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is Russia getting set to drop the dollar and euro?

SandEagle

Lifer
Aug 4, 2007
16,813
11
0
http://rt.com/business/180588-russia-central-bank-gold/

Russia seeks safe haven in gold, away from dollar and euro


Russia is taking steps to ensure that it protects itself from any future dollar or euro sanctions. Moscow boasts the world’s 5th biggest foreign exchange reserves and the 6th largest gold reserves. In total, the assets amount to over $1.5 trillion.

While the West is continuing to try and punish Russia via economic sanctions, the response of the Russian Central Bank has been to diversify away from the euro and dollar – and to buy up more gold.

As the geopolitical situation in Ukraine deteriorates, Russia is moving to protect itself from currency risks associated with the euro and the greenback.

In the first half of 2014, Russia’s Central Bank reduced its foreign currency reserves by 2.5 percent.

“Due to the worsening geopolitical situation, the Central Bank actively redistributed foreign exchange reserves, replacing US Treasury bonds with gold,” Alfa Bank’s chief economist, Natalya Orlova, told Kommersant.

Instead of buying euros and dollars, Russia’s Central Bank is eyeing the Chinese yuan and the Japanese yen.

Boosting currency swaps and bilateral payments with China and other strategic trade partners will continue to bypass the US dollar. Last week, Russia’s and China’s central banks have agreed to increase currency swaps.

Holding more of these currencies is a logical move for Russia, which has high trade volumes with both China and Japan. In 2013, trade turnover with China was close to $90 billion and over $33 billion with Japan.

Russia is fast increasing its gold stockpile and at the end of July, the total volume was worth more than $45 billion.

According to Yaroslav Lissovolik, chief economist for Deutsche Bank in Moscow, this is the best way for Russia to provide stability to its foreign exchange reserves.

"The fact that Russia has intensified its diversification process reflects the fact that a fairly high proportion of reserves were held in dollars and euros, while the share of gold was low,” Lissovolik told Kommersant.

Over the summer, reserves were added at the highest rate since the end of 2009. In June, Russia’s Central Bank added 54 tons of gold, which catapulted Russia ahead of China in terms of total gold, according to IMF data.

In the last decade, Russia has become the world’s top gold buyer, adding more than 600 tons to its vaults.

Other countries are also actively adding gold. In the last six months, Kazakhstan’s Central Bank increased its gold investment from 12 tons to 155.8 tons.

Conversely, developed countries such as the US, Germany, Italy, France, and Spain are keeping gold reserves at a stasis. Germany sold 2.9 tons of gold reserves from the Bundesbank but still remains the world’s # 2 holder of gold, after the USA.
 

fskimospy

Elite Member
Mar 10, 2006
73,625
25,641
136
Russia must be really hurting from these sanctions. They've enlisted their propaganda ministry to start writing stories about how they totally don't care.

Pretty transparent. Why bother reading RT? Just go straight to the Russian government and skip the middle man.
 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
LOL - like that'll help them do anything.

Sure, they can buy up gold, but gold doesn't earn anything, doesn't help when your currency is constantly appreciating (making exports more expensive) and your economy sucks.
 

Newell Steamer

Diamond Member
Jan 27, 2014
6,894
7
0
Isn't the dollar always being dropped? Or, in danger of being dropped??

I lost count on how many times the US is about to be thrown in the poor house and we'll be a 3rd world nation overnight.
 

senseamp

Lifer
Feb 5, 2006
35,056
5,138
126
LOL - like that'll help them do anything.

Sure, they can buy up gold, but gold doesn't earn anything, doesn't help when your currency is constantly appreciating (making exports more expensive) and your economy sucks.
Their currency isn't appreciating, it's depreciating. Their problem is they don't really export anything except commodities, so falling local currency doesn't really help them. I guess it could help shift consumption to internal instead of imports, for example in airplanes, and help tourism in Sochi and Crimea if Russians can't afford to go abroad, but there are many issues.
Normally a falling local currency is good for trade balance, because it encourages internal production over imports. The question is whether Russia can actually restore its domestic production which has deteriorated for a variety of reasons, including the fact that they had so much oil money, they could buy stuff overseas instead of building it. Another reason is brain drain, a lot of smart people outside of the oil business got tired of corruption and lack of freedoms and left, or went into government jobs and commodities related businesses. So there may not be the people resources to restore manufacturing to replace the imports, so they will likely just end up replacing Western imports with Chinese.
 

Spungo

Diamond Member
Jul 22, 2012
3,217
2
81
Who cares if Russia stops using dollars? That's the whole point of the sanctions against Russia. Kicking Russia out of the SWIFT system is intended to stop them from using dollars.

Instead of buying euros and dollars, Russia’s Central Bank is eyeing the Chinese yuan and the Japanese yen.
Now there's a smart move. How do you protect yourself against a currency issued by a completely bankrupt western nation? Invest in a currency issued by a completely bankrupt eastern nation!
January 2012: 77 yen per US dollar
Today: 102 yen per US dollar, a devaluation of about 25% (Abenomics ftw)
And how well has that helped Japan's balance of trade? Absolute disaster. For a reason that is completely unknown to top Keynesian economists, devaluing a currency by 25% makes imports more expensive. This is similar to the ancient riddle that Keynesians have yet to solve: why does it take 10 dimes to buy $1 worth of oil or uranium (Japan is a huge energy importer), but it takes 20 nickels to buy the same $1 item? Why is the nation suddenly poor when all of its dimes are converted to nickels?

I hate on our government all the time, but at least I can say we're not Russia or Japan.
 

fskimospy

Elite Member
Mar 10, 2006
73,625
25,641
136
Who cares if Russia stops using dollars? That's the whole point of the sanctions against Russia. Kicking Russia out of the SWIFT system is intended to stop them from using dollars.


Now there's a smart move. How do you protect yourself against a currency issued by a completely bankrupt western nation? Invest in a currency issued by a completely bankrupt eastern nation!
January 2012: 77 yen per US dollar
Today: 102 yen per US dollar, a devaluation of about 25% (Abenomics ftw)
And how well has that helped Japan's balance of trade? Absolute disaster. For a reason that is completely unknown to top Keynesian economists, devaluing a currency by 25% makes imports more expensive. This is similar to the ancient riddle that Keynesians have yet to solve: why does it take 10 dimes to buy $1 worth of oil or uranium (Japan is a huge energy importer), but it takes 20 nickels to buy the same $1 item? Why is the nation suddenly poor when all of its dimes are converted to nickels?

I hate on our government all the time, but at least I can say we're not Russia or Japan.
You have an extremely poor understanding of Keynesian economics.

What's funny is that this crisis has basically proves Keynesian economics to be correct yet we still have the dead Enders trying to pretend the last five years didn't happen.
 

kage69

Lifer
Jul 17, 2003
19,487
13,027
136
Russia must be really hurting from these sanctions. They've enlisted their propaganda ministry to start writing stories about how they totally don't care.

Pretty transparent. Why bother reading RT? Just go straight to the Russian government and skip the middle man.
I thought it pretty funny that after the first round of sanctions, Lavrov went to Cuba and met Castro, and talk about Russia and Cuba suddenly turned into a lecture to the cameras on how Russia really doesn't care if certain other countries pass sanctions and get upset over non-issues and blah blah blah

I was genuinely surprised to hear Lavrov sound so petulant and whiny, it was delicious. I remember thinking "Nice job Obama, Merkel, the rest... looks like Russian nuts are feeling the squeeze."
 

Anarchist420

Diamond Member
Feb 13, 2010
8,645
0
76
www.facebook.com
LOL - like that'll help them do anything. Sure, they can buy up gold, but gold doesn't earn anything, doesn't help when your currency is constantly appreciating (making exports more expensive) and your economy sucks.
Not in the big picture, because importing raw materials and other intermediate goods is cheaper with a strong currency and raw materials are needed to manufacture (i.e., those with a stronger currency are able to buy up more raw materials in a foreign country, hoard them, and make them more expensive for everyone else).

The sanctions are a stupid, isolationist move by u.s. policy makers and they will contribute to our downfall.
 

Spungo

Diamond Member
Jul 22, 2012
3,217
2
81
What's funny is that this crisis has basically proves Keynesian economics to be correct yet we still have the dead Enders trying to pretend the last five years didn't happen.
How are the Keynesians proven correct? Guys like Bernanke, Yellen, and Krugman said trashing the currency would increase exports. That's exactly what Japan did. They trashed their currency by 25%. Did it improve exports? No. All it did was make import costs explode. What's ironic is that Keynes himself said trashing your currency is a bad idea. Modern day Keynesians are much like modern day Christians. They do the exact opposite of what their idol said.

What I love most about economics is the doublespeak. China has an unfair trade advantage against the US because the yuan is worth less than the dollar. At the same time, Germany has an unfair trade advantage against the US because the euro is worth more than the dollar. At the same time, Germany has an unfair trade advantage over Greece because they both use the exact same currency. The Keynesian world is such a depressing place. Every currency is unfair. I think I'll lock myself in the bathroom then cut my interest rates.
 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Not in the big picture, because importing raw materials and other intermediate goods is cheaper with a strong currency and raw materials are needed to manufacture (i.e., those with a stronger currency are able to buy up more raw materials in a foreign country, hoard them, and make them more expensive for everyone else).

The sanctions are a stupid, isolationist move by u.s. policy makers and they will contribute to our downfall.
Except they aren't a manufacturing economy. Furthermore, China has done very well as a manufacturing economy that has to buy a lot of raw materials. So you fail on many levels.
 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Their currency isn't appreciating, it's depreciating. Their problem is they don't really export anything except commodities, so falling local currency doesn't really help them. I guess it could help shift consumption to internal instead of imports, for example in airplanes, and help tourism in Sochi and Crimea if Russians can't afford to go abroad, but there are many issues.
Normally a falling local currency is good for trade balance, because it encourages internal production over imports. The question is whether Russia can actually restore its domestic production which has deteriorated for a variety of reasons, including the fact that they had so much oil money, they could buy stuff overseas instead of building it. Another reason is brain drain, a lot of smart people outside of the oil business got tired of corruption and lack of freedoms and left, or went into government jobs and commodities related businesses. So there may not be the people resources to restore manufacturing to replace the imports, so they will likely just end up replacing Western imports with Chinese.
It's depreciating because people are selling rubles due to risk and lack of confidence in the ruble. Typically resource producing countries produce a foreign currency reserve surplus and their currency strengthens as a result.
 

Babbles

Diamond Member
Jan 4, 2001
8,250
0
76
I see nothing at first glance in that article that sounds good for Russian. I am pretty gold-shy, so that is my personal bias, but I can't see how buying up gold does them any good when they would have to flood the market with said gold to buy anything. Investing in Chinese or Japanese currencies sound like a mistake. The other solid choice would be the British Pound . . .but sanctions, yo.
 

fskimospy

Elite Member
Mar 10, 2006
73,625
25,641
136
How are the Keynesians proven correct? Guys like Bernanke, Yellen, and Krugman said trashing the currency would increase exports. That's exactly what Japan did. They trashed their currency by 25%. Did it improve exports? No. All it did was make import costs explode. What's ironic is that Keynes himself said trashing your currency is a bad idea. Modern day Keynesians are much like modern day Christians. They do the exact opposite of what their idol said.

What I love most about economics is the doublespeak. China has an unfair trade advantage against the US because the yuan is worth less than the dollar. At the same time, Germany has an unfair trade advantage against the US because the euro is worth more than the dollar. At the same time, Germany has an unfair trade advantage over Greece because they both use the exact same currency. The Keynesian world is such a depressing place. Every currency is unfair. I think I'll lock myself in the bathroom then cut my interest rates.
A huge reason for Japan's increased trade deficit is that they shut down all their nuclear plants, which has made them much more reliant on imported energy. Duh?

Additionally, where did you get the idea that balance of trade was what Keynesian economics was about? Keynesian economics is about aggregate demand. The events since this crisis have followed a Keynesian model quite closely. It predicted the failure of austerity, etc.

As to other currency issues, you don't know what you're talking about there either. Relative currency values between two countries naturally correct trade imbalances, all other things being equal. That's why China buys US bonds. If they didn't, they would lose export competitiveness with internal US production or other exporters. Germany has it even better. Since the Euro is a single currency trade imbalances can never be rectified through currency appreciation, so no bond buying is needed.

If you want to learn more about international trade we can talk about that, but it has little to do with what you're attempting to criticize. If you look at all the predictions that have been made since the crisis happened ask yourself this: if you made all your predictions of what today would look like based on what Keynesians said or what conservative economists said, who would be closer? It's no contest.
 

Anarchist420

Diamond Member
Feb 13, 2010
8,645
0
76
www.facebook.com
Except they aren't a manufacturing economy. Furthermore, China has done very well as a manufacturing economy that has to buy a lot of raw materials. So you fail on many levels.
I was saying that strong currencies dont cause trade deficits and that's because currency isnt the only factor involved and because final output and intermediate investment are both factors. Due to both factors, it is probable that having trade surpluses are not dependent on having a weak currency.

So china's export subsidies probably help their manufacturing more than their currency regulations could.
 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
I was saying that strong currencies dont cause trade deficits and that's because currency isnt the only factor involved and because final output and intermediate investment are both factors. Due to both factors, it is probable that having trade surpluses are not dependent on having a weak currency.

So china's export subsidies probably help their manufacturing more than their currency regulations could.
Having trade surpluses aren't dependent on a weak currency, however, they certainly help a shit-ton when you want to bootstrap your economy from nothing to #2 in the world within a decade.
 

Sattern

Senior member
Jul 20, 2014
330
1
81
Skylercompany.com
Don't be too shocked about this news, it's a very well thought out process for long term interests.

It will allow them to have more influence 20-30 years from now and many centuries later when Gold starts to skyrocket again and stay there.

Russia is currently making a clone of the world bank with Brazil so their assets and world power will be increasing as they work to develop Central Asia as well as parts of Africa.

Trust me, there are more untapped resources in Africa than any other part of the world.
 

fskimospy

Elite Member
Mar 10, 2006
73,625
25,641
136
Don't be too shocked about this news, it's a very well thought out process for long term interests.

It will allow them to have more influence 20-30 years from now and many centuries later when Gold starts to skyrocket again and stay there.

Russia is currently making a clone of the world bank with Brazil so their assets and world power will be increasing as they work to develop Central Asia as well as parts of Africa.

Trust me, there are more untapped resources in Africa than any other part of the world.
What's this based on?
 

Texashiker

Lifer
Dec 18, 2010
18,811
192
106
Oh and of course the massive capital flight, declining stock market, etc, etc.
And?

Now that the BRICS system has been established hopefully nations will move away from the dollar.

Russia has natural resources, China needs natural resources.

China needs a market to sell their products, Russia has a market.

Russia has some of the largest untapped oil fields in the world. Back in the 1990s there was talk that the Russian oil and natural gas reserves could equal that of the whole middle east.

With a quarter of the worlds population on its southern border, there is no reason for Russia to do business with Europe.
 

fskimospy

Elite Member
Mar 10, 2006
73,625
25,641
136
And that has caused significant economic damage to a country that was already facing a bad economic year. Why does that need to be explained to you?

Why not ask yourself why Russian state-run media is attempting to downplay the effect of sanctions? The answer is obvious.

Now that the BRICS system has been established hopefully nations will move away from the dollar.
Why would you hope for that?

Russia has natural resources, China needs natural resources.

China needs a market to sell their products, Russia has a market.
Russia and China have neither the infrastructure or even remotely sufficient wealth in order to support each other.

Russia has some of the largest untapped oil fields in the world. Back in the 1990s there was talk that the Russian oil and natural gas reserves could equal that of the whole middle east.
They are untapped for a reason.

With a quarter of the worlds population on its southern border, there is no reason for Russia to do business with Europe.
Except for the fact that Europe has a GDP that's about twice that of China. So yeah, there's no reason to do business with Europe unless you like money.
 

Texashiker

Lifer
Dec 18, 2010
18,811
192
106
And that has caused significant economic damage to a country that was already facing a bad economic year. Why does that need to be explained to you?

Except for the fact that Europe has a GDP that's about twice that of China. So yeah, there's no reason to do business with Europe unless you like money.
Money, that is the key issue. When you deal with people who are used to having almost nothing, you have nothing to bargain with.

War on the eastern front by James Lucas describes what the Russian people are willing to go through during times of hardship. I read that book, part of it is horrifying. Such as Russian soldiers pushing their guts back into their stomach while never crying out in pain, the sacrifices, the horror, the personal sacrifice,,.

If Russia could withstand the full unbridled wraith of the Nazis, what makes you thinks sanctions are going to have any affect?

It is comical that anyone would think a proud people such as the Russians are going to bat an eye over sanctions.
 

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