It is now eighteen months since Sergei Glazyev, Commissioner for Integration and Macroeconomics within the Eurasian Economic Commission, disclosed his views on gold and its economic value. Undoubtedly, his opinion carries weight not only with President Putin to whom he is very close, but he also influenced Russian proposals for a new trade settlement currency for BRICS which failed to make the Johannesburg agenda last August.
Published in Vedomosti, the Moscow business paper on 27 December 2022, Glazyev’s views are very relevant today given Russia’s presidency of BRICS which commenced on 1 January. We should regard it as the background behind the formulation of a new BRICS and SCO trade settlement currency which will almost certainly make the agenda at the major BRICS meeting scheduled for 22—24 October in Kazan. Glazyev clearly understands the importance of securing the rouble’s value to gold, which is bound to inform his thinking with respect to the trade settlement currency proposal. I shall be writing about this and other geopolitical factors for my Substack subscribers later this week.
There follows an English translation of Glazyev’s article in its entirety.
Golden rouble 3
Gold played an important role in both industrialization and the post-war refusal of the USSR to join the dollar standard. By signing the Bretton Woods Agreements, the USSR did not ratify them, determining the binding of the rouble not to the dollar (which was a condition for participation in the Marshall Plan), but to gold and to “the entire property of the country”. “Golden rouble 2.0” ensured a rapid economic recovery after the war, allowed the implementation of nuclear and missile projects. Reformer Khrushchev cancelled the binding of the rouble to gold, carrying out a monetary reform in 1961 with the actual devaluation of the rouble by 2.5 times and its pegging to the dollar, having formed the conditions for the subsequent transformation of the country into a raw materials appendage of the Western financial system.
Now the conditions for “Golden Rouble 3.0” have objectively developed.
The sanctions imposed against Russia boomeranged on the western economy. The geopolitical instability they provoked, rising prices for energy and other resources, inflation and other negative factors put strong pressure on the global economy, in particular the global financial market. In 2023, all these circumstances will objectively affect the change in the stereotypes of investment policy in the world – from risky investments in complex financial instruments to invest in traditional assets, primarily in gold. According to Saxo Bank analysts, in 2023 increased demand for this metal will lead to it price rising to $3000. As a result, there is a real opportunity in the very near future to significantly increase reserves due to the increase in physical volumes of gold, and revaluation of its value.
Large gold reserves allow Russia to pursue a sovereign financial policy and minimize dependence on external lenders. The amount of reserves affects the country's reputation, its credit rating and investment attractiveness. Large reserves allow you to plan the state budget for a long time, buying off many economic and political risks. In 1998, the lack of sufficient international reserves became one of the causes of the crisis, which ended in default for Russia. Now our country already has large gold and foreign exchange reserves, being fifth in the world (after China, Japan, Switzerland and India) and ahead of the United States. But this is not enough.
In China, which ranks first in gold production, there is a legislative ban on the export of all mined gold. According to the Shanghai Gold Exchange, over the past 15 years customers have taken delivery of 23,000 tons in physical form. India is considered the world champion in gold accumulation. Over the past quarter century, gold has been flowing from West to East through the main hubs (London, Switzerland, Turkey, the United Arab Emirates, and others) with a capacity of 2000 – 3000 tons per year. Did the western Central Banks’ official gold reserves remain in their storage facilities? Or has it all gone through swaps and leasing? The West will never say, and Fort Knox's audit will not.
Over the past 20 years, gold mining in Russia has almost doubled, while in the United States has almost decreased by half. By dismantling real wealth, the United States has lost its competence and interest in the production and processing of strategic resources (gold and uranium, etc.). The printing press funds the purchase of everything they want.
Gold production, which today barely occupies 1% of Russia’s GDP, may well grow (due to the growth of both production and relative oil prices) to 2%—3% GDP and become the basis for the rapid growth of the entire commodity sector (30% of GDP) and the balance of foreign trade, which so far relies on the fiat currencies and the risks of devaluation and insufficient currency convertibility. Instead, Russia will be able to increase gold production from its three large, already commissioned fields from 330 tons to 500 tons, becoming a world leader in this strategic industry. Bonus: we get a strong rouble, strong budget and — in implementing the advanced development strategy, a strong economy.
Authors – Academician of the Russian Academy of Sciences Sergey Glazyev and Executive Secretary of the NTS under the Chairman of the EEC Board Dmitry Mityaev