The "perfect-storm" of geopolitical instability, diplomatic isolation, severe currency depreciation, and economic decline now confronting Russia has profoundly damaged Moscow's international standing, and possibly for the long-term. Yet, it is precisely such conditions that may push the country's leadership into taking the radical step that will secure its world-player status once and for all: the adoption of a gold-exchange standard.
Though a far-fetched idea at first glance, many factors suggest that remonetization in gold may be a logical next step for Moscow.First, for years Moscow has been expressing its unwillingness to remain at the monetary mercy of the US and its NATO allies and this view has been most vehemently
expressed by President Putin's long-time economic advisor, Sergei Glazyev. Russia is prepared to play strategic hardball with the West on the issue: the governor of Russia's central bank took the unusual step last November of
presenting to the international media details of the bank's zealous gold-buying spree. The announcement, in sharp contrast to that institution's more taciturn traditions, underscores Moscow's outspoken dismay with dollar hegemony; its timing suggests coordination with the top rungs of government to present gold as a possible currency-war weapon.
Second, despite international pressure, Russia has been very wary of the sell-off policies that led the UK, France, Spain, and Italy to unload gold over the past decade during unsuccessful attempts to prop up their respective ailing economies - in particular, of then-Prime Minister Gordon Brown's sell-off of 400 metric tons of the country's reserves at
stunningly low prices. Moscow's surprise
decision upon the onset of the ruble's swift decline in early December 2014 to not tap into the country's gold reserves,
now the world's sixth largest, highlights the ambitiousness of Russia's stance on the gold issue. By the end of December, Russia added another 20.73 tons, according to the IMF in late January, capping a nine-month buying spree.
Third, while the Russian economy is structurally weak, enough of the country's monetary fundamentals are sound, such that the timing of a move to gold, geopolitically and domestically, may be ideal. Russia is not a debtor nation. At this writing in January, Russia's debt to GDP ratio
is low and most of its external debt is private. Physical gold accounts for
10 percent of Russia's foreign currency reserves. The budget deficit, as of a November 2014 projection, is likely to be around $10 billion, much less than 1 percent of GDP. The poverty rate
fell from 35 percent in 2001 to 10 percent in 2010, while the middle class was projected in 2013 to reach 86 percent of the population
by 2020.
Comment: More information about the currency wars and the role of gold: