Geopolitical evolution
Jun 29, 2023·Alasdair Macleod
https://www.goldmoney.com/rese…opolitical-evolution-2023
The increasing number of nations seeking to join BRICS brings geopolitics into the spotlight. At the time of writing, existing members, those who have applied to join and those expressing an interest total 36 nations, with over 60% of the world’s population and one-third of global GDP.
Plans for a new trade currency backed by gold appear to be on the agenda for the BRICS meeting in Johannesburg in August. In this article, the geopolitical aspects of its introduction are considered, and the indications that how it will involve gold are discussed. The mechanics of this project are then suggested.
But first, we look at the situation in Ukraine, attempting to put the recent Wagner rebellion into context. Furthermore, Russia’s deteriorating trade surplus, weakness of the rouble and rising bond yields suggest that it is time for President Putin to put an end to Ukraine’s misery. He is likely to do this by attacking Kiev, which is only 60 miles from Belarus, while the bulk of Ukraine’s army is distracted by operations over 400 miles to the south and east.
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The BRICS summit in Jo’burg
There is evidence that plans for a new trade settlement currency will be announced at the upcoming BRICS meeting in Johannesburg on 22—24 August. If so, it will be a major development for global markets and a threat to the dollar’s future. And a new supranational trade currency for BRICS, the Shanghai Cooperation Organisation, and the Eurasian Economic Union has the merit of not having to address the vested trade and domestic currency interests of each member state. It would be designed to ensure its reserve status does not give overriding power to one nation, unlike the dollar.
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In August 1971, when the Bretton Woods agreement was abandoned, crude oil was priced at $3.56 a barrel and the market price for gold was $42.85. Converting this into ounces of gold per barrel gives us a value of 0.0831 ounces. Today, the gold price of oil is 0.036 ounces per barrel, down 57%. In other words, using gold Glazyev can demonstrate that the true cost to OPEC+ of dollarisation has been to more than halve the value of their export revenues since the Bretton Woods agreement was suspended. By accepting a new trade settlement medium tied to gold, this US enforced erosion of oil values will cease. And to compensate for the loss of oil’s value from the ending of Bretton Woods, the gold price in dollars would have to be more than double that of today at over $4,400.
The evidence mounts therefore, that gold provides a framework within which Glazyev intends to operate. That he must be thinking this way has become fundamental to his approach, confirmed by his many references to gold in his article for [i]Vedomosti, to the rouble’s history tied to gold, and to the US’s debasement of petrodollars. In the UK at least, Russia’s media appears to be censored, so Glazyev’s Vedomosti article (referenced in endnote ii) may not be available to many readers in the west. Therefore, for ease of reference the salient points in the English translation of his detailed article are summarised as follows [with additional commentary in square brackets]:
- In the nine months to September 2022, Russia’s trade surplus with members of the EAEU, plus China, India, Iran, Turkey, The United Arab Emirates etc. was $198.4bn equivalent, against $123.1bn for the same period last year. In other words, the western alliance’s sanctions failed to suppress Russia’s oil revenues, merely redirecting their sources. [Since then, this surplus has declined materially due lower oil and other commodity prices. Time for another special military operation?]
- The trade surplus with SCO members has allowed Russian companies to pay off external debts, replacing them with borrowing in roubles. [Glazyev doesn’t make this point, but a return to the gold standard would reduce borrowing costs in roubles substantially]
- Russia became the third largest country using renminbi for international settlements, accounting for up to 26% of foreign exchange transactions in the Russian Federation. The share of settlements in soft currencies is growing for SCO members, dialog partners and associates, replacing dollars, and is expected to increase further. [This is almost certainly a temporary fix, ahead of a new trade settlement currency being established]
- Since these currencies are subject to exchange rate risks and possible sanctions, the best way to offset them is to take payment in non-sanctioned gold from China, the UAE, Turkey, possibly Iran, and other countries instead of their local currencies. [A BRICS/SCO trade settlement currency tied to gold would eliminate this problem]
- Gold purchased by the Russian Central Bank can be stored in central banks of friendly countries for liquidity purposes and the rest repatriated to Russia.
- Gold can be a unique tool to combat western sanctions if used to price all major international goods (oil, gas, food, fertilisers, metals, and solid minerals). This would be “an adequate response to the west’s price ceilings”. And “India and China can take the place of global commodity traders instead of Glencore or Trafigura”.
- Gold (along with silver) for millennia was the core of the global financial system, an honest measure of the value of paper money and assets… It was cancelled half a century ago, tying oil to the dollar. But the era of the petrodollar is ending. Russia, together with its eastern and southern partners has a unique chance to jump ship from a dollar-centred debt economy.
- By signing the Bretton Woods agreement but not ratifying it, for the USSR “Golden Rouble 2.0” played an important role in post-war Soviet industrialisation. Now the conditions for “Golden Rouble 3.0” have objectively developed.
- Sanctions against Russia have boomeranged against the west. It now faces geopolitical instability and rising prices for energy and other resources [i.e., yet more price inflation].
- In 2023, [there will be a shift from] risky investments in complex financial instruments to invest in traditional assets, primarily gold. Gold’s increasing prices towards Saxo Bank’s forecast of $3,000 per ounce will lead to a substantial increase in the values and quantities of gold reserves. Large gold reserves will allow Russia “to pursue a sovereign financial policy and minimise dependency on external lenders”. [Note that in addition to official reserves it is believed that Russia has at least a further 10,000 tonnes — more than the officially declared total for the US Treasury.]
- Central banks are adding to their gold reserves. China has an export ban on all mined gold. According to the Shanghai Gold Exchange, customers have withdrawn 23,000 tonnes of gold. India is considered the world champion in gold accumulation…. Gold has been flowing from West to East… Is the West’s central bank gold safely earmarked, or is it all “de-done” through swaps and leasing? The West will never say, and Fort Knox’s audit will not either.
- Over the last 20 years, gold mining in Russia has almost doubled. Gold production may well grow from 1% of GDP to two or three per cent… Already, Russia’s annual gold production is set to rise from 300 tonnes to 500 tonnes… giving Russia a strong rouble, strong budget, and a strong economy. [Note that in this statement Glazyev reveals that he expects most of the increase of mine output is to be in its value measured in dollars.]
Glazyev is all but saying for definite that Russia plans to enact Golden Rouble 3.0. And we should be in no doubt that Russia is backing away from the west’s fiat monetary system and sees far higher gold prices expressed in falling dollars. The only question is the speed with which it is moving in this direction.
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