Putin stockpiles gold as Russia prepares for economic war

Russia’s central bank added to its reserves of bullion in the third quarter, according to the latest report from the World Gold Council.

By Andrew Critchlow, Commodities editor
13 Nov 2014

Russia has taken advantage of lower gold prices to pack the vaults of its central bank with bullion as it prepares for the possibility of a long, drawn-out economic war with the West.

The latest research from the World Gold Council reveals that the Kremlin snapped up 55 tonnes of the precious metal – far more than any other nation – in the three months to the end of September as prices began to weaken.

Vladimir Putin’s government is understood to be hoarding vast quantities of gold, having tripled stocks to around 1,150 tonnes in the last decade. These reserves could provide the Kremlin with vital firepower to try and offset the sharp declines in the rouble.

Russia’s currency has come under intense pressure since US and European sanctions and falling oil prices started to hurt the economy. Revenues from the sale of oil and gas account for about 45pc of the Russian government’s budget receipts.
The biggest buyers of gold after Russia are other countries from the Commonwealth of Independent States, led by Kazakhstan and Azerbaijan.

In total, central banks around the world bought 93 tonnes of the precious metal in the third quarter, marking it the 15th consecutive quarter of net purchases. In its report, the World Gold Council said this was down to a combination of geopolitical tensions and attempts by countries to diversify their reserves away from the US dollar.

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Russia may ban the circulation of the United States dollar.

The State Duma has been submitted a relevant bill

Moscow. Farid Akbarov – APA. Russia may ban the circulation of the United States dollar.

The State Duma has already been submitted a relevant bill banning and terminating the circulation of USD in Russia, APA’s Moscow correspondent reports.

If the bill is approved, Russian citizens will have to close their dollar accounts in Russian banks within a year and exchange their dollars in cash to Russian ruble or other countries’ currencies.

Otherwise their accounts will be frozen and cash dollars levied by police, customs, tax, border, and migration services confiscated.

After the law enters into force, it will be impossible to obtain cash dollar in Russia. The ban or termination of the US dollar will not apply to the exchange operations carried out by Russian Central Bank, the Russian government, ministries of foreign affairs and defense, the Foreign Intelligence Service and the Federal Security Service.

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US dollar domination makes world economy unstable, new reserve currencies needed

The Voice Of Russia

Devaluation wars are in full swing and the death of the dollar as the international currency seems almost inevitable. Jacques Sapir, a French economist and the director of the Higher School of Social Sciences in Paris, and a prominent expert on the issue, shared his forecast regarding the future of the global financial capital with Radio VR.

Agreeing that Russia's and China's desire to get rid of the dollar in their gas transactions is quite likely to be fulfilled, he pointed out that many countries, especially the producers of raw materials, would like to end their dependency on dollar for international transactions.
"And let’s add something else here: the complaint of the American government regarding the French bank BNP Paribas," noted Mr. Sapir. "They complained about the fact that that bank performed operations that contradicted the American legislation, although that bank’s offices were located outside of the territory of the United States, but because the dollar was used and the clearinghouse was in the USA, the American government decided that the American legislation was violated. It is an extremely complicated legal issue, but we clearly understand that that precedent, in legal terms, can only make concerned a number of countries, which do their transactions in dollars and can only push them towards choosing other currencies for transactions."
Mr. Sapir also remarked that the desire to create another world reserve currency besides the dollar is hardly new, as General de Gaulle attacked the US dollar’s status in 1965-66, and that every currency crisis sparkles similar debates. "On the one hand, it is clear that the current system based on non-exclusive, but very dominant use of the dollar as the reserve currency is unsatisfactory! And actually, one can see that in the structure of currency reserves of various central banks. For example, one can see that besides the dollar there is the euro, and now also a number of new currencies – for example, the Canadian dollar, Australian dollar, Singapore dollar and so forth. Thus, in the least there is a natural need for diversification, and perhaps even the need to change the system," said Mr. Sapir.
He also added that in order to fully restructure the international currency system it needs to be politically feasible to conduct an international conference similar to the Bretton Woods Conference of 1944. "Another path is to develop currencies, which at the regional level are beginning to play the role of the regional reserve currency. I believe that China’s goal is to make its national currency, the yuan, in a few years become the reserve currency at the level of the Asia-Pacific Region

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From BBC.com

China and Russia have announced a huge gas supply contract.

The deal between Russia’s Gazprom and China National Petroleum Corp (CNPC) has been 10 years in the making. No official price has been given but it estimated to be worth over $400bn.

Russia has been keen to find an alternative energy market for its gas as it faces the possibility of European sanctions over the crisis in Ukraine.

Shares in Gazprom rose 2% on the Russian market following the news.

The agreement is expected to deliver some 38 billion cubic meters of natural gas a year eastward to China’s burgeoning economy, starting around 2018.

The main argument has been over price and China is thought to have been driving a hard bargain.

Over the last ten years it has found other gas suppliers. Turkmenistan is now China’s largest foreign gas supplier, and last year it started importing piped natural gas from Myanmar.

Siberian power

Another sticking point has been the construction of pipelines into China.

Currently there is one complete pipeline that runs across Russia’s Far East to the Chinese border, called “The Power of Siberia”. It was started in 2007, three years after Gazprom and CNPC signed their initial agreement in 2004.

But financing the $22-30bn cost of sending it into China has been central to the latest discussions.

China is Russia’s largest single trading partner, with bilateral trade flows of $90bn (£53bn) in 2013.

The two neighbours aim to double the volume to $200bn in ten years.

Russia Holds "De-Dollarization Meeting": China, Iran Willing To Drop USD From Bilateral Trade

As an American I hope are folks know what they are doing, the petrodollar system allows for a ever increasing demand for dollars, this allows our dollar to be the world reserve currency without a gold back. Without the increasing demand for dollars and our FEDs massive money printing, we will not be able to export our inflation and we could see serious currency problems, up to and including hyperinflation. Twenty first century geopolitics with nuclear powers is not about the size of your aircraft carriers, but the size of your bank account minus your debt.  Remember Putin just wrote a fifty billion dollar check on some olympic games, here state side we would have to argue about shutting down the government or raise taxes to cover that expense. Can we afford to mess with Russia isn't this what Reagan did to them as part of the Soviet Union . - Gary 

Zerohedge.com

That Russia has been pushing for trade arrangements that minimize the participation (and influence) of the US dollar ever since the onset of the Ukraine crisis (and before) is no secret: this has been covered extensively on these pages before (see Gazprom Prepares "Symbolic" Bond Issue In Chinese Yuan; Petrodollar Alert: Putin Prepares To Announce "Holy Grail" Gas Deal With China; Russia And China About To Sign "Holy Grail" Gas Deal; 40 Central Banks Are Betting This Will Be The Next Reserve Currency; From the Petrodollar to the Gas-o-yuan and so on).

But until now much of this was in the realm of hearsay and general wishful thinking. After all, surely it is "ridiculous" that a country can seriously contemplate to exist outside the ideological and religious confines of the Petrodollar... because if one can do it, all can do it, and next thing you know the US has hyperinflation, social collapse, civil war and all those other features prominently featured in other socialist banana republics like Venezuela which alas do not have a global reserve currency to kick around.

Or so the Keynesian economists, aka tenured priests of said Petrodollar religion, would demand that the world believe.

However, as much as it may trouble the statists to read, Russia is actively pushing on with plans to put the US dollar in the rearview mirror and replace it with a dollar-free system. Or, as it is called in Russia, a "de-dollarized" world.

Voice of Russia reports citing Russian press sources that the country's Ministry of Finance is ready to greenlight a plan to radically increase the role of the Russian ruble in export operations while reducing the share of dollar-denominated transactions. Governmental sources believe that the Russian banking sector is "ready to handle the increased number of ruble-denominated transactions".

According to the Prime news agency, on April 24th the government organized a special meeting dedicated to finding a solution for getting rid of the US dollar in Russian export operations. Top level experts from the energy sector, banks and governmental agencies were summoned and a number of measures were proposed as a response for American sanctions against Russia.


Well, if the west wanted Russia's response to ever escalating sanctions against the country, it is about to get it.

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Quiet revolution of the emerging countries

As the Ukraine crisis heightens, the so-called BRICS countries – Brazil, Russia, India, China and South Africa – are becoming less willing to accept US world supremacy.

The goal of the emerging countries is clear – to change the global order with the United States as the hegemonic power. "The BRICS countries are a group of nations unsatisfied with the international order," said Peter Birle, head of research at the Ibero-American Institute (IAI) in Berlin. "The importance of BRICS could rise if Russia remains permanently excluded from the G8," he added.

According to Birle, the five emerging countries seek to permanently upend the power constellations established in 1945 and relativize the US position. "All these countries view themselves as emerging powers with a great future ahead of them," he said at the 15th Stuttgarter Schlossgespräch, an annual conference involving a panel of international social science, culture and politicis expert. This year’s talks focused on the relationship between Brazil and Europe.

Flexing muscle

In particular, Brazil is looking to growing cooperation among the five emerging countries. Directly after the World Cup soccer tournament and three months ahead of the presidential elections in October, the country will host the next meeting of BRICS countries in Fortaleza on July 15 and 16. The key issue on the agenda is the establishment of a joint development bank with capital stock of US$100 billion (72 billion euros).

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China opposes sanctions on Russia over Ukraine Washington to announce additional sanctions on Russia, says Obama

China’s foreign ministry on Monday restated its opposition to placing sanctions on Russia over the crisis in Ukraine, after leaders of the Group of Seven (G7) major economies agreed to swiftly impose further punitive measures.

Ministry spokesman Qin Gang said China had “maintained communication” with all sides since the outset of the Ukraine crisis, including the G7 countries, and explained its position.

“On the issue of international relations, China has consistently opposed threatening or imposing sanctions. We believe that sanctions are not conducive to an issue’s resolution, and may worsen tensions,” Mr Qin told a daily news briefing.

“We call on all sides to keep using dialogue and negotiation to appropriately resolve disagreements, to push for a political resolution to the Ukraine crisis. Sanctions are not in any party’s interests.”

US President Barack Obama, speaking in the Philippines, said Washington would announce new sanctions on Russia later in the day. He said the United States and its allies were keeping in reserve further measures against Moscow.

China has adopted a cautious response to the crisis, not wanting either to alienate key ally Russia or comment directly on the referendum in which Crimea voted overwhelmingly to join Russia, lest it set a precedent for its own restive regions, like Tibet.

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Russia Declares War on U.S. Dollar

Jerry Robinson of FTM daily is one of your better economist on the web, the petrodollar system may be sinking fast - Gary

FTMDaily.com – As the West continues to unleash its anger against Russia’s recent military moves, Vladimir Putin has intensified his diplomatic efforts with a rising China. After a decade of talks, Mr. Putin is expected to announce a broad plan to export vast amounts of natural gas to China during an official state visit to China next month. If Mr. Putin can seal the deal it will be another major victory for the BRICS nations and will provide yet another nail into the coffin of the failing U.S. dollar.

Of course, both sides are facing intense pressure from the West to abandon the deal. China, however, seems intent on pushing closer to Russia. Russia, in particular, is under the threat of more Western sanctions for its recent role in Ukraine. So too, Western sanctions are targeting Russia’s state-run energy company, Gazprom. Gazprom’s response to these sanctions shows just how close we are to the end of the petrodollar system…
From the Financial Times, a story entitled: Gazprom Looks to Drop the Dollar to Avoid Sanctions’ Bite:

The oil arm of Russia’s state-owned Gazprom is preparing customers to settle contracts in euros rather than dollars as it braces for the possible escalation of US sanctions against Moscow.
Alexander Dyukov, chief executive of Gazprom Neft, told reporters in St Petersburg that the company had discussed shifting contracts to euros with its customers. “Practically all – 95 per cent of our customers – confirmed their willingness to move to settlement in euros,” he said.

Through Gazprom, Russia is openly declaring war on the U.S. dollar and its long-standing role as the settlement currency in global oil transactions. Ukraine is yet another proxy war for the U.S. and Russia. Now, however, the long knives are coming out.
The Financial Times report continues:

One senior banker said that many commodity groups, including Gazprom Neft, had held talks with bankers about financing in euros rather than dollars. “Every commodity sector business is talking about what is possible if you couldn't do deals in dollars – if you couldn't get dollar clearing through New York,” he said.
Such a switch could result in higher costs for companies because of the need to convert currencies and the lower liquidity for those other than the US dollar.

As I have consistently told you, a global switch from the U.S. dollar is going to be costly, laborious, and painful. Those who suggest that one morning you will wake up to find the U.S. dollar completely worthless have no historical precedent. The entire global economic infrastructure is designed to run on U.S. dollars. Changing that system will be expensive and difficult. Nevertheless, the discussions on how to make the switch from the U.S. dollar are currently taking place, and plans are no doubt being hatched to eventually make the switch.
As this report suggests, Gazprom may just be ‘testing the waters.’ Regardless, this is just the calm before the storm. Our generation is going to witness the eclipse of the U.S. dollar as the world’s reserve currency. Global dollar demand creates a permission slip for excessive dollar supply. Excessive dollar supply creates unsustainably high prices. Reverse that cycle and you have a dramatic fall in prices.

America’s ‘house of cards’ is nearing the end of its lifespan. More >>>