Did the Russian central bank just upend the entire global monetary system and unilaterally use Western sanctions to its advantage and tie the ruble to the gold standard?
Surely that would be unimaginable, as Washington’s sanctions were designed to stifle all life in the Russian financial system to the point that it can no longer support the war in Ukraine, let alone its own economy. However, it looks like Moscow has outmaneuvered the West again – or at least the Biden administration hasn’t even thought of a head start, as Russia’s central bank is now on the verge of going to the standard. -gold, all thanks to crude and gold from Washington. trade restrictions.
Shortly after Russia invaded Ukraine, the United States and its allies decided to restrict Russia’s sale of gold reserves to foreign buyers and impose secondary sanctions on any US entity. transacting or selling gold in the country. The move was no doubt aimed at preventing Russia from dipping into its last lifeline to circumvent crippling sanctions, while its national currency is sent spiraling to historic lows.
But here’s what’s really going on and why Washington has once again failed to acknowledge the flaws in its sanctions sandwich: Shortly after the US blocked gold-related transactions with the Bank of Russia , the central bank announced that it would start buying gold from national banks. at 5,000 rubles per gram – and yes, we get the IKEA business vibes, and no that’s not a mistake – he East a steal of a deal! But why would banks be willing to sell gold at such low rates unless their arm is twisted and they are forced to?
When the West sanctioned Moscow gold, it inadvertently created an arbitrage opportunity, whereby Russian gold becomes significantly cheaper than its foreign counterpart due to lack of demand from the external market, especially account given the consequences of being caught buying the precious metal from Russia. Simply put, if the sanctions sandwich prevents you from selling your bullion reserves to foreign investors and suddenly the Bank of Russia comes along and offers to buy the gold at a slightly lower price, you would happily sell because that you still earn a premium.
And, it’s a win-win situation for Russia’s central bank, because it’s now increasing its gold reserves, subsequently maintaining the ruble, and since gold is traded in US dollars, fixing a floor price for the ruble against the US dollar. The next step for Russia is to stimulate foreign demand for its currency, which Putin has done by ordering “hostile” countries to pay for Russian natural gas in rubles. Eventually, the initial discount of 5,000 rubles per gram of gold will turn into a bonus for the central bank, which in turn will boost the flow of gold to Russia from international markets, just as domestic supplies begin to flow. run out.
Yet Russia will eventually have to liquidate some of its gold, otherwise how would the country pay for the goods and services it needs? Well, not necessarily – all the central bank would have to do is proclaim the ruble as a substitute for gold at a set exchange rate, i.e. The gold standard. However, before proceeding with the transition of its entire economy, Russia must first ensure that it has adequate gold reserves, which it is doing precisely at this moment by taking advantage of the arbitrage created by inadvertently by Washington’s sanctions.
The real money question at the heart of this theme is how did the Biden administration and its allies not anticipate such a scenario unfolding? Simple: because the myopic thought process of the West is obsessed with devaluing Russian gold in hopes of limiting how much the country can buy with it. In fact, Washington is so infatuated with preventing Russia from selling gold that it completely forgets that gold East cash, rather than the fiat paper created by a few taps on the keyboard at the Fed which only has value in the first place because it can be exchanged for gold.
So what does this mean for the ruble, gold, US dollar? For starters, with Russia tying the ruble to gold, and then tying payments for commodity exports to the ruble, the central bank is essentially changing the entire global trade paradigm, while fundamentally changing the global monetary arrangement such that we know him. If countries start accepting Putin’s terms on using the ruble for payment for goods, the Russian ruble could sustain substantial demand and quickly become a major global currency.
Simultaneously, the move would also boost global demand for gold, while driving demand away from the US dollar amid increased commodity trading in other currencies. Could it be… the advent of a new world order?
Information for this briefing was found via Reuters, RT News and the sources mentioned. The author has no security or affiliation related to this organization. Not a buy or sell recommendation. Always do additional research and consult a professional before purchasing a title. The author holds no license.