A Note on the New Russian "Gold Standard"

4.12.22 - Rising Costs Disrupting Retirement for Many

Gold last traded at $1,967 an ounce. Silver at $25.37 an ounce.

NEWS SUMMARY: Precious metal prices rose on safe-haven buying as consumer inflation topped 8.5%. U.S. stocks rose on investor hopes that inflation may be peaking.

AIER--"After ten days of offering to purchase gold for a fixed number of rubles, the Russian central bank has announced that going forward it will pay negotiated rates in future purchases of gold in rubles....

On March 28, the Russian government further announced that international commodity purchases may no longer be made in dollars or euros, but rather that everything from oil and natural gas to grains and industrial metals must be transacted in rubles....

The Kremlin's goals are obvious: They seek to force nations to transact in their currency which, owing to a comprehensive and growing array of Western sanctions, had been steeply devalued. They also, by demanding payment in rubles, are attempting to increase demand for their currency while spurning trade in the familiar medium of US dollars....

The Bank of Russia's decision to hike interest rates to over 20 percent, stemming the flow of savings out of Russian banks, has additionally stabilized the financial system.

But neither today's shift nor the original '5,000 ruble per gram' purchase measure constitutes a gold standard despite the enthusiasm of certain media pundits. A bona fide gold standard would require the Russian central bank to both purchase and sell (which is to say, exchange) gold and rubles; and to do so according to a fixed weight or quantity of gold per unit currency....

Despite the clamor of incorrect headlines regarding Russia's embrace of gold, it remains a positive step. Gold is tangentially being utilized to make an existing money more sound. It is most unfortunate that these measures are tied to an event as awful as the Russia-Ukraine War, but it may give other nations in less dire circumstances the motivation, and indeed the courage, to shore up their battered currencies."