central Bank has gold worth $132 billion (about 2,300 tons).

By the data I've found in a very quick search, the money supply in 2020 was 12.431 trillion rubles and I expect in 2022 the number is bigger. So a simple math tells that at this rate they're at least 186.2 tons of gold short. It's much better than expected (although I have my strong doubts about how correct/real those numbers are), but still not covered 100%.

To fully ensure the entire money supply with gold? In Russia, there is a very strong shortage of money supply compared to other countries, but to demand that the entire money supply be fully backed by monetary gold on the balance sheet of the Central Bank is a bit too much, don't you think?

[NeuroticFish]

To fully ensure the entire money supply with gold? In Russia, there is a very strong shortage of money supply compared to other countries, but to demand that the entire money supply be fully backed by monetary gold on the balance sheet of the Central Bank is a bit too much, don't you think?

Indeed, it is too much. At least we agree on this. Yet, it's not me boasting this, the article premise is that Russian Central Bank will have the Ruble backed by gold.
And math has shown that this is not possible, not fully, even at the discounted price they work with.

[be.open]

To fully ensure the entire money supply with gold? In Russia, there is a very strong shortage of money supply compared to other countries, but to demand that the entire money supply be fully backed by monetary gold on the balance sheet of the Central Bank is a bit too much, don't you think?

Indeed, it is too much. At least we agree on this. Yet, it's not me boasting this, the article premise is that Russian Central Bank will have the Ruble backed by gold.
And math has shown that this is not possible, not fully, even at the discounted price they work with.

I said directly in my first post on this topic that a return to the gold standard for Russia (and any other single country in the world) is now impossible and impractical. Pegging the ruble to energy resources has more prospects. However, at the same time, the existing gold reserves of the Central Bank of Russia are more than enough to, if necessary, immediately pay in full all of Russia's external debt, which now stands at about $58 billion.

These are different things - external debt and the entire money supply, I hope my English is good enough so that there is no confusion between what I say and what you understand from my words.

[NeuroticFish]

I said directly in my first post on this topic that a return to the gold standard for Russia is now impossible and impractical.

As PR it can somewhat try to prove why Ruble is (artificially) kept at this value.
I don't see other reason for this.

Pegging the ruble to energy resources has more prospects.

It may also be impractical, since the energy prices may fluctuate independently from what the central bank wants to have as the value of the currency notes.
Also if this war continues for too long, the western countries will actually find other energy suppliers, leaving Russia no other choice than selling under the market price to those accepting the deal and turning a blind eye to all the bad things Russia has done especially in the last month.

However, at the same time, the existing gold reserves of the Central Bank of Russia are more than enough to, if necessary, immediately pay in full all of Russia's external debt, which now stands at about $58 billion.

With fiat value getting lower and lower, storing the gold for longer may result in having less to pay on long term.
And gold is not really for that use (to be spent for clearing the debt), it's more to prove the others the country is solvable.
And, finally, we both know how risky is now for Russia to work with the western banks and western money, so most probably they will not move a finger until the west will chill.

[Moneyprism]

Russia will be a game changer,,, where they will offer something that is against the international economic order,, and maybe this will be something that will bring Russia into a more developed country in the future ... but the impact of this is that the global economy will be divided, because there is a bloc that supports Russia/China and there is also a bloc that supports the West

[DrBeer]

I don't understand the reason for your doubts. From 2014 to 2020, the Central Bank of Russia actively increased the share of gold in its gold and foreign exchange reserves, buying up all the gold that is mined in Russia. As of February 1, 2022, the Central Bank has gold worth $132 billion (about 2,300 tons).

Name at least one major economy in the world that is living within its means with a sustainable budget surplus and does not have a large external debt. Only Russia, there is no other answer. Russia can at any time immediately fully repay its foreign debt in gold and withdraw from the external borrowing market, and this will not affect its current cash flows in any way.

It sounds really strong! There are just nuances. With all the "power of the Russian economy", very strange processes are taking place in Russia itself. Please explain in terms of logic, economic laws and theories - why? So what is happening inside Russia:
1. Stagnation of the economy. Even before the imposition of sanctions. Real fall in industrial production
2. Social problems - a sharp reduction in funding for educational, medical, social programs.
3. Destruction of the pension system. And the use of pension funds to solve completely different problems. Raising the retirement age, blocking pension savings
4. Loss of entire segments of the economy in the world market, as well as curtailment in the domestic market.

But such a powerful economy and so much gold? What is wrong here?! Clarify please !

[davis196]

I don't mind Russia and China trying to backup their national currencies with gold reserves.
A return back to the gold standard might be refreshing for the global financial system.
This might force the USA/EU to stop with the fiat money printing madness.
However,I don't believe that Russia will achieve anything other than just stabilizing it's own national currency.
This move simply isn't enough to replace the US dollar as the global currency.
The real thread for the US dollar would be all Asian countries and the EU dumping US dollar transactions.
So far the EU will remain under US influence and this isn't going to change anytime soon.

[Smartprofit]

Linking the currency to gold and energy is a paradigm shift for the global economy, a precious metals analyst tells RT

The Bank of Russia has resumed gold purchases this week, but more importantly, the regulator is doing so at a fixed price of 5,000 rubles ($59) per 1 gram between March 28 and June 30

Do they have enough gold for backing for real all the rubles in circulation? I highly doubt it.
I see it as a desperate PR stunt to show why they forcefully keep the ruble "price" high.
And as I said, it's PR. They're lying (what's new?). They don't have the gold for it, hence it's somewhere between advertising and actual scam.

I don't understand the reason for your doubts. From 2014 to 2020, the Central Bank of Russia actively increased the share of gold in its gold and foreign exchange reserves, buying up all the gold that is mined in Russia. As of February 1, 2022, the Central Bank has gold worth $132 billion (about 2,300 tons).

Name at least one major economy in the world that is living within its means with a sustainable budget surplus and does not have a large external debt. Only Russia, there is no other answer. Russia can at any time immediately fully repay its foreign debt in gold and withdraw from the external borrowing market, and this will not affect its current cash flows in any way.

Russia has a large external debt, but this is not the debt of the state, but the debt of large companies.  

Taking into account the fact that large companies are, in fact, backbone state-owned companies, their debt to foreign counterparties can be considered as an external public debt.  

In general, the situation is not logical.  

If the Government of Russia had planned the current situation in advance, then what was the point of paying the public debt of the USSR and Russia earlier (with large interest rates)?  

And huge sums of money were spent on it.  

If Russia now had a huge external debt, then it could blackmail the countries of the West.  As you know, no one kills his debtors.  

If we talk about the gold standard, then in my opinion it is unprofitable for Russia itself.  

China and Western countries will very quickly take Russian gold for themselves, since Russia is now in great need of imports.  And gold is potentially a more valuable asset than even US dollars.

[stompix]

A gold-backed ruble, lol.
A currency backed by gold from a nation that has banned its owner citizen and companies from buying foreign currency, so what would be the advantage of this currency if you're not allowed to exchange it for something else?
A gold "backed" currency from the nation that has forcefully exchanged your foreign currency deposits troubles at the value they have chosen to, what would stop them to do again the same and you woke up the next day and instead of having your rubles backed by gold you find them backed by silver. Next day by oil, then by potatoes and then they are going to be backed by rubles 2.0 which are backed by gold.

Bitcoin is not backed by gold or silver or anything else, it is backed by trust, same for us dollar, that's where the value comes from not from some claims nobody can check or force the issuer to respect. Rember the oil-backed petro?

Name at least one major economy in the world that is living within its means with a sustainable budget surplus and does not have a large external debt. Only Russia, there is no other answer.

Life expectancy for a male as Guatemala, crime rate as Zimbabwe  and poverty levels as Thailand, if you can call that living, for a "major" economy.
Btw, you know that out of real major economies Russia is the only one to have defaulted twice lately?  

[be.open]

I don't understand the reason for your doubts. From 2014 to 2020, the Central Bank of Russia actively increased the share of gold in its gold and foreign exchange reserves, buying up all the gold that is mined in Russia. As of February 1, 2022, the Central Bank has gold worth $132 billion (about 2,300 tons).

Name at least one major economy in the world that is living within its means with a sustainable budget surplus and does not have a large external debt. Only Russia, there is no other answer. Russia can at any time immediately fully repay its foreign debt in gold and withdraw from the external borrowing market, and this will not affect its current cash flows in any way.

It sounds really strong! There are just nuances. With all the "power of the Russian economy", very strange processes are taking place in Russia itself. Please explain in terms of logic, economic laws and theories - why? So what is happening inside Russia:
1. Stagnation of the economy. Even before the imposition of sanctions. Real fall in industrial production
2. Social problems - a sharp reduction in funding for educational, medical, social programs.
3. Destruction of the pension system. And the use of pension funds to solve completely different problems. Raising the retirement age, blocking pension savings
4. Loss of entire segments of the economy in the world market, as well as curtailment in the domestic market.

But such a powerful economy and so much gold? What is wrong here?! Clarify please !

In the modern model of a society of advanced consumption, a higher standard of living is not for those who live within their means and save for a rainy day, but for those who actively use credit leverage and have a chronic budget deficit.

The large gold and foreign exchange reserves that Russia has managed to accumulate is, on the one hand, good, but on the other hand, this means that Russia has been purposefully filling the National Welfare Fund for years, instead of using this money to develop the economy. In fact, this money was systematically withdrawn from circulation and lay dead weight, undermined by inflation (if we are talking about fiat currencies), or taking up space in the vault and not paying dividends (if we are talking about gold).

Since 2014, after the annexation of Crimea, Russia has been under heavy pressure from economic sanctions, so its current economic model is more of a wartime economy than a peacetime one. I think Putin understood perfectly well that the US and NATO would hardly risk entering into a direct military confrontation with Russia (because "there are no winners in a nuclear war"), and the West's pressure on Russia would be economic.

[istiak2277]

I am skeptical of claims russia will back the ruble with gold.

Other nations have made similar announcements in the past only a few years ago.

There is obvious reason why other nations also agree upon this matters. We have seen how USA freeze 600 Billion dollars that is located in Russians central bank as a reserve. I think many allied country of USA is also not linking this type of power demonstration from USA. This gave USA a terms called "sanction power" which they can use against any country to achieve something from that country. This is a weakness for every country against USA.

[TheCoinGrabber]

Guess it's happening huh? Even before the pandemic there has already been reports about Russia and China planning to move back to the gold standard.

Assuming this is not just publicity/propaganda/threat, how would they formally get back to the gold standard? Would they simply announce that the ruble would be equal to a certain amount of gold? And more importantly, would they allow people to exchange their rubles for said gold? For the latter, I think not.