Significance of setting a Fixed Price for Gold in Roubles Part 2

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The rouble’s link to gold via the Bank of Russia’s fixed price has now put a floor under the RUB/USD rate, stabilising and strengthening the rouble. Demanding that natural gas exports be paid for in roubles (and possibly oil and other commodities later on) will act as a stabilisation and support mechanism once more. If the majority of the international trading system begins to accept these roubles for commodity payments, the Russian rouble has the potential to become a major global currency. Simultaneously, any move by Russia to accept direct gold payments for oil will result in more international gold flowing into Russian reserves, strengthening the Bank of Russia’s balance sheet and, as a result, the rouble. 

By connecting the rouble to gold and afterward to energy installments, the Bank of Russia and the Kremlin are on a very basic level adjusting the whole working suspicions of the worldwide exchange framework while additionally speeding up change in the worldwide money related framework. This wall of buyers looking for physical gold to pay for real commodities has the potential to torpedo and blow up the LBMA and COMEX paper gold markets. 

The fixed peg between the rouble and gold sets a floor not only for the RUB/USD rate, but also for the US dollar gold price. The main event, however, is the linkage of gold to energy payments.

While expanded interest for roubles ought to keep on reinforcing the RUB/USD rate and result in a higher gold cost because of the proper rouble – gold linkage, in the event that Russia starts to acknowledge gold straightforwardly as an installment for oil, this would address another change in outlook at the gold cost since it would straightforwardly interface the oil cost to the gold cost. Russia could begin by stating that it will now accept one gramme of gold for each barrel of oil. It does not have to be 1 gramme, but it must be a lower offer than the current crude benchmark price to encourage take-up, such as 1.2 grammes per barrel.

Buyers would then scramble to purchase physical gold in order to pay for Russian oil exports, putting enormous strains on the London and New York paper gold markets, where the whole ‘gold value’ disclosure depends on engineered and partially upheld cash-settled unallocated ‘gold’ and gold cost ‘subordinates.

While talk of a formal gold standard for the rouble may be premature, the Bank of Russia must have considered a gold-backed rouble.