While the U.S. uses the dollar as an economics weapon, Russia may be stockpiling gold as a weapon against the U.S.
While the U.S. uses the dollar as an economics weapon, Russia may be stockpiling gold as a weapon against the U.S. by Ken Schortgen – The Daily Economist
One of the primary reasons why the U.S. created the Commodities Futures Market (Comex) was to ensure they controlled the price of gold through paper contracts to protect the dollar once it was removed from the gold standard and backed by oil under the Petrodollar agreement. And except for a few times over the past 45 years (1980, 2011), they have succeeded in keeping the value of gold disconnected from the machinations played with the dollar and within the bond markets.
In addition, America’s use of the dollar has gone far beyond that of strictly being a method of trade payment as one of the primary purposes for the military is to ensure the world remains on dollar hegemony and in a singular reserve currency system.
But as the world, and particularly the Eastern World, finds itself ready to disconnect from the uni-polar dollar system, one of the most important things these nations must do is find a way to protect themselves from the U.S. implementing economic warfare upon them using the dollar as the catalyst. And this is where gold comes in. And according to economic strategist Jim Rickards, Russia and China’s decade long stockpiling of gold may itself be used as a weapon against both the dollar and the United States on the economic landscape.
Russia’s desire to break away from the hegemony of the U.S. dollar and the dollar payment system is well-known. Over 60% of global reserves and 80% of global payments are in dollars. The U.S. is the only country with veto power at the International Monetary Fund, the global lender of last resort.
Perhaps Russia’s most aggressive weapon in its war on dollars is gold. The first line of defense is to acquire physical gold, which cannot be frozen out of the international payments system or hacked.
With gold, you can always pay another country just by putting the gold on an airplane and shipping it to the counterparty. This is the 21st-century equivalent of how J.P. Morgan settled payments in gold by ship or railroad in the early 20th century.
Russia has now tripled its gold reserves from around 600 tonnes to 1,800 tonnes over the past 10 years and shows no signs of slowing down. Even when oil prices and Russian reserves were collapsing in 2015, Russia continued to acquire gold.
But Russia is pursuing other dollar alternatives besides gold.
For one, it’s been building nondollar payments systems with regional trading partners and China.
The U.S. uses its influence at SWIFT, the central nervous system of global money transfer message traffic, to cut off nations it considers to be threats.
From a financial perspective, this is like cutting off oxygen to a patient in the intensive care unit. Russia understands its vulnerability to U.S. domination and wants to reduce that vulnerability.
Now Russia has created an alternative to SWIFT.
The head of Russia’s central bank, Elvira Nabiullina, has reported to Vladimir Putin that “There was the threat of being shut out of SWIFT. We updated our transaction system, and if anything happens, all SWIFT-format operations will continue to work. We created an analogous system.”
Russia is also part of a reported Chinese plan to install a new international monetary order that excludes U.S. dollars. Under that plan, China could buy Russian oil with yuan and Russia could then exchange that yuan for gold on the Shanghai exchange.
Now it appears Russia has another weapon in its anti-dollar arsenal. – Daily Reckoning
If gold is the one thing the U.S. desperately needs to suppress in order for the dollar system to remain solvent, then using that commodity against the reserve currency may in the end be the most powerful weapon nations have against Washington’s economic gambits.