A “gold ruble” rumor flooded conspiracy sites predicting that Putin is to crash the global financial system by kicking out the dollar and using only metal-backed currency as payment tool. But don’t worry. The time has not yet come. Putin is making nothing more than a domestic payment system, independent from Visa and MasterCard monopoly. This system will help Russia avoid unexpected hits in crisis times. Neither Putin, nor Russia is ready for a revolution in global finance. And it will not be Russia who will start this.
In fact it will not be started by any country. It will happen by itself and despite the resistance of governments. It has always happened this way in history.
It is obvious that the fiat-money experiment that started in 1913, and finally was accelerated in 1971 with the cut of the connection between dollar and gold, is closing to its end. Leading governments around the world are deeply indebted. Economies have lost real production and instead are trading services and government jobs. Societies are stupid and under democracy are blocking any reform-attempt. And the only used real measure to address the crisis is using the currency emission. I.e. printing money. Under all this the fiat-money system is doomed and will inevitably crash. Then a restart of gold standard will appear and not only the ruble will become gold backed, but there will be no currencies that are not gold backed.
That is the future. The conspiracy sites are right. But they are not right about Putin and today’s “gold ruble”.
Russia is not ready for this. It has no enough gold reserves. Additionally, Russian government is neither wise enough nor brave enough to do this. In fact Russian central bank is betting on fiat-currency strategy just like any other bank in the world. The ruble is periodically being devalued in an effort to regulate economic problems. The currency is used as economic tool, and this happens even now. Any government very difficult will deprive itself of this very sweet instrument. Usually this happens only in crisis times – after a hyperinflation. Only then currency boards and limiting the power of the central bank could happen.
Implementing the gold standard will be very useful for the society and the economy. But it will make the job of governments much heavier. They will not be able to print money and finance deficits. They will not be able to manipulate interest rates to allow cheap borrowing. They will not be able to run up enormous debts. And they will have to spend only the money they can collect from taxes. Although all this sounds good for common people and for the society, it does not sound good for the government. Neither for Russian one…
In fact Russia has anti-real-money policy. Russia was among the first countries to implement repressions against Bitcoin. I.e. against the competitor of fiat-money.
Russia will resist the gold-standard just like any other country in the world. It doesn’t matter the political problems in any moment. Ukraine, Georgia or Syria – they can fight there and play dirty games. But governments will always be allies on the matter of money-creation. The most important monopoly they have. This monopoly is always doomed to crash. There is no case in history of not crashed paper-money. But this will not happen by the will of the government. The government is always the big loser when real money is back.
Dobri B.
May-13th-2014
