Reflections on Russia’s ‘Gold Standard’

The Liberal Capitalists still find themselves in the midst of their financial predicament begun by the Coronavirus Pandemic. Trillions of US Dollars in Kapital was rapidly created over the last two years, resulting in worldwide spikes in Inflation. The effects of Currency Depreciation have forced central banks around the world to stave off the rising Inflation Rates, whose impact was aggravated by logistical complications and the ongoing war in Ukraine, among other factors. A slow, gradual raising of the Interest Rate helped lay the preliminary groundwork for an emerging Recession, the results of which has yet to be registered.

This impactful surge in Inflation shows no signs of dissipating anytime soon. Basically, the Currency Depreciation is bound to stay. It may be tenable to suggest that such Inflation could persist over the next few years or so. Whether there will be a serious effort aimed at imposing Currency Appreciation, whether by a contraction in the Quantity of Kapital or by raising Interest Rates, remains forthcoming. Nobody wants to engage in the act of trying to cause a Depression in order to curtail a Recession. And under mainstream neoclassical economics, the central banks are more inclined toward not trying to cause further economic damage, even if that means allowing the effects of Currency Depreciation to persist in the coming years.

In case I have not yet elucidated the topic or given it enough scrutiny, there was another trend which was developing over the past few years. The Russian central bank, prior to the Coronavirus Pandemic, had been accumulating a gold reserve to boost the value of the Ruble. These moves were quietly conducted with little news coverage during the late 2010s, compelling certain observers to suggest that Russia had intentions for that gold reserve. In fact, I have posited the possibility that Russia may be contemplating on trying to revisit some aspect of the Gold Standard, a conclusion which I had no doubt mentioned in both editions of The Work-Standard. Whether this was Russia’s Intent behind the stockpiling of gold is not the important part; what is important is what Russia was going to go with that gold. For the topic of Russian gold was sidelined by the more widely-discussed topic of Russian petroleum and natural gas, including that price war with OPEC back in 2020.

It was not until earlier this year that Russia revealed its Intent regarding the stockpiled gold. To quote an article back in March:

“On March 28, 2022, the central bank of Russia (CBR) announced it would buy gold from Russian credit institutions (banks) at a fixed price of 5,000 rubles per gram. At the time the prevailing price in the free market was 6,000 rubles per gram. As CBR’s bid price was lower than the free market price it made no sense for banks to sell to CBR.

After an initial steep devaluation of the ruble when the war started on February 21, 2022, it reversed course in early March. In my view this was because at Gazprombank, one of the few Russian financial institutions not sanctioned, incoming euro payments for gas are exchanged into rubles. Whatever the reason, the appreciating ruble (RUB) caused the price of currencies and commodities, including gold, denominated in rubles to decline. As a result, on April 7 the gold price hit 5,000 RUB/gram.”

When the news arrived in the West, it soon dawned on western financial observers and commentators that Russia might be fully reviving the Gold Standard. Unlike them, I was quick to be skeptical about the possibility of a Russian Gold Standard, knowing full well the inherent disadvantages to be had, especially within wartime contexts. My suspicions were supported by the fact that the Russian government was only open to buying gold in exchange for Rubles. A true Gold Standard, as one might recall, implies the ability to both buy and sell gold for a fixed unit of currency. Since gold becomes the formal unit of account for any national currency pegged to the Gold Standard, the Quantity of Kapital is then denominated in how much gold there is in existence. Any increases to the Quantity of Kapital (and by extension, the Quantity of Schuld) depends on whether the central bank is able to sell gold at a given price.

Thus, as I had concluded in The Work-Standard, the Gold Standard entails Kapital-for-Gold and Gold-for-Kapital. What Russia did was allow anyone to by Rubles with gold, restricting the ability to do the same in reverse. And as some had pointed out, without the ability to exchange Rubles for gold, it should be superfluous to claim that Russia has truly revived the Gold Standard.

If Russia did not revive the Gold Standard, what is its Intent behind opening what is otherwise a ‘partial gold window’? In essence, Russia recognizes the importance of gold as a way to bolster the value of the Ruble, ensuring that there will be something to support the Ruble as an alternative to maintaining reserves of US Dollars. The gold could be exchange for needed currencies, especially in circumstances where a direct exchange from Rubles to another currency is impossible. Put another way, gold becomes a sort of intermediate in foreign exchange markets.  That does not necessarily entail that Russia will have the ability to build an alternative currency system to challenge US Dollar hegemony, however.

Categories: Politics

Tags: , , , , , , , , , , , ,

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: