(Kitco News) Russia is currently in discussions to peg the ruble to gold, according to the Kremlin. But the idea was dismissed by Bank of Russia Governor Elvira Nabiullina following Kremlin’s comments.
The Russian government appears to be seriously considering backing Russian rubble with gold, at least according to President Vladimir Putin’s spokesman Dmitry Peskov.
“The question of creating a financial system in Russia, in which the ruble’s value will be tied to gold and currency assets, is now being discussed,” Peskov told reporters Friday.
Peskov was referencing comments made by Security Council Secretary Nikolai Patrushev during an interview earlier this week.
“Experts are working on a project … to create a monetary and financial system. It is being proposed to determine the value of the ruble, which should be backed by both gold and a group of goods that are currency assets, to set the ruble exchange rate in line with the real purchasing power parity,” Patrushev told Rossiyskaya Gazeta.
Patrushev also said that for any currency to achieve sovereignty, it needs an intrinsic value, price stability and not be tied to the U.S. dollar. “Now experts are working on a project … to create a dual-loop monetary and financial system,” he added.
No other details were given about this project during the interview.
However, later Friday, Bank of Russia Governor Elvira Nabiullina rejected the idea of pegging rubles to gold or other commodities.
“It is not being discussed in any way,” Nabiullina told reporters at a press conference, which followed the central bank’s decision to cut rates by 300 basis points to 14%. She also stressed that the ruble must have a floating exchange rate.
Following Russia’s invasion of Ukraine on February 24, the U.S dollar has been used as a financial “weapon” to put pressure on Russia via numerous financial sanctions, analysts told Kitco News.
Around $300 billion of Russia’s approximately $640 billion worth of foreign exchange reserves have also been frozen after Moscow was banned from the SWIFT international payments system (aside from some energy payments). This left Russia only with gold and yuan reserves.
In April, Russia’s central bank revealed that it cut its holdings of U.S. dollars even further before invading Ukraine in February, adding that it has enough yuan and gold despite the impact of Western sanctions. The comments were made by the central bank Governor Elvira Nabiullina in her annual report to parliament.
“Even though Western countries have frozen our reserves in their currencies, Russia still has a sufficient amount of reserves in gold and Chinese yuan,” said Nabiullina.
According to the data, the central bank cut its share of U.S. dollars in reserves to 10.9% as of January 1, 2022. This is down from 21.2% reported a year earlier.
In the meantime, the yuan holdings rose from 12.8% to 17.1%, and euro holdings increased from 29.2% to 33.9%. Gold’s share of reserves edged down from 23.3% to 21.5%.
According to the latest IMF data, Russia held nearly 2,300 tonnes of gold as of the end of January — the fifth-biggest sovereign gold owner.
Also, Russia has been fighting the sanctions back by demanding payments for gas in their own currency — the ruble. On Wednesday, Moscow halted gas supplies to Poland and Bulgaria. Russia’s state gas giant Gazprom stated that it would only resume supplies once both countries pay for the gas in Russian rubles.
Back in March, Russia signaled that it could consider accepting Bitcoin for its oil and gas exports after the chair of Russia’s Duma Committee on energy said that the country would be more flexible when it comes to payment options with “friendly” countries. Meanwhile, “unfriendly” countries could be required to pay for gas in Russian rubles or gold, Zavalny added.
Earlier, there was some confusion about the price used by Russia’s central bank when it re-started its gold purchases after a two-year hiatus.
At the end of March, Russia’s central bank resumed its gold purchases from local banks and said that it would be buying the precious metal at a fixed price of 5,000 roubles between March 28 and June 30. This was around $52 per gram at the time and below the market value of around $68.
Then in April, the country’s central bank announced that it would stop buying gold at a fixed price from local banks starting April 8 and continue its purchases at a “negotiated price.”