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‘Golden ruble 3.0’

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The tough sanctions blockade has created necessary prerequisites for a 180-degree reversal of Russian foreign trade. The main foreign economic partners of Russia were the EAEU member states, China, India, Iran, Turkey, the UAE, etc. And with each of these countries, the Russian Federation has a trade surplus. According to the preliminary assessment of the Bank of Russia, in January – September 2022, it strengthened to $198.4 billion, which is $123.1 billion more compared to the same period last year. This surplus was taken out of the country (while half went to repay the external debts of Russian companies with their replacement by domestic ruble lending) and is reflected in the balance of payments article “net capital outflow”.

In friendly countries, the process of de-dollarization has begun, the share of settlements in “soft” currencies is growing. In September, Russia became the third country in the world in terms of the use of the yuan in international settlements. According to the Central Bank, in recent months, yuan trading accounts for up to 26% of foreign exchange transactions in the Russian Federation. The yuan/ruble pair on the Moscow Stock Exchange has many times overtaken the dollar and the euro in terms of daily trading volume. When using yuan, rupee, rial, etc. in foreign trade settlements of the Russian Federation. and the presence of a trade surplus results in the accumulation of multibillion-dollar cash balances on the accounts of Russian exporters in “soft” currencies in the banks of the above-mentioned partner countries.

The accumulation of funds in “soft” currencies will keep on increasing. But ever since this money is also subject to exchange rate and possible sanctions risks, there is a need to sterilize their excessive mass. The best way is to buy non-sanctioned gold in China, the UAE, Turkey, possibly Iran and other countries for local currencies. The “foreign” gold purchased by the Russian Central Bank can be stored in gold and foreign exchange reserves (gold reserves), within certain limits being in the central banks of friendly countries, can be used for cross-country settlements, currency swaps and clearing operations. Some of the gold can be recovered to Russia.

Russia’s transition to trade in national currencies in relations with friendly countries is a right tactical choice, but not a strategic one. If pricing continues in dollars on Western exchanges, trade flows are insured by English companies, then there is no real independence from the Western “crooked mirror” – derivative pricing systems.

Regardless of unprecedented sanctions stress, Russia’s task is not to learn how to play by the “crooked rules” of the West, but to build transparent and mutually beneficial rules of the game with friendly countries, create its own pricing systems, exchange trading, and investment. Thus said gold can be a unique tool in the fight against Western sanctions, if you recalculate the prices of all major international goods (oil and gas, food and fertilizers, metals and solid minerals) in it. Fixing the price of oil in gold at the level of 2 barrels. for 1 g, it will give a 2-fold increase in the price of gold in dollars, calculated Credit Suisse strategist Zoltan Pozhar. This would be an adequate response to the “price ceilings” introduced by the West – a kind of “floor”, a solid foundation. So India and China can take the place of global commodity traders instead of Glencore or Trafigura.

Gold (along with silver) has been the core of the global financial system for millenia, an honest measure of the value of paper money and assets. Now the gold standard is considered an “anachronism”. It was canceled in its final form half a century ago (the United States announced the “temporary” closure of the “golden window” adopted in 1944 in Bretton Woods), re-linking the dollar to oil. But the age of the petrodollar is coming to a finale: now talks of the petroyuan and other mechanisms to limit the abuse of the issuer of the reserve world currency by its status are being held. Russia, together with its eastern and southern partners, has a unique chance to “jump off” the sinking ship of a dollar-centric debt economy, ensuring its own development and mutual trade in accumulated and extracted strategic resources.

This is not the first attempt by Russia to introduce a solid ruble based on a peg to gold. The gold standard in the 19th century was lobbied in Europe by Rothschild – this gave him (and Britain) the chance to subordinate continental Europe to the British financial system over gold loans. Russia joined the “club” under Count Witt. The “Golden Ruble 1.0” ensured the process of capitalist accumulation, while tying domestic bankers and industrialists to the sources of Western capital. There was no large scale gold mining in Russia at that time. The industry appeared only under Stalin.

Gold played an important role both in industrialization and in the post-war refusal of the USSR to join the dollar standard (at the time the country accumulated record gold reserves). Having signed the Bretton Woods Agreements, the USSR did not ratify them, having determined the binding of the ruble not to the dollar (which was a condition for participation in the Marshal’s plan), but to gold and to “the entire wealth of the country.” The “Golden Ruble 2.0” ensured an accelerated recovery of the economy after the war, made it possible to implement nuclear and missile projects. The reformer Khrushchev abolished the binding of the ruble to gold, having carried out in 1961. Monetary reform with the actual devaluation of the ruble by 2.5 times and linking it to the dollar, creating conditions for the subsequent transformation of the country into a “raw material appendage” of the Western financial system.

Now objectively there are conditions for the “Golden Ruble 3.0”.

The sanctions imposed against Russia have hit the Western economy like a boomerang. The geopolitical instability provoked by them, rising prices for energy and other resources, inflation and other negative factors put the global economy under great pressure, especially the global financial market. In 2023, all these circumstances will surely affect the change in investment policy stereotypes in the world – from risky investments in complex financial instruments to investing in traditional assets, primarily in gold. According to analysts of Saxo Bank, in 2023 increased demand for this metal will lead to the fact that the price of it will rise from the current $ 1800 per ounce to $ 3000. As a result, there is a real opportunity to significantly increase gold reserves in the very near future – due to both increase in physical volumes of gold and a revaluation of its value.

Large gold reserves allow the country to conduct a sovereign financial policy and minimize dependence on external creditors. The amount of reserves affects the reputation of the country, its credit rating and investment attractiveness. Large reserves make it possible to plan the state budget for a long term, eliminating many economic and political risks. In 1998, the lack of sufficient international reserves was one of the causes of the crisis, which ended in default for Russia. Now our country already has large gold and foreign exchange reserves, having the fifth indicator in the world (after China, Japan, Switzerland and India) and ahead of the United States, but this is still not enough.

The volume of annual gold production is estimated at only $200 billion (at current prices), the volume of accumulated reserves is $7 trillion, of which central banks have no more than a fifth, and in the third quarter they bought a record 400 tons of gold. For the first time in many years, the People’s Bank of China announced an increase in its gold reserves. But the Bank of Russia publicly informed the market that buying gold is a bad idea, as it leads to excessive monetization of the economy, and set a discount to the world price for about 15%. As a result, gold miners are experiencing double stress: The West has outlawed Russian gold, prohibiting any transactions with it, and the Central Bank of the Russian Federation pushes gold (as well as currency) abroad, giving companies the right to export everything through intermediaries with melting or re-branding of metal in “good jurisdictions”.

In China, which ranks first in gold production, there is a legislative ban on the export of all mined gold. According to the Shanghai Gold Exchange, over the past 15 years, customers have seized (received in physical form) 23,000 tons of this metal. India is considered the world champion in the accumulation of gold – more than 50,000 tons (the Reserve Bank of India has almost 2 orders of magnitude less). For the last quarter of a century, gold has been flowing from West to East through the main hubs (London, Switzerland, Turkey, UAE, etc.) with a capacity of 2000-3000 tons per year. Has the “despicable metal” remained in the vaults of the Western Central Banks, or is it all “demonetized” through swaps and leasing? The West will never say that, and there will be no Fort Knox audit.

Over the past 20 years, the volume of gold mining in Russia has almost doubled, while in the United States it has dropped by nearly 2 times. It’s like with the uranium deal (HEU-KNOW): having demonetized real wealth, the United States has lost competence and interest in the production and processing of these strategic resources (both gold and uranium, etc.) – the printing press will ensure the purchase of everything we want. The same thing happened, for example, with the extraction of rare earth metals, it almost entirely went to China. The time has come to reap the benefits: the States are desperately buying palladium, uranium, and other resources in Russia (as their customs statistics for recent quarters show).

Gold mining, which today barely occupies 1% of GDP, may well grow (due to the growth of both production and relative oil prices) to 2-3% of GDP and become the basis for the rapid growth of the entire commodity sector (30% of GDP) and the balancing of foreign trade, which up to now relies on the tyranny of issuers of “hard” currencies and risks of devaluation and insufficient convertibility of “soft” currencies. In this case, Russia, due to a well-organized global “gold rush” (and the Russian population, following the world central banks, has already increased investments in gold by 4 times compared to last year), will be able to increase gold production (only due to three large deposits already being commissioned) from 330 tons by 1.5 times to 500 tons, becoming a world leader in this strategic industry as well. As a “bonus” we will get: a strong ruble, a strong budget and – when implementing a strategy of advanced development – a strong economy.


Authors: Sergey Glazyev (Russian Academy of Sciences) and Dmitry Mityaev (Executive Secretary of the Scientific and Technical Council under the Chairman of the EEC Board)
27 December 2022 – Vedemosti
Translated by Elena Gülsün from Russian

RUSSIA

Putin signals readiness for Arctic cooperation, including with the West

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Russian President Vladimir Putin, speaking at the plenary session of the International Arctic Forum in Murmansk on March 27, stated that Russia is ready for cooperation in the Arctic with both friendly nations and, should they express interest, Western countries.

Putin noted that international interaction in the Arctic is not currently experiencing its best period.

The President mentioned that the Arctic Council was previously established for cooperation, but this mechanism “has weakened today.”

“As they say in such cases: If you don’t want to, it’s up to you,” Putin added.

According to the Vedomosti daily, Putin also addressed US President Donald Trump’s idea of purchasing Greenland from Denmark.

According to Putin, “this might only seem surprising at first glance.” He stated it would be incorrect to consider these discussions unusual, adding, “In fact, such plans by the US emerged in the 1860s. At that time, the American administration was considering the possibility of annexing Greenland and Iceland, but this idea did not receive support from Congress.”

Putin then recounted the history of the matter, including the US establishing military bases on the island during World War II and subsequently offering to buy Greenland from Denmark after the war concluded.

According to the President, this issue primarily concerns relations between the US and Denmark and does not involve Russia. However, “the only fact that certainly worries us is that NATO countries are increasingly designating the Far North as a potential springboard for conflicts and are practicing the use of troops under these conditions.”

Furthermore, Putin stated that Russia is not threatening anyone in the Arctic but is establishing a defense line.

He detailed that the Arctic region constitutes more than a quarter of Russia’s territory, is home to approximately 2.5 million Russian citizens, and accounts for 7% of the country’s GDP and about 11% of its exports.

The President highlighted that cargo flow on the Northern Sea Route has increased tenfold over the last decade, rising from 4 million tons in 2014 to approximately 38 million tons in 2024. Projections estimate cargo flow will reach 70-100 million tons by 2030.

Putin emphasized that the primary objective is to transform the Northern Sea Route into a key segment of the Trans-Arctic Transport Corridor, extending from St. Petersburg via Murmansk to Vladivostok.

According to Putin, this route “should connect the world’s industrial, agricultural, energy centers, and consumer markets via a shorter, safer, and economically profitable route.”

Putin outlined several tasks for developing the Trans-Arctic Corridor. Noting that Russia currently possesses the world’s largest icebreaker fleet, he stressed the need to strengthen this position and commission new-generation icebreakers, including nuclear-powered ones currently unique to Russia.

“Four of these—the newest 22220 series—are already operating in the Arctic. Three more nuclear icebreakers of this series are under construction—Chukotka, Leningrad, and Stalingrad—as well as the super-powerful 120-megawatt Rossiya icebreaker,” Putin stated.

He also mentioned Russia’s need for its own merchant fleet, including cargo and emergency rescue vessels, to facilitate transportation in the Arctic.

Observing that current capacity is insufficient, Putin said, “It is necessary to move in all directions: purchase and order ready-made ships, establish cooperation with global manufacturers, and generally align the entire Russian shipbuilding system with upcoming strategic tasks.”

He added that the government should support Russian shipbuilding and repair enterprises and explore the issue of shipyard construction.

Putin also stated that conditions must be created for domestic operators transporting cargo via the Arctic within Russia, adding that Russia is prepared to establish joint ventures in this area.

“International logistics operators can profitably invest in such companies not only with capital and technology but also with a portion of their merchant fleets,” Putin assessed.

Stating that Russia will increase the capacity and turnover of its northern ports, Putin added that Belarus, China, the UAE, and other countries have shown interest in developing the Arctic’s transport infrastructure.

Putin announced that multimodal centers will be established within the framework of the Trans-Arctic Corridor and instructed the government to outline plans for expanding the capacity of Arctic seaports and identify locations for new ones.

He also confirmed that Russia will implement the Arctic Railway Polygon development project: “Today we are aware of the development issues concerning RZD (Russian Railways)… However, it is necessary to start thinking now about this—about what I just mentioned, the development of the Northern Railway.”

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Europe from Lisbon to Vladivostok will revive, Deripaska says

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One of Russia’s wealthiest men, Oleg Deripaska, announced his belief that the project to create a unified economic zone between Russia and Europe, stretching from Lisbon to Vladivostok, will be revived.

In a statement on his Telegram channel, Deripaska noted that this project would exclude Britain.

Deripaska stated, “The inevitable rapprochement after the conflict between Russia and Germany will completely change the political map of the European continent and lead to the revival of the project to create an economic zone from Lisbon to Vladivostok. This situation, along with Scotland’s secession from the United Kingdom, will definitively bury the British Empire in history.”

Deripaska stated that Britain’s problems have been accumulating for years, chief among them being “the virtual bankruptcy of public finances” and the complete failure of Brexit hopes.

Deripaska added, “No one came up with the dream of creating a Singapore on the Thames, and there was no desire for it in a society full of leftist ideas and not inclined to meticulous work.”

Deripaska assessed, “The collapse of the legal system and the terrible incompetence of judges in London have virtually destroyed the investment environment, and tax changes for foreigners have completely finished this situation.”

“But the worst is yet to come,” said Deripaska, adding, “All we have to do is wait and ignore the audacious ideas like ‘boots on the field.’ Let them crow a little.”

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Ukraine retreats from most occupied areas in Russia’s Kursk oblast

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According to military analysts and soldiers who spoke to The New York Times (NYT), the Ukrainian army has withdrawn from almost all of the territory it occupied in Russia’s Kursk oblast.

As a result of Moscow’s counterattacks, Ukraine’s months-long operation to seize and occupy Russian territory is nearing its end.

At the peak of the offensive, the Ukrainian army controlled approximately 1,295 square kilometers of Russian territory.

According to Pasi Paroinen, a military analyst at the Finland-based Black Bird Group, as of Sunday, the Ukrainian army was trying to hold on to a narrow area of approximately 78 square kilometers along the Russia-Ukraine border.

“The end of the war is coming,” Paroinen told the newspaper.

While the amount of Russian territory under Ukrainian control could not be independently verified, intense fighting was reported in the region.

With Russia’s rapid advance, supported by continuous air strikes and drone attacks, the Ukrainian army withdrew last week from several villages in Kursk oblast and from Sudzha, the main city they controlled.

The General Staff of the Ukrainian Armed Forces announced that the troops had withdrawn to more defensible areas inside Russia and were taking advantage of the rugged terrain to provide better fire control against the approaching Russian forces.

On Sunday, it published a map showing the narrow area that Ukraine still controlled in Kursk oblast.

However, it remains unclear how long the Ukrainian army will be able to hold this area.

Ukrainian soldiers stated that the ongoing fighting in Kursk is no longer about holding Russian territory, but rather about controlling the best defensive positions to prevent the Russians from entering Ukraine’s Sumy oblast and opening a new front in the war.

An assault company commander, who identified himself only by his radio code, Boroda, said in a telephone interview, “We continue to maintain our positions on the Kursk front,” and added: “The only difference is that our positions have moved significantly closer to the border.”

Military experts say that although Ukraine’s withdrawal from most of Kursk oblast was rapid, it came after months of Russian attacks and bombardment that gradually weakened Ukraine’s foothold in the region and cut off supply routes, eventually making withdrawal necessary.

Austrian military analyst Franz-Stefan Gady, who visited Ukraine’s Sumy oblast on the Kursk border last month and met with Ukrainian commanders, said, “What has happened in the last few months was an operation that prepared the conditions for a successful advance.”

Serhiy Kuzan, the head of the non-governmental organization Ukrainian Center for Security and Cooperation, said, “There was no danger of encirclement of Ukrainian troops, and there is no evidence to the contrary.”

Meanwhile, Trump’s special representative for the Middle East and also a mediator with Russia, Steve Witkoff, told CNN on Sunday that he expected Trump to meet with Putin this week.

Witkoff said he had a positive three-to-four-hour meeting with Putin last week. While refraining from sharing the details of their discussions, Witkoff expressed his continued optimism that an agreement could still be reached.

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