It is possible that Russia will start accepting gold for the export of gas and other raw materials, including mineral fuels. The proposal is made by the chairman of the energy committee of the parliament and the chairman of the Russian Gas Company, Pavel Zavalny. It comes in response to the many sanctions imposed by most countries around the world.
The euro and the dollar have ceased to be a means of payment for us, although we provide real resources. This applies not only to gas, but also to other minerals that we export to Western countries. If they want to buy from us, let them pay in currency, and currency for us is gold, or other currencies that we accept for payments. In the case of unfriendly countries, this is the Russian ruble. In the case of friendly countries such as China or Turkey, this is the local national currency.
Recent geopolitical dynamics place gold in different roles. On the one hand, it is a lifeline for the population. On the other hand, it is apparently considered to be a form of money that a senior Russian official is willing to trade with the outside world. Third, it is worth discussing the dynamics behind the fall of the ruble. Fourth, let’s see if it is possible to start paying for gas in Russian rubles. Below we’ll look at each of these issues one by one to see how dire the Russian rulers’ demands are and how much they’re making, including gold.
Russians protect themselves with the help of gold against the depreciation of the ruble
After the package of sanctions on Russia, the Russian ruble depreciated by almost 47% against the dollar in just one month – between the beginning of February and the beginning of March. This led to the withdrawal of consumer deposits and a reorientation towards safer assets, specifically gold investments. The move is not surprising – gold is an anchor of security in a time of geopolitical and economic uncertainty and high inflation.
Data from Russia’s biggest bank, Sberbank, shows that Russia’s demand for gold quadrupled in the weeks leading up to mid-March. Even the number of offices where they could buy the yellow metal increased . We can expect that, despite the slight stabilization of the ruble in recent days, the population’s gold investments will continue to grow.
The Russian ruble and the reasons for its long-term depreciation
The devaluation of the Russian ruble did not start yesterday. At the beginning of the century, one dollar cost 25 rubles. At the time of writing, the price is 82 rubles, and at the peak of its decline in March 2022, it exceeded 140 rubles per dollar. This enduring trend is worth explaining.
Inflation is an increase in the money supply; rising prices is only one of its manifestations. It is seen in huge quantities globally, including in Europe, but Russia is ahead of it in money printing. Since 2000, its central bank’s balance sheet has grown from 50 billion to 55 trillion rubles – an increase of 1,099,900%.
For the same period, money supply M2 (including money in circulation, savings deposits, securities on stock markets and short-term deposits) was launched from just over 1 trillion rubles to 65.3 trillion rubles – an increase of 5575.3% or more than 60 times . At least some of these funds go directlyto the local military-industrial complex. In comparison, in the same period the money supply of M2 in the euro area grew by “only” 267% – from 4 to 14.7 trillion euros.
Thus, the main cause of the collapse of the Russian ruble is the printing of money by the Central Bank of Russia itself. The country is a textbook example of what not to do with a single currency.
The effects of local inflation are compounded by the effects of sanctions. Most of Russia’s foreign trade payments are in dollars or euros, but the disruption of a significant part of trade, combined with the risks of default and bankruptcy, has lowered confidence in the Russian ruble and, accordingly, its price. At home, the population, faced with a rapid collapse in purchasing power, also began to turn their backs on the currency as much as possible. As it turned out, more and more Russians are investing in a safe asset like gold.
Last but not least, the unprecedented freeze on the international assets of the Central Bank of Russia (it is the first central bank in a G20 country to be subject to such sanctions) means that it cannot sell its foreign reserves to maintain the exchange rate , the ruble, the same as before the imposition of measures. Thus, all factors leading to the collapse of the ruble continue to be observed. That means it can only continue to depreciate.