With the exchange rate at present, it would be great to sell oil and gas (and other strategic commodities) in USD, except for the sanctions. I believe that at least one Russian bank is not sanctioned? Russia could still participate in those markets that use USD, where it suits them. Of course, that relies on absence of sanctions on the remaining Russian bank(s).
I think that Russia has shifted to RMB in order to have a "stable" currency that they can trade with. But watch out for the West sanctioning China!
Is the Swiss Franc liquid enough for Russia to use for stability?
They can’t sanction China without blowing up their own economy and the total destruction of the western financial system. It would be equivalent of turning ALL of their nuclear bombs on their own mainlands. Will not happen.
I remember in a Jim Rickards book a few, maybe 10 years ago, suggesting a gold backed ruble based in Swiss banks to increase trust... but it was a different neutral Switzerland. Nowadays it is something too much risky...
As Warren Buffett has pointed out, there are ~175K metric tons of Au in the world with a value of ~$8Trillion...or roughly the value of all US farmland (~1Billion acres) + ten or twelve XOMs. Farmland & oil/gas are productive resources while that pile of Au just sits there looking pretty. Gold waits for the next biggest fool.
I need to avoid to write "books" in the comments, that's why I make it very short :)
You should try to ask yourself whether all the Au worldwide is worth ~$8Trillion
OR whether Au has any value at all?
Gold is scarce and durable. An ideal representation of trust in international and domestic trade. It is the physical representation, no matter how the geopolitical and economical situation looks like, of trust/insurance that you can service your debt. The main point is, you can service it in case of a budget/financial crisis in physical gold. That's why it is an international trust insurance.
It has no fixed value as some billionaires would like to have it.
And IF you would want to assign any kind of value to it then it would be in a non-unipolar world (see the emerging BRICS order/system) the representation of all resources and commodities in the physical possession of all nations worldwide. (I know, that is massively simplified, but it is only a comment^^)
The US would like to get entirely rid of the gold-system because it would not be needed in a world where the US is the hegemon over ALL nations. Which it almost achieved and now it is being rolled back.
If you have numerous independent and sovereign national states then you need, again, the physical representation of trust/insurance for international trade.
And guess who has the biggest accumulation of gold worldwide? At least, officially :-) Guess, who created an emergency stock in case the project of world domination would fail? :)))
No worries, jo, I only took your comment to communicate some of my thoughts about gold :) It has nothing to do with you or your views.
I'm not going to go deeper into it here.
It is possible, that I will do a quick update about Au some times on BMA where I can say a few more words about it.
PS: Warren Buffet said that in 2012, I guess. At that time this point of view was spot on. The US was still confident to eliminate its competitors Russia and China. Today's world is an entirely different one with the biggest change in the global balance of power within centuries. Such times are always defined by a full fallback to gold. At least for the transition, which could last decades.
Where I live (Texas, US), we consider ammunition to have almost all of the properties of gold (yes, durable if stored properly), as well as some properties that gold can never possess. 😁
The main interest of Gold, is that it's nobody's debt. And also there is a very basic law in the history of the world : the future of something can be assessed by its past and durability. Based on this, you can confidently think that gold will still be here in 6000 years. US farmlands and Warren Buffett, rather not.
Check it on wikipedia (that's good enough). It is one of the best researched aquifiers in the developed world (=long history of depletion) because of very early conflicts on how to use it.
Oops. Russia pegged the Ruble to gold in order to facilitate converting Euros to Rubles. That is the only way Europe could pay for Russian commodities.
I thought about that but not sure about the logic... 1 kg today is about 62K usd... and it anyway misses the link with RUB as well. Last year there were indeed news on zerohedge about a peg to 55 rub but the math doesn't add up... unless a big quake happens, like rub 1:1 to usd like when I was young...
Me either Sir... only following Zoltan's papers... if he cannot awake them, who can?
I only remember that they slipped the peg when it wasn't economically convenient anymore (it was in the first smo days, with ruble to 140 if I remember correctly)
But... I'm dreaming while waiting august 24th... oh I dream.... :)
Practically all governments share with globalist oligarch bankers a strong preference for fiat currency. Governments do not produce income, they consume income earned in the trading market, so other than taxation, currency creation, an inflation tax, is the other main source of income for them.
The rate of exchange between national fiat currencies is largely determined by financial maneuvers for political reasons.
The more autarkic a nation's economy is the less important it's exchange rate vis a vis other nation currencies are. Prices become stable within the country using its own currency, even a fiat one if it is not debased, because imports using disadvantageous exchange rate currencies are reduced.
There is now talk from non western governments about pegging their fiat currencies to some specie benchmark so they can settle trade with each other without the dollar benchmark. This combined with a multipolar world where nations are unimpeded in modeling their own economic policies, and small and medium enterprises in some of these nations will have a universal and stable money with which to trade with each other directly with minimized government intervention in their financial settlements. This will dramatically change the nature of economies around the world. Governments and globalist bankers will have less economic power, small and medium private enterprises more economic power and private capital developed through retained profits. More successful national economies will be generally more diversified free market meritocracy based and less centrally coerced. I think earnings will accrue to the earners more and less to fascists, communists, socialists, and governments who are all coercive redistributors of the product of earners, effectively thieves. Entrepreneurship, with it's attendant wealth creation, flourishes in real free market environments, some nations will discover this and rise on a per capita basis above those who milk their entrepreneurs. Nothing beats a culture of free choice, profit motive, and productive meritocracy for wealth creation.
One of the great damages done to mainstreet economic activity is the unstable value of the fiat money entrepreneurs and citizens are forced to use. The inability to use money as a stable yardstick for measuring the exchange ratios (as in bartering exchange ratios) between goods and services (labor is a service) in a highly complex economy is a huge impediment to trade. Pricing becomes untenable. Almost no economic analysts consider the importance of this factor.
My opinion - briefly because I am supposed to be going out to dinner and need to scrub up:
There is no "right" exchange rate for a currency. Too strong and it inhibits exports, too weak and it discourages other parties holding it as a store of value and medium of exchange. The US has an advantage here in that it can create value and wealth by CTRL P. If Russia (and China) long term want to supplant the USD$ with then that something else needs to be relatively stable and its users and holders need to have confidence in it.
A corollary is that money needs to be liquid. The sanctions may be creating both a lack of demand for Russian products, but by definition a lack of demand for Roubles (assuming Russian exports are paid for in Roubles). This will not affect the internal Russian economy but will affect efforts to de-dollarise.
Markets are fickle and subject to manipulation, particularly illiquid ones like maybe the Rouble is at present. My bet is that someone (who could that be????) is playing dirty tricks. This can be continued over the short to medium term - unless you have the world's reserve currency and control the financial system?
The Russian economy - and to an extent many of its BRICS trading partners - are not really subject to huge impacts of currency fluctuations - if they pay in non USD$ currencies. They are under the cosh if they need to import oil priced in USD$. I don't know how the Rouble is faring against the Yuan for example. Nevertheless a currency should ideally trade within a margin. Let's face it, Russia carries a risk premium at present.
I think my bottom line at first blush is this. Russia and BRICS are clearly winning the medium to long term financial and economic struggle versus the forces of democracy and light and goodness (s/) and a blip in the exchange rate is something to heed but not panic about. Given western and in particular US financial clout I suspect that this decline is not due to fundamentals but instead to some co-ordinated operation - short selling or whatever.
I have no evidence to back up any of this so take it at face value.
If we assume, that remains to be seen within the next few months, that an independent gold backed currency will be the reserve currency of BRICS (instead of Dollar, of course) then it will be interesting to see how the exchange rate of national currencies relative to this "neutral" reserve currency will be fixed/negotiated/defined/floated whatever :-)
I have thoughts about that but they are not yet fully developed.
This is part of my research for Economics and Empires 6.
Non-dollar pricing is extremely tricky for commodities.
Non-dollar pricing for say oil with delivery and payment by international buyersperhaps 3-12 months is advance is pretty much impossible - I don't believe it does happen.
Rather I think there is a lot of confusion about the Pricing currency and Settlement currency.
People say pricing in Rubles, but they only mean settlement in Rubles.
Frankly the idea that I should buy oil for delivery in January in RUB when the RUB price just fell by a third and could easily return with a 50% rise is quite ridiculous. Any buyer needs to be able to hedge the price, and that requires pricing in Dollars or a hard equivalent like the Euro.
Settling in Rubles is easy - we just agree that the dollar value is multiplied by the fixing rate of the national bank on the day of settlement. I pay the national bank or my bank in Moscow in dollars.
Oil and gas trades are frequently made for dates up to 1 year, sometimes more, in advance.
I simply don't believe Russia is selling 1 year oil at Ruble prices to international buyers.
I like an occasional short, summary analysis, especially on topics that would otherwise require a great deal of research. I was curious about what I had seen in the news of the falling value of the ruble compared to the US dollar. I am wise enough to know how ignorant I am when it comes to the intricacies of international finances. I appreciated your article and various comments.
Write your articles in the size that suits you best, it's always interesting to read.
For the ruble, agree with you, the Russians produce a lot internally for themselves, all this part of their economy is not affected by the value of the currency.
Feedback: I think it’s ok as long as these ideas are touched upon and fleshed out in your series articles. Otherwise thank you 🙏
Btw, for the mutiny decision tree - I figured the point is moot now. We know what happened and mostly who knew what when. But if you still want it (or anything else) please let me know.
Kudos for your shortening of the information. Many of us appreciate your timely updates and don't really need to be swamped with minutiae. If some commenter(s) desire more detailed reports, that can always be done at a later date. Various pundits, for example, are still parsing the Prigozhin episode which, in the news cycle, is old, old history.
With the exchange rate at present, it would be great to sell oil and gas (and other strategic commodities) in USD, except for the sanctions. I believe that at least one Russian bank is not sanctioned? Russia could still participate in those markets that use USD, where it suits them. Of course, that relies on absence of sanctions on the remaining Russian bank(s).
I think that Russia has shifted to RMB in order to have a "stable" currency that they can trade with. But watch out for the West sanctioning China!
Is the Swiss Franc liquid enough for Russia to use for stability?
Lol, you typed "USD" but I somehow read "LSD"! 😂
The US is totally dependent on China. Pharmaceuticals, ascorbic acid for food preservation, appliances, & more than I can think of.
We sanction at huge risk. So naturally our self-proclaimed elites will go for it...
They can’t sanction China without blowing up their own economy and the total destruction of the western financial system. It would be equivalent of turning ALL of their nuclear bombs on their own mainlands. Will not happen.
I remember in a Jim Rickards book a few, maybe 10 years ago, suggesting a gold backed ruble based in Swiss banks to increase trust... but it was a different neutral Switzerland. Nowadays it is something too much risky...
As Warren Buffett has pointed out, there are ~175K metric tons of Au in the world with a value of ~$8Trillion...or roughly the value of all US farmland (~1Billion acres) + ten or twelve XOMs. Farmland & oil/gas are productive resources while that pile of Au just sits there looking pretty. Gold waits for the next biggest fool.
I need to avoid to write "books" in the comments, that's why I make it very short :)
You should try to ask yourself whether all the Au worldwide is worth ~$8Trillion
OR whether Au has any value at all?
Gold is scarce and durable. An ideal representation of trust in international and domestic trade. It is the physical representation, no matter how the geopolitical and economical situation looks like, of trust/insurance that you can service your debt. The main point is, you can service it in case of a budget/financial crisis in physical gold. That's why it is an international trust insurance.
It has no fixed value as some billionaires would like to have it.
And IF you would want to assign any kind of value to it then it would be in a non-unipolar world (see the emerging BRICS order/system) the representation of all resources and commodities in the physical possession of all nations worldwide. (I know, that is massively simplified, but it is only a comment^^)
The US would like to get entirely rid of the gold-system because it would not be needed in a world where the US is the hegemon over ALL nations. Which it almost achieved and now it is being rolled back.
If you have numerous independent and sovereign national states then you need, again, the physical representation of trust/insurance for international trade.
And guess who has the biggest accumulation of gold worldwide? At least, officially :-) Guess, who created an emergency stock in case the project of world domination would fail? :)))
No worries, jo, I only took your comment to communicate some of my thoughts about gold :) It has nothing to do with you or your views.
I'm not going to go deeper into it here.
It is possible, that I will do a quick update about Au some times on BMA where I can say a few more words about it.
PS: Warren Buffet said that in 2012, I guess. At that time this point of view was spot on. The US was still confident to eliminate its competitors Russia and China. Today's world is an entirely different one with the biggest change in the global balance of power within centuries. Such times are always defined by a full fallback to gold. At least for the transition, which could last decades.
Where I live (Texas, US), we consider ammunition to have almost all of the properties of gold (yes, durable if stored properly), as well as some properties that gold can never possess. 😁
I know, my firend... I know 😁
The main interest of Gold, is that it's nobody's debt. And also there is a very basic law in the history of the world : the future of something can be assessed by its past and durability. Based on this, you can confidently think that gold will still be here in 6000 years. US farmlands and Warren Buffett, rather not.
Right.
Ogallala Aquifier.
Check it on wikipedia (that's good enough). It is one of the best researched aquifiers in the developed world (=long history of depletion) because of very early conflicts on how to use it.
Indeed, You maybe be right but 5 thousands years of history give me something to think about...
Hi Aleks,
Have been discussing this very point with trader friends of mine the other day!
Any size articles you are have time to produce are always appreciated. Keep them coming please!
Nice idea sir.. And your logic is flawless in my opinion.
If in 40 days the ruble will be gold linked or backed.. Well.. We will see who is to be called rubble... 😂😂😂😂
Aye, it be already: 55 RUB to a gram of gold.
So.. trying to think in gold and not fiat money... not so easy after one century of brainwashing...
If I can buy a gram with 55 rub, and 1 usd is 92 rub, this means that I should be allowed to buy about 1,7 grams for a usd?
And a kg of gold should so be only 588 usd????? Tell me where, I would arrange a fleet!!!!
I think Kotanraju meant $55 (as of the time of writing) per gram. Which would match with my calculations. Right, Kotanraju? Or do I miss something ^^
Oops. Russia pegged the Ruble to gold in order to facilitate converting Euros to Rubles. That is the only way Europe could pay for Russian commodities.
I thought about that but not sure about the logic... 1 kg today is about 62K usd... and it anyway misses the link with RUB as well. Last year there were indeed news on zerohedge about a peg to 55 rub but the math doesn't add up... unless a big quake happens, like rub 1:1 to usd like when I was young...
I'm curious about Kotanraju's explanation :-)
Russia bound 5,000 Rubles to 1 gram of gold last year. I did not yet research whether there are updates to these figures.
5,000 Ruble/gram / 92 Rubles/$ = 54,3 $/gram.
But maybe there is information around that I didn't checked out yet.
Me either Sir... only following Zoltan's papers... if he cannot awake them, who can?
I only remember that they slipped the peg when it wasn't economically convenient anymore (it was in the first smo days, with ruble to 140 if I remember correctly)
But... I'm dreaming while waiting august 24th... oh I dream.... :)
Practically all governments share with globalist oligarch bankers a strong preference for fiat currency. Governments do not produce income, they consume income earned in the trading market, so other than taxation, currency creation, an inflation tax, is the other main source of income for them.
The rate of exchange between national fiat currencies is largely determined by financial maneuvers for political reasons.
The more autarkic a nation's economy is the less important it's exchange rate vis a vis other nation currencies are. Prices become stable within the country using its own currency, even a fiat one if it is not debased, because imports using disadvantageous exchange rate currencies are reduced.
There is now talk from non western governments about pegging their fiat currencies to some specie benchmark so they can settle trade with each other without the dollar benchmark. This combined with a multipolar world where nations are unimpeded in modeling their own economic policies, and small and medium enterprises in some of these nations will have a universal and stable money with which to trade with each other directly with minimized government intervention in their financial settlements. This will dramatically change the nature of economies around the world. Governments and globalist bankers will have less economic power, small and medium private enterprises more economic power and private capital developed through retained profits. More successful national economies will be generally more diversified free market meritocracy based and less centrally coerced. I think earnings will accrue to the earners more and less to fascists, communists, socialists, and governments who are all coercive redistributors of the product of earners, effectively thieves. Entrepreneurship, with it's attendant wealth creation, flourishes in real free market environments, some nations will discover this and rise on a per capita basis above those who milk their entrepreneurs. Nothing beats a culture of free choice, profit motive, and productive meritocracy for wealth creation.
One of the great damages done to mainstreet economic activity is the unstable value of the fiat money entrepreneurs and citizens are forced to use. The inability to use money as a stable yardstick for measuring the exchange ratios (as in bartering exchange ratios) between goods and services (labor is a service) in a highly complex economy is a huge impediment to trade. Pricing becomes untenable. Almost no economic analysts consider the importance of this factor.
Very interesting thoughts. I tend to agree with many of them.
Thank you for your contribution.
Love the short form!
So firstly well done for going out on a limb.
My opinion - briefly because I am supposed to be going out to dinner and need to scrub up:
There is no "right" exchange rate for a currency. Too strong and it inhibits exports, too weak and it discourages other parties holding it as a store of value and medium of exchange. The US has an advantage here in that it can create value and wealth by CTRL P. If Russia (and China) long term want to supplant the USD$ with then that something else needs to be relatively stable and its users and holders need to have confidence in it.
A corollary is that money needs to be liquid. The sanctions may be creating both a lack of demand for Russian products, but by definition a lack of demand for Roubles (assuming Russian exports are paid for in Roubles). This will not affect the internal Russian economy but will affect efforts to de-dollarise.
Markets are fickle and subject to manipulation, particularly illiquid ones like maybe the Rouble is at present. My bet is that someone (who could that be????) is playing dirty tricks. This can be continued over the short to medium term - unless you have the world's reserve currency and control the financial system?
The Russian economy - and to an extent many of its BRICS trading partners - are not really subject to huge impacts of currency fluctuations - if they pay in non USD$ currencies. They are under the cosh if they need to import oil priced in USD$. I don't know how the Rouble is faring against the Yuan for example. Nevertheless a currency should ideally trade within a margin. Let's face it, Russia carries a risk premium at present.
I think my bottom line at first blush is this. Russia and BRICS are clearly winning the medium to long term financial and economic struggle versus the forces of democracy and light and goodness (s/) and a blip in the exchange rate is something to heed but not panic about. Given western and in particular US financial clout I suspect that this decline is not due to fundamentals but instead to some co-ordinated operation - short selling or whatever.
I have no evidence to back up any of this so take it at face value.
Interesting thoughts, of course.
If we assume, that remains to be seen within the next few months, that an independent gold backed currency will be the reserve currency of BRICS (instead of Dollar, of course) then it will be interesting to see how the exchange rate of national currencies relative to this "neutral" reserve currency will be fixed/negotiated/defined/floated whatever :-)
I have thoughts about that but they are not yet fully developed.
This is part of my research for Economics and Empires 6.
That would be interesting though I would be surprised if it could be achieved within that timeframe. But what do I know?
No, you are entirely right 😂
I will present what is known until then and interpret it... more is not possible of course.
Non-dollar contracts?
Non-dollar settlement is easy.
Non-dollar pricing is extremely tricky for commodities.
Non-dollar pricing for say oil with delivery and payment by international buyersperhaps 3-12 months is advance is pretty much impossible - I don't believe it does happen.
Rather I think there is a lot of confusion about the Pricing currency and Settlement currency.
People say pricing in Rubles, but they only mean settlement in Rubles.
Frankly the idea that I should buy oil for delivery in January in RUB when the RUB price just fell by a third and could easily return with a 50% rise is quite ridiculous. Any buyer needs to be able to hedge the price, and that requires pricing in Dollars or a hard equivalent like the Euro.
Settling in Rubles is easy - we just agree that the dollar value is multiplied by the fixing rate of the national bank on the day of settlement. I pay the national bank or my bank in Moscow in dollars.
Oil and gas trades are frequently made for dates up to 1 year, sometimes more, in advance.
I simply don't believe Russia is selling 1 year oil at Ruble prices to international buyers.
To add - The CNY has long been strongly undervalues relative to dollars.
If Russia is now in SCO and not in trade with West, it should bring its currency and pricing into line with China, not US or EU.
A much lower currency then makes sense.
Correct.
Correct.
For the time being :-)
Watch Saudi-Arabia closely.
I like an occasional short, summary analysis, especially on topics that would otherwise require a great deal of research. I was curious about what I had seen in the news of the falling value of the ruble compared to the US dollar. I am wise enough to know how ignorant I am when it comes to the intricacies of international finances. I appreciated your article and various comments.
good "shorter" article. Ruble value clearly explained.
Thanks. Short and clear. Good job
The points were well made, Aleks.
Russia has one trade system for friends, and another for enemies.
Thank you John.
You just destroyed me... (I'm kidding 🤣)
I tried hard to summarize my thoughts in a short article and you just did it in one sentence 🤣🤣👍
Thanks ;)
More on the Ruble from John Helmer: https://johnhelmer.org/why-a-rouble-worth-one-us-cent-is-a-russian-warfighting-weapon/#more-71016
Hello Aleks,
Write your articles in the size that suits you best, it's always interesting to read.
For the ruble, agree with you, the Russians produce a lot internally for themselves, all this part of their economy is not affected by the value of the currency.
The shorter format is fine. Love reading your analysis no matter how many words.
Thank you for your kind words.
Hi, Aleks - Short plenty good, long OK when necessary. This one was informative. Thanks!
Feedback: I think it’s ok as long as these ideas are touched upon and fleshed out in your series articles. Otherwise thank you 🙏
Btw, for the mutiny decision tree - I figured the point is moot now. We know what happened and mostly who knew what when. But if you still want it (or anything else) please let me know.
Thank you :-)
I fully agree with you, Phoenix. The Prigozhin mutiny story is over. Please don't make yourself any effort for this. Thank you very much!
It'll be more interesting to see where Prigozhin stands in a few months :-)
Kudos for your shortening of the information. Many of us appreciate your timely updates and don't really need to be swamped with minutiae. If some commenter(s) desire more detailed reports, that can always be done at a later date. Various pundits, for example, are still parsing the Prigozhin episode which, in the news cycle, is old, old history.
Thank you ;)