Russia Is Actually Abandoning The Dollar

[pmaitra]

@Sakal Gharelu Ustad,

Regarding point 1, I don't know, and don't have an opinion. It could be a coincidence.

Regarding point 2, I believe that. It is true that many central banks are buying gold. What is important is who is buying what proportion of the gold. That Russia bought 55 tons out of 93 tons, is significant.

 

[Sakal Gharelu Ustad]

@Sakal Gharelu Ustad,

Regarding point 1, I don't know, and don't have an opinion. It could be a coincidence.

Regarding point 2, I believe that. It is true that many central banks are buying gold. What is important is who is buying what proportion of the gold. That Russia bought 55 tons out of 93 tons, is significant.

Is it a strategy or response? Given Russia is almost excluded from the international banking, what do you think they can/will do?

 

[pmaitra]

Is it a strategy or response? Given Russia is almost excluded from the international banking, what do you think they can/will do?

Good question. Is it a strategy or a response?

If you ask me, and this not only applies to Russia, but every country, the moment US reneged on its promise of pegging $35 to an ounce of gold, countries should have walked away from any banking system that relies on a currency that is based on broken promises. That would have been a response.

If the international banking system is based on money backed by a lot of nothingness, then the best way out of it is to gradually wean oneself away from it, so that, when this system collapses, it does not adversely affect the country. It is important that a transition is gradual.

So, to answer your question, it is both a strategy, and a response, albeit belated.

 

[Sakal Gharelu Ustad]

@pmaitra- Also, how much can it cover Russia? 55 tons is roughly 2 billion dollars, which is 2billionn/2trillion(Russian GDP) < 0.1 % of russian economy. Even if you adjust it for quarter it is hardly 0.5% of Russian economy and definitely insufficient to cover its exports.

Russia is trying hard to save its foolhardy intervention by such measures and some commentators want to protray it as great economic masterstroke. Yes, it is strategic but hardly useful given its current condition.

 

[Sakal Gharelu Ustad]

Good question. Is it a strategy or a response?

If you ask me, and this not only applies to Russia, but every country, the moment US reneged on its promise of pegging $35 to an ounce of gold, countries should have walked away from any banking system that relies on a currency that is based on broken promises. That would have been a response.

If the international banking system is based on money backed by a lot of nothingness, then the best way out of it is to gradually wean oneself away from it, so that, when this system collapses, it does not adversely affect the country. It is important that a transition is gradual.

So, to answer your question, it is both a strategy, and a response, albeit belated.

I think it is more of a knee-jerk reaction.

If countries head for currency wars, then no currency would be stable enough to generate confidence for international trade. May be then gold or any other asset would be useful again. You are too emotional on this subject. Just put yourself in the shoes of a currency trader and you would know what makes sense.

 

[pmaitra]

@pmaitra- Also, how much can it cover Russia? 55 tons is roughly 2 billion dollars, which is 2billionn/2trillion(Russian GDP) < 0.1 % of russian economy. Even if you adjust it for quarter it is hardly 0.5% of Russian economy and definitely insufficient to cover its exports.

Russia is trying hard to save its foolhardy intervention by such measures and some commentators want to protray it as great economic masterstroke. Yes, it is strategic but hardly useful given its current condition.

For a quarter, i.e. 55 tons of gold in a 3 month period, is pretty big. GDP is calculated in annual terms, unless otherwise explicitly stated. I would wait for a few quarters to see the trend. It might be too early.

 

[Sakal Gharelu Ustad]

For a quarter, i.e. 55 tons of gold in a 3 month period, is pretty big. GDP is calculated in annual terms, unless otherwise explicitly stated. I would wait for a few quarters to see the trend. It might be too early.

It is big but is it big enough? I did 4*55 to arrive at the figure(0.4) which I then rouded up to 0.5% of annual GDP. Btw, how would Russia buy gold? It needs to beg PRC for dollars to spend on the international market. Right?

 

[pmaitra]

I think it is more of a knee-jerk reaction.

If countries head for currency wars, then no currency would be stable enough to generate confidence for international trade. May be then gold or any other asset would be useful again. You are too emotional on this subject. Just put yourself in the shoes of a currency trader and you would know what makes sense.

Fiat currency makes no sense to me. Nothing emotional about it. If you look at history, of any currency, or any commodity used for barter, trust in content is very essential for economic success.

Whether the dilution of the Roman currency (adulteration of its silver content), or the dilution of the US Dollar (adulteration of its gold content), the results are always the same.

If you regularly buy diesel from a fuel station, and the fuel station regularly sells you adulterated diesel, and you cannot do anyting to stop it from doing so, you will slowly walk away from it, if you find a trustworthy alternative.

 

[pmaitra]

It is big but is it big enough? I did 4*55 to arrive at the figure(0.4) which I then rouded up to 0.5% of annual GDP. Btw, how would Russia buy gold? It needs to beg PRC for dollars to spend on the international market. Right?

I don't know the details how it is buying gold. No, it does not need to beg PRC for dollars. The dollar will be out of the equation after Yuan-Rouble trade kicks in (if it has not already). The agreements have already been signed.

Russia does hold US bonds, and could have been acquired from PRC in the past, and since these bonds are anonymous, they could be dumped any time.

 

[Sakal Gharelu Ustad]

Fiat currency makes no sense to me. Nothing emotional about it. If you look at history, of any currency, or any commodity used for barter, trust in content is very essential in economic success.

Whether the dilution of the Roman currency (adulteration of its silver content), or the solution of the US Dollar (adulteration of its gold content), the results are always the same.

If you regularly buy diesel from a fuel station, and the fuel station regularly sells you adulterated diesel, and you cannot do anyting to stop it from doing so, you will slowly walk away from it, if you find a trustworthy alternative.

The problem in history is that people then did not have option to change from one to another currency(Romans or anyone). Now, we do have options. If US monetary policy keeps on printing money the way it is now for the next 10 years, the world will slowly but definitely move away from dollar. It is one of the reasons that Fed wants to taper QE.

 

[Sakal Gharelu Ustad]

I don't know the details how it is buying gold. No, it does not need to beg PRC for dollars. The dollar will be out of the equation after Yuan-Rouble trade kicks in (if it has not already). The agreements have already been signed.

Russia does hold US bonds, and could have been acquired from PRC in the past, and since these bonds are anonymous, they could be dumped any time.

How does Yuan-Rouble trade helps Russian firms that buy/sell on European or any other international market?

Well after this dicsussion, I actually now think that Russia will be forced to sell all the gold that it bought in the past few years.

 

[pmaitra]

The problem in history is that people then did not have option to change from one to another currency(Romans or anyone). Now, we do have options. If US monetary policy keeps on printing money the way it is now for the next 10 years, the world will slowly but definitely move away from dollar. It is one of the reasons that Fed wants to taper QE.

In the Roman Empire, alternative currencies existed, and were used for local transactions.

 

[pmaitra]

How does Yuan-Rouble trade helps Russian firms that buy/sell on European or any other international market?

Well after this dicsussion, I actually now think that Russia will be forced to sell all the gold that it bought in the past few years.

Yuan-Rouble trade was in response to your assumption that Russia has to beg PRC for Dollars. If what is written in the article is correct, Russia still accepts Dollars and Euros for its trade with EU, but quickly gets rid of those Dollars for gold.

If Russia is forced to sell its gold reserves, it will be for food, and certainly not for Dollars. Check out the recent barter deal between Russia and Argentina. Fighters jets for food.

 

[DingDong]

I don't know how hard will Russia get hit by the western sanctions, but Russia is definitely not USSR, Russia will survive. But if Russia manages to survive then the western world must be prepared for an extremely bitter and dangerous enemy. This enemy will be Russia and not some Iraq or Iran or Libya.

Western sanctions against Russia will make the developing world think twice on the subject of economic integration with the western hemisphere. FIIs investing in share market must be discouraged only long-term FDI that too in infrastructure and other unmovable asset must be allowed (follow the China model strictly).

The US+allies have now overplayed the economic sanction game, like the Arabs overplayed the "Oil" game in past. For other nations not eager to join the western bandwagon, there are some critical lessons to learn.

WRT the post #69 I believe that truth lies somewhere in middle, western hemisphere is still the dominant military and economic power and it can hurt it's enemies at will. From India's stand-point I am sure that the current situation is extremely productive for India if India plays well (which we will). One point which worried me is the manner in which the Indian Media covered Putin's visit and projected it as a low-profile affair which it wasn't, Q is was there a method in this madness?

Testing the ‘Modi Doctrine’: Russia and India in 2015 | The Diplomat

 

[pmaitra]

From India's stand-point I am sure that the current situation is extremely productive for India if India plays well (which we will).

India is already doing it. India is importing crude oil and filling up its underground strategic oil reserves; note - underground.

No matter which political party is in power, I think our bureaucratic cadre know a thing or two about safeguarding India's interests, and they have been doing a decent job.

 

[Sakal Gharelu Ustad]

May be time to buy oil futures!

 

[sob]

Made my day reading this article. One of the gems

Because, firstly, the population of Russia, unlike people in many other countries, does not wish to exchange their freedom and the future of their children for Western sausage.

One major thing the writer in this article does not understand is that the world market, be it stocks or currency, is also based on trust and perceived notions of transparency and fair play. amongst all the currencies only the US Dollar and the Euro come close to these benchmarks. If Gold reserves and other factors as mentioned by this gentlemen were the criterion then the Yuan would have replaced the Dollar a few years back.

 

[pmaitra]

Made my day reading this article. One of the gems



One major thing the writer in this article does not understand is that the world market, be it stocks or currency, is also based on trust and perceived notions of transparency and fair play. amongst all the currencies only the US Dollar and the Euro come close to these benchmarks. If Gold reserves and other factors as mentioned by this gentlemen were the criterion then the Yuan would have replaced the Dollar a few years back.

Apropos the highlighted portions, there are a few points I'd refer you to:

• Bretton Woods Agreement
• $35 = 1 ounce of gold
• Nixon

 

[sob]

Apropos the highlighted portions, there are a few points I'd refer you to:

• Bretton Woods Agreement
• $35 = 1 ounce of gold
• Nixon

Please read my statement, I have written a crucial word, Perceived.

is also based on trust and perceived notions of transparency and fair play

I again repeat compared to the US Dollar and the Euro no other currency comes close on these counts.

 

[pmaitra]

Please read my statement, I have written a crucial word, Perceived.



I again repeat compared to the US Dollar and the Euro no other currency comes close on these counts.

By all means repeat it as many times as you please, but I am trying to understand the "benchmarks" you were talking about.

What is that "benchmark?" Making a promise and then walking away from it?