The current economic climate of the West has many individuals who are concerned about their economic livelihood weighing different options for preserving their wealth.
The combination of government imposed lockdowns, monetary expansion, and proposals to tax productive individuals, has many people looking to gold and even cryptocurrencies as a way of protecting their wealth in such times of economic chaos.
Even countries are beginning to hold increased amounts of the former. For example, Russia in 2021 possesses more gold than U.S. dollars, according to Schiff Gold.
A Bloomberg report from earlier in January indicated that gold comprised 23% of the Russian Central Bank’s reserves. The number of dollar assets the Russian Central bank held plummeted to 22% in the present. By contrast, 40% of Russian reserves were in dollars back in 2018.
Curiously, Russia’s holdings in gold surpassed its dollar reserves in 2020 despite it freezing its gold purchases. According to Schiff Gold, “This was partly due to an increase in the value of its gold holdings with the rise in gold prices, and partly a function of the central bank’s continued efforts to shed dollar assets.”
Under the leadership of President Vladimir Putin, Russia has pursued a “de-dollarization” policy to reduce the Eurasian country’s exposure to the United States and protect it from the potential threat of U.S. sanctions.
Behind euros, gold was the second-largest category of reserves that the Central Bank of Russia held. Additionally, the Russian central bank also increase its yuan holdings, which puts the Chinese currency at around 12% of Russian reserves.
Prior to ending its purchase program in the spring of 2020, Russia was the central bank that bought the largest amount of gold. Schiff Gold recounted that the Russian central purchased $4.3 billion in gold between June 2019 and June 2020.
Russia’s gold buying patterns have been pretty conservative over the past decade ever since its war with Ukraine broke out in 2014. The resultant sanctions from the EU and the U.S. have compelled Russia to get creative with its monetary policies and ability to do commerce abroad.
According to a Bloomberg report, the Russian central bank bought gold on a monthly basis ever since March 2015. The Bloomberg report noted “Russia spent more than $40 billion building a war chest of gold over the past five years, making it the world’s biggest buyer.”
Thanks to Russia’s increased gold purchases, it surpassed China as the 5th largest country in terms of gold reserves in its possession. At the same time, the Russian central bank has been getting rid of its U.S. treasuries. For example, in April 2018 alone, Russia sold off $47.4 billion of its $96.1 billion in treasuries.
There is a geoeconomic component to Russia’s gradual move away from the dollar. Many countries have grown fearful of the U.S.’s use of the dollar as a weapon to advance its foreign policy agenda. This has prompted many countries outside of the U.S. spheres of influence to consider alternative payment methods to the dollar. For example, Russia established a payment system in 2018 that now serves as an alternative to the Society for Worldwide Interbank Financial Telecommunication (SWIFT). SWIFT allows financial institutions to send and receive information with regards to financial transactions in an environment that is both secure and has coherent standards.
Due to the dollar’s status as the world reserve currency, SWIFT works as a major facilitator for the international dollar system. Additionally, SWIFT can be used as a weapon against other countries who do not bow down to the U.S.’s geopolitical agenda. For example, the U.S. blocked a number of Russian banks from SWIFT in 2014 and 2015 following Russia’s controversial military actions in Ukraine. On a previous occasion, the U.S. threatened to boot China out of the dollar system if it didn’t follow through with UN sanctions on North Korea
Russia could be setting an interesting precedent for other countries to follow. If other countries hop on the de-dollarization bandwagon with Russia, they could potentially break the U.S.’s monetary hegemony.
This process will likely take place over the course of a few decades. In the meantime, everyday Americans scared of potential inflation and about the current geopolitical environment should be adding gold and cryptocurrencies to their portfolios. It’s the most productive action that an individual can take in times of uncertainty. In addition, it’s one of the most effective ways that allows individuals to revolt against our current political economy of fiat money.