Since its invasion of Ukraine, Russia has accumulated quite the list of inimical sanctions from the West and its allies— 2,778 since February 22 to be exact— ranging from targets on its various industrial sectors, political figures, and of course its foreign exchange assets. Despite all of that, though, President Vladimir Putin appears to be far from deterred from his mission in Ukraine, prompting the White House to target Russia’s gold reserves— a mechanism that, if enacted, could hamper the country’s ability to circumvent crippling sanctions.
A bipartisan group of US senators devised a new bill that would stop Moscow from selling its gold reserves to bypass sanctions recently imposed by the West and the EU. Up until now, the majority of restrictions imposed on Russia have targeted its foreign exchange reserves, which are comprised of $311 billion worth of debt securities, $95 billion in deposits with other central banks as well as the Bank for International Settlements, $57 billion in foreign bank deposits, and of course— $130 billion in gold.
However, Putin has likely been yawing at the West’s heaping sanction sandwich, because the reality is, Russia has been preparing for such an armageddon since becoming the second-most sanctioned country in the world following the annexation of Crimea in 2014. Looking at the currency composition of the reserves in the chart below, we see that over 30% are in euro-denominated instruments, while forex reserves denominated in the US dollar sit at about half of that figure. However, Russia’s Achilles heel could be the more than 20% of forex reserves denominated in gold.
By targeting Russia’s gold reserves— pretty much its only remaining lifeline at this point— the West may be onto something. The bill, introduced by Sens. Angus King, John Cornyn, Bill Hagerty, and Maggie Hassan, would impede Russia’s central bank from selling those reserves. If implemented, the bill would slap secondary sanctions on American individuals or entities deliberately making transactions in, or transporting Russia’s gold reserves, as well as selling gold— either electronically or physically— in Russia.
“Russia’s massive gold supply is one of the few remaining assets that Putin can use to keep his country’s economy from falling even further,” said Sen. Angus King, as cited by Axios. “By sanctioning these reserves, we can further isolate Russia from the world’s economy and increase the difficulty of Putin’s increasingly-costly military campaign.”
If passed, the legislation would be part of the omnibus spending bill slated for approval on March 11, which also includes a $32.5 billion aid package for Ukraine.
Information for this briefing was found via Axios and the Brookings Institution. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
