It appears the unimaginable is happening: Russia’s President Vladimir Putin is in the midst of discussing linking the ruble to gold and other commodities, outsmarting the west once again and sending the Fed’s green-coloured toilet paper one step closer to the dust bin.
Time to wake up, Sleepy Joe, the sanction sandwich is failing! While scoffing at the West’s myopic failure to even think one step ahead, Putin is already working on getting the Russian economy back on track, all in the absence of Western economic assumptions. A Russian security official earlier this week said the country would have more sovereign freedom over its financial system should it link its domestic currency to bullion, in face of western sanctions retaliating against Moscow’s military operation in Ukraine.
When reporters on a conference call asked about the move, Kremlin spokesperson Dmitry Peskov said the topic “is being discussed with Putin.” The concept of linking the ruble to the gold standard was already in the works back in March, when Russia’s central bank began buying gold from domestic banks at a price of 5,000 rubles per gram, after Washington failed to recognize that by preventing foreign markets from buying Russian gold, it inadvertently created an arbitrage opportunity where Russia’s domestic gold becomes substantially cheaper than foreign counterparts (we discussed that in detail here).
The ruble soon began to gain sharp upward momentum, and two weeks later the central bank backtracked on its original agreement of 5,000 rubles per gram and instead reverted to buying domestic gold at negotiated prices. Russia is responsible for producing about 10% of the global gold supply, and is also a major producer and exporter of oil, natural gas, metals, and agricultural commodities. Although a number of currencies in the past have been pegged to commodities such as gold and silver, the link was dismantled when the US halted the conversion of dollars to gold in 1971.
“The most important condition for ensuring Russia’s economic security is reliance on the country’s internal potential,” said Russian security council secretary Nikolai Patrushev in an interview with newspaper Rossiyskaya Gazeta. Questioned about whether or not such concepts contradict traditional economic theory, Patrushev exclaimed, “they do not contradict the conclusions of economic science, they contradict the conclusions of Western economic textbooks.”
Information for this briefing was found via Reuters and the sources mentioned. 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.