Russia announced on Friday that it will increase its daily gold purchases to 8.2 billion rubles, which represents a 601 per cent increase from previous occasions.
The move comes as western sanctions tighten around Russia, forcing it to move to precious metals to bypass financial restrictions and maintain trade with its partners.
Russia’s recent strategy of buying gold in substantial quantities aligns with its broader economic move towards de-dollarization, aimed at consequently reducing reliance on the U.S. dollar, which has long dominated international trade and finance.
Furthermore, by increasing its gold reserves, Russia seeks to insulate its economy from Western financial sanctions. This would have the double effect of mitigating the volatility of currency markets.
This approach is also closely linked to Russia’s leadership role in BRICS (an economic bloc consisting of Brazil, Russia, India, China, and South Africa) and its push for a new financial system that could challenge the dominance of the dollar. Consequentially, gold plays a pivotal role in this strategy, as it could bolster the credibility of currencies with significant gold reserves.
Additionally, there are signs that Russia may begin trading oil for gold, marking a significant departure from the petrodollar system. This shift could undermine the dollar’s global reserve status by offering an alternative for oil trade, which has traditionally been conducted in dollars. Russia’s focus on gold is part of its response to Western sanctions following the conflict in Ukraine.
These sanctions have driven Russia to pursue greater self-sufficiency and alternative economic strategies. This includes gold providing a hedge against the restrictions imposed by systems like SWIFT.
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BRICS Pay is blockchain-based and decentralized
The new payment system is called BRICS Pay.
It’s a new payment system designed to facilitate transactions in local currencies among BRICS nations and potentially other countries interested in joining or aligning with this initiative. The system is envisioned to be blockchain-based, signalling a shift towards digital and decentralized transaction methods.
Its primary objective is to de-dollarize trade among member countries, reducing the influence of the U.S. dollar in international transactions. This is also part of a broader geopolitical strategy aimed at fostering economic independence from Western financial systems.
One of the key features of BRICS Pay is its decentralized nature. It uses blockchain technology, which offers a more secure, transparent, and potentially censorship-resistant payment system. The system operates continuously allowing for transactions at any time.
It is also designed with minimal or no transaction fees, making it accessible for smaller transactions and retail investors. Users can make interbank transfers using just a mobile phone number, streamlining the process for individuals.
BRICS Pay could potentially have further global impact by shifting the financial landscape towards a more multipolar world. Reports suggest that up to 159 countries have expressed interest in adopting this system. This could challenge the dominance of the dollar and the SWIFT system in global trade.
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Russia may peg the ruble to gold
This also works into Putin’s wider strategy.
In early 2022, Russia pegged the ruble to gold. The plan was to shift the currency away from a pegged value and into the gold standard itself so the ruble would become a credible gold substitute at a fixed rate.
This could make the ruble more attractive for international trade, especially in regions seeking to reduce their dependence on the dollar.
Beyond these strategic objectives, Russia’s gold purchases can also be viewed as a sound investment decision. Gold is often seen as a safe-haven asset during times of economic uncertainty or geopolitical tension, and Russia’s actions may encourage both domestic and international investors to view gold as a reliable asset, driving up demand.
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