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On March 25, Russia began purchasing gold from banks at a fixed price of 5,000 roubles (approximately $61) per 1 gramme. 

The transfer also marked the first time a country’s currency has been expressed in “gold parity” since Switzerland decided to end a similar policy in 1999. 

The transfer successfully generated a gold-based exchange fee of 81 roubles to $1, which aided the currency for a time. 

The rouble-gold link is meant to transfer strength and credibility from gold, which is a symbol of stability. “People still have this nostalgia for the gold standard; they believe money is tied to gold and thus cannot inflate.”

The disadvantage for Russia if it implements “gold parity” is that it will be forced to exchange roubles for gold at the 5,000 roubles per 1 gramme value. If it does, they may find themselves in a difficult situation in which buyers rush to withdraw gold from the central financial institution, resulting in severe destabilisation of the country’s monetary system. 

Perhaps as a result of this, Russia cancelled its transfer to buy gold at a fixed price on Thursday, citing a “significant change in market conditions.” 

Capital controls and a sluggish market

Also, in response to Western sanctions, Russia has imposed restrictions on the movement of funds to “unfriendly” countries, prohibited international buyers from selling Russian shares, and prohibited residents from exchanging roubles for foreign currency. 

These strict capital controls have left experts sceptical of the rouble’s ability to be valued successfully in forex markets, particularly because there is no longer a significant international change buying and selling quantity. 

“It’s a completely artificial level,” Cristian Maggio, head of portfolio technique at Toronto Dominion Bank in London, told Bloomberg on Thursday.

“Almost no one can trade the rouble, and those who can, trade at very different levels than the screens show.” 

According to Bloomberg, Russian capital controls have caused buying and selling volumes to fall to their lowest level in over a decade. 

In a tweet last week, Aaron Schwartzbaum, a fellow at the Foreign Policy Research Institute, a non-partisan think tank based in Philadelphia, pointed to the rapid drop in rouble buying and selling volumes, arguing that “the rouble to dollar rate is not a reliable indicator of how sanctions are impacting Russia.”