How states regain their monetary sovereignty

How states regain their monetary sovereignty

by Francis Gut

Russia’s economic situation is confusing. The western media paint a sombre picture of it relying on alarming figures. The price of oil, one of Russia’s main resources, decreased from about 110 US dollars per barrel at the end of 2013 to about 60 US dollars at the end of 2014, and this has been reflected dramatically in the rouble price. In the same period, the dollar gained about 95% against the rouble. However, sources outside the western media come to a more optimistic analysis. In particular, an article by Dmitry Kalinichenko, published on 26 December on Global Research shall be discussed here considering its essential ideas.1
Putin sells oil and gas ultimately only in exchange for physical gold. If he accepts US dollars as payment, he exchanges it immediately for physical gold. In addition, it is to be observed that in the 3rd quarter of 2014, the net purchases of gold by the central banks rose for the 15th time in a row. Of the total amount of 93 tonnes in the third quarter Russia alone bought 55 tons. Thus, the international monetary system is beginning to change.
The petrodollar, which arose primarily from the sale of oil from Saudi Arabia and was previously regarded as a reserve currency is no longer of such vital importance. The West is, however, not only depending on oil from Saudi Arabia, but also on the energy supplies from Russia. And in the end these are going to come only for payments in physical gold. In addition, Russia has agreed to pay its necessary import goods with gold reserves.
In 1971, president Richard Nixon shut the “gold window”. For when de Gaulle in 1971 wanted to exchange dollars, which had accumulated in the Banque de France, for gold at Fort Knox – which the United States had guaranteed in the Bretton Woods Agreement 1944 – he experienced a rebuff.
In 2014, Putin opens the “gold window” again. The West is now using all possible means to push down the price of crude oil, natural gas and gold.
Putin’s strategy is likely to derive from Dr Sergey Glazyev, his economic adviser, believes Dmitry Kalinichenko, which would explain why Glazyev is to be found on the list of those Russians who have been sanctioned by the West.
Another event has not yet been sufficiently interpreted: China has decided not to increase its currency reserves denominated in US dollar. China will of course continue to accept US dollars as payment, but will immediately exchange them for other values – most notably gold.
In addition, the BRICS countries (Brazil, Russia, India, China, South Africa), led by Russia and China, are also helping to change the role of the US dollar in the international monetary system. The dollar, the currency of the United States, thus loses its function as a definitive means of payment instead it becomes a temporary one in an intermediate period, which will ultimately be replaced by the gold.
So the future scenario looks like this: Russia buys goods from China for gold at current price while China buys energy products in Russia for gold at current price. In this trade the US dollar is missing; it disappears from the scene.
It should be emphasized that the global market for physical gold is very small compared to the world market for energy products and extremely small compared to the world markets for all goods. There is thousand times more paper money in circulation than physical gold.
We are talking here about “physical gold” because the sale of “physical energy products” allows Russia to draw “physical gold” from the market. In its own sphere China acts in a similar way. The problem of the West is that its gold holdings are not unlimited.
In order to yet preserve the role of the US dollar as a reserve currency, Washington had applied two methods so far: that of the “coloured” revolutions and, as a substitute, military attack. After Navalny, whom Washington had supported as Putin’s challenger, has himself completely discredited in the eyes of the Russian population by his relationship with Senator McCain, a leader of the coloured revolution is presently lacking. And concerning a military attack it is to consider that Russia is neither Afghanistan nor Iraq, but a nuclear-armed country.
And yet before this background, several questions need to be answered for us:

  • Who will be the successor of Navalny?
  • Will Germany undertake anything serious against the lust for power of generals like Lothar Domröse?2
  • How is the war in Ukraine to be assessed in this context?                •

1    Dmitry Kalinichenko: Grandmaster Putin’s Trap: Russia is Selling Oil and Gas in Exchange for Physical Gold, Global Research, 26.12.2014. http://www.globalresearch.ca/grandmaster-putins-trap-russia-is-selling-oil-and-gas-in-exchange-for-physical-gold/5421567 
2    cf.: Christoph B. Schiltz: “Nato plant Elitetruppe gegen Bedrohung aus dem Osten” (Nato plans elite force against threat from the East). In: Die Welt of 7.11.2014. http://www.welt.de/politik/ausland/article134072231/Nato-plant-Elitetruppe-gegen-Bedrohung-aus-Osten.html.

More gold reserves for the Swiss National Bank

thk. In his article from 31 December for “Neue Züricher Zeitung“ professor of  economics Peter Bernholz argues that the “current composition” of Swiss National Bank (SNB) capital reserves with a share “of 508 billion Swiss francs is extraordinarily” high but not ideal. “In view of the low gold price”, according to Bernholz, an increase of the gold reserves of merely 7.7 per cent included in the above sum, would be “desirable”, although he nominally concedes that those would not generate interest income. However, while the dollar has dropped from 4.11 to 0.97 Swiss francs since 1971, the value of gold has increased within that same period of time at an annual rate of 4.3 per cent. Unfortunately, the biggest part of National Bank reserves is being held in dollar and euro.

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