Russia has accelerated its gold purchases; its central bank picking up speed 3X its regular pace. According to the World Gold Council, Russia has now tripled its gold reserves–from 600 to 1,800 tonnes–their highest level since Putin came into power 17 years ago.
Russia’s massive increase signals their commitment to break away from dollar-based payment systems and toward developing a more sound alternative to the US petrodollar. Currently, the US dollar comprises 60% of global reserves and 80% of global payments. Russia, along with partner China, are positioning themselves to break the dollar hegemony.
The US is the only nation to hold the privilege of exercising veto power at the International Monetary Fund. In response to this formidable advantage, and in what appears like a David and Goliath type struggle, Russia finds in gold its only recourse; its sole advantage. And its rival’s achilles heel.
In the event of an economic war, the US can neither manipulate nor freeze gold unlike digital or paper currencies. Gold, as an asset, is independent of the US, and independent of ANY government.
The US has often used economic sanctions to force countries into geopolitical compliance. Gold is one of the few financial instruments that can be used to bypass sanctions: just load it up into crates and ship it to another state or country as a means of payment. Sanctions bypassed.
In Russia, gold’s significance was so critical that during 2015, when oil prices and Russian financial reserves were crashing, they continued buying gold. In the second quarter of 2017, Russia’s gold purchases comprised 38% of all the gold bought by central banks. It also notable that while Russia continued purchasing gold over the last two years, it abstained from purchasing foreign currency.
When gold demand decreased in the second quarter, Russian maintained its buying spree, as gold was the only asset to shield Russia against the negative economic effects of geopolitical instability. Gold is also the only means of bypassing US sanctions, a likely weapon to be wielded by the US in the event of an economic war.
But Russia has another ace up its sleeve: not only is it the largest international buyer of gold, Russia is also one of the biggest gold producers!
The Central Bank of Russia acquires much of its gold from domestic mines; gold that is transacted through commercial banks, never to reach the open market.
Russia has now accumulated $427 BILLION in gold reserves, coming in second to China, and surpassing India, Turkey, and Mexico.
It doesn’t end there. Russia and China are also developing a payment system for its trading partners in the region–one that excludes the US dollar.
A powerful weapon the US utilizes to maintain its hegemonic financial influence around the world is the SWIFT (Society for Worldwide Interbank Financial Telecommunication) payment system. This is what the international community uses to transmit messages pertaining to financial transactions. Russia, aware of this vulnerability, has developed its own alternative SWIFT payment system.
Elvira Nabiullina, head of the Central Bank of Russia, reporting to Vladimir Putin:
“There was the threat of being shut out of SWIFT. We updated our transaction system, and if anything happens, all SWIFT-format operations will continue to work. We created an analogous system,”
And as we covered in a previous article, Russia and China are colluding to upend dollar dominance by establishing a new monetary order: the Petro-Yuan, wherein China could purchase Russian oil with yuan, and Russia can turn around and exchange yuan for gold on Shanghai’s gold exchange.
It’s just a matter of time before they tempt Saudi Arabia, the US’s closest Middle East ally, to exchange oil for Petroyuan. And once Saudi Arabia is on board, other nations in the Middle East will follow suit, spelling the end of US dollar world dominance.