The Commodity And Currency Revolution Are Beginning
The current events of the world had marked the change from a dollar-based global economy to commodity-backed currencies. The ending of the financially based system is being hastened by geopolitical developments. The west is trying to sanction Russia into economic submission. But it is also driving up energy, commodity and food prices against itself. Central banks will have no other option but to inflate their currencies to pay for it all. Russia is linking the rouble to commodity prices through a moving gold peg. China has showed an understanding of the West’s inflationary game by having stockpiled commodities and essential grains for the last two years. It has allowed its currency to rise against the dollar.
China and Russia are not walking on the path of the West’s inflating currencies. They are indeed moving towards a sounder money strategy with the prospect of stable interest rates and prices. The US Administration passed a death sentence on its own hegemony in a last desperate throw of the dollar dice. America mistakenly believed in its own power by sanctioning Russia and Putin’s oligarchs. America misread the Russian situation with respect to its economy.
It may have achieved a partial blockade on Russia’s export volumes. But compensation has come from higher unit prices which has benefited Russia and costed the Western alliance. The consequence is a final battle in the financial war. One does not sanction the world’s most important source of energy exports and the marginal supplier of a wide range of commodities and raw materials. The intended target has in China an extremely powerful friend which is the Shanghai Cooperation Organisation. It commands a developing market of over 40% of the world’s population.
The West has given itself no political option, despite this enormous hole in the sanctions net. But Russia’s response is devastating for the western financial system as it is tying the rouble to gold for domestic credit institutions and insisting that payments for energy will only be accepted in roubles. The dollar took over the role for itself as the global reserve asset from gold, just over five decades ago. London’s big bang in the early 1980s paved the way for regulated derivatives. It was followed by an explosion in over-the-counter unregulated derivatives into the hundreds of trillions and securitisations. It hit the speed-bump of the Lehman failure. The expansion of global credit for purely financial activities has been remarkable creating a financial asset bubble to rival anything seen in the history of financial excesses, since then.
Russia has seen its currency undermined by Western action over Ukraine, for the second time in eight years. This time the Russian central bank was better prepared. It had diversified out of dollars adding official gold reserves. The commercial banking system was overhauled. The link to commodities is gold and the RCB said that until end-June it stands ready to buy gold from Russian banks at 5,000 roubles per gramme. The stated purpose was to allow banks to lend against mine production. But the move has encouraged speculation that the rouble is going on a quasi- gold standard.
Most Western commentary is prepared for further sanctions against Russia. Some independent commentators have pointed out that by sanctioning Russia and freezing its foreign exchange reserves. America is destroying her own hegemony. The benefits of gold reserves have also been pointedly made to those that have them. Central banks leaving their gold reserves vaulted at Western central banks exposes them to sanctions. So, the issue is being discussed around the world and some requests for repatriation of bullion are bound to follow. Russia has found a way of tying its currency not to the dollar, but to commodities through gold.