There’s nothing new about the Russian accumulation of gold bullion in their 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 U.S., Germany, IMF, Italy and France.
Russia’s gold hoard is over 25% of the U.S. hoard, but Russia’s economy is only 8% the size of the U.S. economy. This gives Russia a gold-to-GDP ratio over three times that of the U.S.
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 dollar hedge. Russia is the second-largest energy producer in the world. Most of that energy is sold for dollars. Russia can hedge potential dollar inflation by buying gold.
Another reason has to do with the avoidance of U.S. sanctions. Gold is nondigital and does not move through electronic payments systems, so it is impossible for the U.S. to freeze on interdict.
Yet a deeper reason is that Russia has a long-term plan to subvert the dollar’s role as the leading global reserve currency. The Russian ruble is not positioned to be a reserve currency, but a new cryptocurrency backed by gold would be a good candidate.
The Central Bank of Russia will consider a new study that suggests just such a gold-backed cryptocurrency to settle balance of payments among willing participants. This plan is in its preliminary stages and is a long way from reality at this point.
Still, the Russian endgame has now been revealed. The dollar’s days as the leading reserve currency are numbered.
Of course, Russia is not the only nation accumulating gold as a means to move away from the dollar. You can certainly add China to that list, and many others.
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.