If gold was just a barbarous relic…
There’s nothing new about the Russian accumulation of gold bullion in the country’s reserve position.
It began in a material way in 2009 when Russia had about 600 metric tonnes of gold.
Today, Russia has 2,183 metric tonnes — a stunning 264% increase in less than 10 years.
Russia is the sixth-largest gold power in the world after the US, Germany, the IMF, Italy and France.
Russia’s gold hoard is over 25% of the US hoard, but Russia’s economy is only 8% the size of the US economy.
This gives Russia a gold-to-GDP ratio over three times that of the US.
While these developments are well-known, the question of why Russia is accumulating so much gold has never been answered.
One reason is as a US dollar hedge.
Russia is the second-largest energy producer in the world. Most of that energy is sold for dollars. Russia can hedge potential US dollar inflation by buying gold.
Another reason has to do with the avoidance of US sanctions.
Gold is non-digital and does not move through electronic payments systems, so it is impossible for the US to freeze on interdict.
Yet a deeper reason is that Russia has a long-term plan to subvert the US dollar’s role as the leading global reserve currency…
Backing cryptos with gold
I read headlines all day and focus extensively, if not exclusively, on gold. If gold is the best form of money (it is), and if gold had unique properties as money (it does; it’s the only form of money that is not also debt), then gold is well worth the focus.
With that said, it’s hard to surprise me on the subject. After a while, you think you’ve seen it all. Yet, there are exceptions. This headline stopped me in my tracks: ‘Bank of Russia may consider gold-backed cryptocurrency’.
The idea itself is not exactly new.
I first suggested that Russia might be acquiring gold with a view to creating a new gold-backed currency at a financial war game hosted by the Pentagon at a top-secret laboratory in 2009.
In my upcoming book, Aftermath, I describe a more sophisticated monetary arrangement among Russia, China, Iran and other nations to use a gold-backed cryptocurrency for international settlements.
Still, theory is one thing. Reality is another.
Here was a real central bank taking real steps towards a gold-backed cryptocurrency.
Of course, the announcement came with lots of caveats about the need to stick to hard currencies. This gold initiative involves review of a report, not a live plan at this stage.
This is an important step nonetheless.
The Russian ruble is not positioned to be a reserve currency, but a new cryptocurrency backed by gold would be a good candidate.
Knowing the Central Bank of Russia will consider a study suggests a gold-backed cryptocurrency to settle balance of payments has other willing participants.
This plan is in its preliminary stages and is a long way from reality at this point.
Still, it is a significant moment in the move away from the hegemony of the US dollar as the dominant global reserve currency towards another system that includes gold.
Russia challenges US dollar dominance
The Russian endgame has now been revealed and the US dollar’s days as the leading reserve currency are numbered.
But this announcement is highly significant in another way.
It signals that the demand for physical gold by major central banks is here to stay.
Whether a new gold-backed cryptocurrency emerges next year or five years from now does not alter the fact that you need gold to have a gold-backed currency.
Russia has been buying between 15 and 25 metric tonnes per month, sometimes more, for over 10 years.
Neither Russia nor China have their targeted amount of gold yet, which would be 4,000 metric tonnes for Russia and 8,000 metric tonnes for China to achieve strategic gold parity with the US.
Iran and Turkey have also embarked on major gold accumulation efforts.
What all of these gold-buying strategies have in common is a desire to escape from US dollar hegemony and the imposition of US dollar-based sanctions by the US.
Central bank buying supports gold
Of course, Russia, Iran, China and Turkey are not the only nations accumulating gold as a means to move away from the US dollar.
The latest move comes from Malaysian Prime Minister Mahathir Mohamad.
He promoted the idea of a common trading currency for East Asia that would be pegged to gold. ‘The currency that we propose should be based on gold because gold is much more stable,’ he said.
I’ve actually advised Mahathir Mohamad in the past and he’s very familiar with my writings on gold. So I’m not surprised he’s issuing this call.
The global monetary regime has collapsed three times over the past 100 years, in 1914, 1939 and 1971.
They seem to happen about every 30 to 40 years on average.
It’s now been over 40 years since the last collapse, so we’re due.