In Part 1, the discussion of central bank policy changes pointed towards the adoption of gold reserves as an unofficial policy measure. As the systematic failure of the Eurozone continues, the geopolitical landscape of the Eurasian block can be seen in plain sight. Russia has been a net importer of gold for several years, and that trend will continue as the geopolitical debacle continues.
Elvira Nabiullina, the Central Bank of Russia President, is one of very few across the globe who have followed sound money principles. These policies have rendered Russia as the number one fiscal country in the G-20. Foreign currency debt owed by the Russian government sat at around $40 billion as of April 1, 2016. The appreciation of the ruble since then has dropped this amount to roughly $35 billion, and with a trade surplus of $12 billion, Russia looks like an attractive place for investment. Additionally, Russia’s national accounts show a budget deficit of only 2% of their GDP. In Izvestia (a Russian newspaper), sources point towards Russia paying off the last debts of the U.S.S.R. in a $125 million settlement to Bosnia and Herzegovina. One would have to ask themselves, why are the Russians paying off this debt, and especially from such a long time ago? Russia is preparing themselves for the geopolitical and systematic crises that are unfolding daily. Government debt is unwinding to insulate them from further financial crises and limit obligations against the public sector.
In the public sector debt reduction mentioned above, it provides an example of what can be a potential economic catastrophe in the event of geopolitical tension. As a U.S. citizen, economic historian, and geopolitical observer, the Russian narrative in the U.S. is one of mixed messages. Russian GDP is roughly $1.4 trillion. Compared to a $18 trillion U.S. economy, this makes the case that the 1980-style Cold War rhetoric is meaningless. Factions of U.S. intelligence, although slowed with the election of Donald Trump, are hell-bent on bankrupting Russia. According to Seumas Milne, of the Guardian, the U.S. selected the administration that followed the ousting of President Yanukovych in Ukraine. U.S. advisors served in Ukrainian ministries, as well as being embedded in the National Bank. These advisors were in place when Ukraine’s gold went missing, fueling suspicions that the gold was sequestered by the U.S. Russia recognizes that holding U.S. dollars and Treasuries makes them a creditor to a strategic opponent. U.S. dollars are the primary tool against countries that do not follow U.S. foreign policy. News outlets constantly talk about U.S. sanctions against Russia, and Vladimir Putin knows that increasing gold reserves and dumping U.S. paper assets is one way of sidetracking the SWIFT system. We will dive into China’s central bank policies in part 3.
“With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people.” – F.A. von Hayak