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Russian Ruble relaunched linked to Gold and Commodities – RT.com Q and A

April 3, 2022

Russian Ruble relaunched linked to Gold and Commodities – RT.com Q and A

With Russia’s central bank having just profoundly altered the international trade and monetary system by linking the Russian ruble to both gold and commodities, the journalists at RT.com in Moscow asked me to write a Q and A article on what these developments mean, and the ramifications of these changes on the Russian ruble, the US dollar, the gold price and the global system of currencies. This article has been published on the RT.com website here.

Regular readers will recall that I have contributed to quite a few RT.com articles before, such as about Australian gold (see BullionStar here), US Treasury gold (see BullionStar here), Poland’s gold (see RT site here), China’s gold (see RT’s Spanish site here), why buy physical gold (see RT site here), and gold price manipulation (see RT site here).

However, since RT.com is now blocked and censored in many Western locations such as the EU, UK, US and Canada, and since many readers may not be able to access the RT.com website (unless using a VPN), my Questions and Answers that are in the new RT.com article are now published here in their entirety.

Who would have thought that citizens of ‘free speech’ Western countries would need a VPN to read a Russian news site?

Why is setting a Fixed Price for Gold in Rubles significant?

By offering to buy gold from Russian banks at a fixed price of 5000 rubles per gram, the Bank of Russia has both linked the ruble to gold and, since gold trades in US dollars, set a floor price for the ruble in terms of the US dollar.

…click on the above link to read the rest of the article…

“Game Over?” – Russia To Be In Technical Default Within Hours

March 1, 2022

“Game Over?” – Russia To Be In Technical Default Within Hours

More than two decades ago, on August 17, 1998, Russia defaulted on its debt and devalued the ruble, sparking a political crisis that culminated with Vladimir Putin replacing Boris Yeltsin and which also eventually resulted in the spectacular implosion of a then little known hedge fund called Long Term Capital Management (which was staffed to the gills with “brilliant” Nobel prize winners) which after receiving a Fed-led Wall Street bailout, ushered in the era of too big to fail.

We bring this up because in just a few hours, Russia will be in another technical default.

Amid the flurry of capital controls imposed by Moscow today, the Russian central bank banned coupon payments to foreign owners of ruble bonds known as OFZs in what it said was a temporary step to shore up markets in the wake of international sanctions. What it really is, is a technical default on upcoming interest and maturity payments, with a trigger due as soon as tomorrow.

The Bank of Russia issued the instruction to depositaries and registries as part of a raft of measures announced this week that included a freeze on local security sales by foreigners. It could leave foreign investors who held almost 3 trillion rubles ($29 billion) in the debt at the start of February unable to collect income on their holdings, which are already blocked from sale by restrictions.

“Issuers have the right to make decisions on the payment of dividends and the making of other payments on securities and transfer them to the accounting system,” the central bank said in an emailed reply to questions. “However, the payments themselves will not be made by depositories and registrars to foreign clients. This also applies to OFZ.”

…click on the above link to read the rest of the article…

While Fed Is in Denial, Hawkish Bank of Russia Sees Inflation as “Not Transitory,” Warns of Possible Shock-and-Awe Rate Hike

July 5, 2021

While Fed Is in Denial, Hawkish Bank of Russia Sees Inflation as “Not Transitory,” Warns of Possible Shock-and-Awe Rate Hike

US Inflation is almost as hot as in Russia, but the Fed is still blowing it off.

Consumer price inflation in Russia is red-hot, having jumped 6.0% in May compared to a year ago, 2 percentage points above the Bank of Russia’s target of 4.0%. Polls in Russia show that food inflation is a top concern, currently running at 7.4%.

But inflation in the US isn’t lagging far behind: The Consumer Price Index (CPI) jumped 5.0% in May. Yet the central banks are on opposite tracks in their approach to inflation.

Federal Reserve governors keep jabbering about this red-hot inflation being “temporary” or “transitory,” and likely to disappear on its own despite huge government stimulus and the Fed’s huge and ongoing monetary stimulus, though some doubts are creeping in among a couple of them. So they’ll keep interest rates at near-zero until at least next year, and they’re still buying $120 billion a month in securities to push down long-term interest rates.

Russia has been on the opposite trajectory, “surprising” economists at every step along the way. This trajectory started on March 19 with a 25 basis point rate hike, to 4.5%, against the expectations of 27 of the 28 economists polled by Reuters, who didn’t expect a rate hike. On April 23, the Bank of Russia hiked its policy rate by 50 basis points, to 5.0%. On June 11, it hiked by another 50 basis points to 5.5%. The next policy meeting is scheduled for July 23.

Is a shock-and-awe rate hike next? Bank of Russia Governor Elvira Nabiullina is preparing the markets for this possibility – so it won’t be a shock, but just awe.

At the July meeting, the central bank “will consider” an increase in the range from “25 basis points to 1 percentage point,” she told Bloomberg TV in an interview.

…click on the above link to read the rest of the article…

Inflation Targeting Madness: Russia Raises Rates Again

December 19, 2018

Inflation Targeting Madness: Russia Raises Rates Again

I continue to wonder who Bank of Russia President Elvira Nabuillina works for.  Seriously.  On Friday, in response to solid growth in Russian economic statistics over the past few months, Nabuillina again raised interest rates 0.25%.

She still adheres to idiotic IMF-style ‘inflation targeting’ dogma.

Price inflation in Russia finally got off the roughly 2.5% mat in August steadily rising to 3.8% in November.  This prompted Nabuillina to raise rates again, stifling growth which itself was stifled by her overly-cautious rate cutting earlier in the cycle.

The recovery in Russia after the Ruble crisis of 2014/15 was exasperated by her holding interest rates too high for too long.  The Russian bond market took way to long to normalize because of this lack of liquidity.

In 2017 and early 2018, every time the Bank of Russia cut rates the Ruble would strengthen, that’s how high demand was for them.  The Russian yield curve was approaching normalcy.

And Nabuillina is now, again, undermining it by trying to control price inflation as opposed to letting the market regulate itself.

The short-term Russian bond market is screaming for some relief and the Bank of Russia won’t accomodate.  Remember, inflation in Russia is running just 3.8%, so we’re talking a positive real yield on overnight money of 4%.  This is not making it easy to liquefy a growing economy.  Real yields of 4% on 3 to 5 year money?  Ok.

But overnight?   I’m all for a cautious central bank that does not inflate massive bubbles but I’m also not for a central bank to do the bidding of a country’s adversaries either by undermining growth with needless austerity.

Central Bank Fallacies

…click on the above link to read the rest of the article…

Bank Of Russia Calls “Emergency” Meeting To Address Ruble Rout

January 21, 2016

Bank Of Russia Calls “Emergency” Meeting To Address Ruble Rout

Earlier today, we highlighted a dramatic plunge in the Russian ruble which has crashed to record lows against the dollar after staging its steepest two-day decline in nine months.

The sharp (and seemingly inexorable) decline in crude prices combined with Western economic sanctions and geopolitical turmoil have weighed on the currency of late and in the midst of a new leg down in oil, investors appear to be panic selling.

“Some investors are selling at any price,” Bernd Berg, an emerging-markets strategist in London at Societe Generale told Bloomberg by e-mail.

And even as Russian central bank Deputy Chairman Vasily Pozdyshev swears “there’s no systemic risk,” the Bank of Russia has now called an emergency meeting with state-run and private lenders to discuss the FX bloodbath.

  • BANK OF RUSSIA TO MEET STATE-RUN, PRIVATE LENDERS: IZVESTIA
Dmitry Zaks 

✔@dmitryzaksAFP

‘s Central Bank call emergency meeting as plunges for second day running, breaking 1998 lows https://twitter.com/rianru/status/690214963403685888 …

11:52 AM – 21 Jan 2016

Not to worry, Moscow wants you to know this is not an “emergency” gathering.

  • BANK OF RUSSIA SAYS TALKS WITH BANKS NOT AN EMERGENCY MEETING

Grandmaster Putin’s Trap – 2

November 16, 2015

Grandmaster Putin’s Trap – 2

Grandmaster Putin’s Trap – 2

In December of last year we published an intriguing article by Dmitry Kalinichenko, “Grandmaster Putin’s Trap,” which has drawn far more attention from readers than we ever expected. It continues to be cited by many international political and economic experts. That article addressed Russia’s latent strategy to get rid of US bonds and use its petrodollars to buy monetary gold. It seemed for a while that the ruble’s nosedive late last year, coupled with the Kremlin’s reduced fiscal space, has left Moscow unable to pursue its plan to permanently diversify the international financial system. Nevertheless, taking a look at 2015, it turned out that Putin’s strategy is working quite well.

Due to invisible market’s hand the gold-to-oil price ratio has more than doubled in the past two years. While in May 2014 it costed 12 barrels of oil to buy one ounce of gold, this ratio rose to 26barrels/ounce in January 2015 (where it currently remains). By lowering the price of oil relative to gold, it looks like Wall Street & London’s City are trying to hamper Russian tactic of buying gold in exchange for oil and natural gas (gas prices are linked to oil via BTU). However, these actions fell short of their goals. Declining oil prices and a depreciating national currency have not led to a slowdown in the Bank of Russia’s gold purchases on the domestic market for rubles. Despite threats and sanctions, Russia has continued to add to its gold reserves. Bank of Russia bought a record 171 tons of gold in 2014 and another 120 tons in the first ten months of 2015. Consequently, by Nov. 1, 2015 the Bank of Russia had accumulated a total of 1,200 tons of gold in its reserves, which are officially the fifth largest in the world, although in reality Russia is actually in 4th place, as Germany is allowed to store only one-third of its reserves at home.

 

Why Putin Doesn’t Need To Pander To The West

April 2, 2015

Why Putin Doesn’t Need To Pander To The West

It’s quiet on the eastern front – as quiet as a conflict between world superpowers can be. Since February’s cease-fire agreement, relative calm has prevailed in Ukraine and world events elsewhere – Iran and Yemen – have shifted the global focus. Still, the West’s frigid relationship with Russia is no less chilly and antagonism, not cooperation, remains the modus operandi. Long-term, the stalemate looks to continue, but can either side afford such a result? And if not, who cracks first?

The prevailing judgment is that Russia cannot. And at surface level it’s a fair assessment. The Bank of Russia predicts the economy will contract by between 3.5 and 4 percent in 2015 and by another 1 percent in 2016; the ruble, while stable, is still down approximately 40 percent since June of last year. In all, former Finance Minister Alexei Kudrin believes the events in Crimea will cost the Russian economy as much as $200 billion over the next three to four years. The political and economic situation is fraught with grey area however, and no one turns grey to green quite like president Vladimir Putin.

Related: Is Warren Buffett Wrong About Oil Stocks?

As Putin embarks on his 16th year at the helm – I’m counting 2008-2012 – he faces a situation not too dissimilar from his first year in office: a sluggish economy, falling standard of living, high capital flight, and low foreign directinvestment. Russia’s demographics look good and its equity market is a top pickfor 2015, but in the short-term, the country’s macro indicators don’t yield much hope.

 

…click on the above link to read the rest of the article…

Bank Of Russia Surprises With Unexpected Rate Cut, Brings YTD Total Of Nations Easing To 14

January 30, 2015

Bank Of Russia Surprises With Unexpected Rate Cut, Brings YTD Total Of Nations Easing To 14

Yesterday we reported that in less than 1 month in 2015, so far a whopping 13 countries have proceeded with “surprising” rate cuts: Singapore, Europe, Switzerland, Denmark, Canada, India, Turkey, Egypt, Romania, Peru, Albania, Uzbekistan and Pakistan. As of this morning, make that total 14, because in one of the more “surprising surprises” so far, it was none other than the Bank of Russia which cut its main interest rate from the 17% shocker it instituted at an emergency session on December 17 to halt the Ruble collapse (as a result of the crude price plunge) to 15% less than an hour ago. At the same time it cut the deposit rate to 14% and the repo rate to 16%.

More rate cuts may be coming:

  • NABIULLINA SAYS 15% RUSSIA’S KEY RATE STILL FAIRLY HIGH

Not surprisingly, the ruble tumbled in response with the USDRB jumping to 72, while the RTS stock index was down 2% at last check.

The question why Russia decided to cut rates now is relevant, and likely has to do with both the recent stabilization of crude prices in the mid-$40s, coupled with pressure from the administration to lower rates which have led to the Russian economy and banking sector grinding to a near halt.

More from the WSJ:

This was the first rate-setting meeting with Dmitry Tulin, a former deputy chairman who replaced Ksenia Yudaeva as monetary-policy chief earlier this month.

The statement issued after the central bank’s board meeting was the latest acknowledgment by Russia’s leadership that its economy will face protracted pain amid falling oil prices and a confrontation with the West over Ukraine.

And Bloomberg’s take:

…click on the above link to read the rest of the article…

 

 

Russia to launch alternative to SWIFT bank transaction system in spring 2015 — RT Business

November 12, 2014

Russia to launch alternative to SWIFT bank transaction system in spring 2015 — RT Business.

Russia intends to have its own international inter-bank system up and running by May 2015. The Central of Russia says it needs to speed up preparations for its version of SWIFT in case of possible ”challenges” from the West.

“Given the challenges, Bank of Russia is creating its own system for transmitting financial messaging… It’s time to hurry up, so in the next few months we will have certain work done. The entire project for transmitting financial messages will be completed in May 2015,” said Ramilya Kanafina, deputy head of the national payment system department at the Central Bank of Russia (CBR).

Calls not to use the SWIFT (Society for Worldwide Interbank Financial Telecommunication) system in Russian banks began to grow as relations between Russia and the West deteriorated over sanctions. So far, SWIFT says despite pressure from some Western countries to join the anti-Russian sanctions, it has no intention of doing so.

…click on the above link to read the rest of the article…

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