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“It would be equivalent to Russia’s economic and financial nuclear strike on the US and EU,” – expert.
Written by Drago Bosnic, independent geopolitical and military analyst
After Russia’s special military operation started on February 24, the United States of America and the European Union immediately imposed the most comprehensive sanctions in recorded history, making Russia the most sanctioned country on the planet by a wide margin, far overshadowing those imposed on Iran, Venezuela and even North Korea. At first, the effect of these sanctions seemed catastrophic for the Russian economy. The ruble was almost turned into useless fiat money. Or so it seemed at least. However, after losing over 50% of its value in barely 2 weeks, the embattled Russian currency didn’t just regain all of its value, but also gained momentum and reached values higher than those before the start of Russia’s special military operation in Ukraine.
Most people don’t really understand how the modern economy works, which is why we have decided to talk to Mathias, an economics and finance expert who is currently employed by a large Central European investment bank.
– Thank You for taking the time to take part in this interview, Mathias. We would first like to start by asking how do You see the current crisis in Ukraine from an economic and financial standpoint and how is it affecting business dealings between Russia and the EU?
– Thank You for having me. It’s great to be here. First off, I would like to start by saying that despite what the media are saying, trade between Russia and the European Union hasn’t really stopped. When reading or watching most European media, there’s an impression that we now have a literal Iron Curtain or some kind of a physical wall separating us from Russia. This is most certainly not the case. Doing something like that is nearly impossible without causing catastrophic damage to our economies here in Europe. The world has become so interconnected that the entire global economy is like a giant domino mosaic. It’s impossible to change one thing without causing a ripple effect of global proportions. And this isn’t a new state of affairs. The economic crisis in 2008. started with a crash of the American automotive industry, which, in turn, was connected to insurance and investment giants in the US. Of course, the current situation is different. People seem to have forgotten about the devastating effect of the COVID-19 pandemic, which has been ravaging the markets for well over two years now. The Ukrainian crisis was the last thing we needed, but the damage is already done. Even if the hostilities were to stop today, the negative effects would still be there for years to come.
– What do You think about Russia’s request to use rubles for natural gas payments?
– From a political, or better said, geopolitical standpoint, this decision is hardly illogical. However, from a purely economic standpoint, it does create a lot of problems for the established economic ties between Russia and the EU. Of course, our Russian business partners insist this is the result of freezing Russia’s foreign reserves, making it impossible for Russia to use this money, which left them with no choice but to request rubles for Russian natural gas. The decision to freeze Russian assets was a political one and while we understand the EU’s desire to help Ukraine, we still think economic ties could’ve been left out of geopolitics. After all, this wouldn’t be the first time it happened. However, with the current situation escalating to levels we haven’t seen in a very long time, we need to find alternatives to keep doing business with Russia. And it should be noted that this isn’t a question of emotions, politics or anything of sorts. It’s simply a question of common sense. While we do not agree, nor do we condone Russia’s actions in Ukraine, we still need to work with Russia, because it isn’t just a large country in our immediate neighborhood, but also a net exporter of natural gas, oil, electricity, various metals, including rare earth metals and nonmetals, fertilizer and food, among other things. Most people don’t pay attention to these goods, but they are essential to the basic functioning of any economy. Without these, the whole system just crumbles and we already see that in a massive price hike of nearly all commodities, many of which might not seem connected to oil, natural gas or any of the aforementioned goods. In this regard, we need to find mechanisms to continue trading with Russia, because the current price hikes will soon turn into shortages if we were to cut ties with Russia altogether. And if this means we will need to find ways to trade in Russian rubles, I believe we don’t have much of a choice.
– You’ve mentioned price hikes. It seems the officials in the United States have started using terms like “Putin’s price hikes” and “Putin’s inflation”. Do You think these are in any way connected to President Putin?
– I cannot comment on statements given by US or any other officials, for that matter, but what I can say is that connecting inflation and price hikes to one person, whoever that may be, is an oversimplification, to say the least. As I’ve mentioned before, we’re still going through a pandemic, and only recently we’ve started relaxing the lockdown measures which have been in place for two years in virtually all of the world’s top economies and the US is no exception to this. As a result, normal economic activity wasn’t just disrupted, but it simply came to a halt. This wiped out the demand in entire sectors of the global economy, slowing down or even shutting down supply lines. People were left without work, but they still had needs. In order to meet those needs, many countries printed excessive amounts of currency in order to finance the lockdown measures. And despite the significance of the Internet for our economies, this pandemic taught us that we still can’t really run an economy which is completely online. This has become even more obvious during the current crisis in Ukraine, because both Russia and Ukraine export commodities of strategic value. Due to hostilities and the subsequent sanctions, combined with excessive currency emissions, especially in the US and EU, we now have these price hikes which are affecting regular people, which again negatively affects demand, resulting in a very volatile mix of high inflation and stagnation, otherwise known as stagflation. It’s very much an economic catch-22. There’s no way to really stop it. This is especially true for the US, EU, Japan and the UK. Our economies are more based on secondary and tertiary sectors of the economy, such as banking and finances, instead of production and commodities, which is the case in most developing economies, such as the BRICS countries, for instance.
– Do You think there is a way to ameliorate the effects of sanctions, without getting caught in geopolitical circumstances of the opposing parties?
– That is the million-dollar question. Or should I say ruble. Jokes aside, we are working on mechanisms to do exactly that. Unfortunately, it is nearly impossible to affect geopolitical factors in a crisis of this magnitude. What we can do is try to find alternatives. However, the problem with the alternatives is that they are all too expensive, prohibitively expensive even, which doesn’t make our position any easier. We are also witnessing hypocrisy coming from some of the global players which are officially condemning Russia and imposing sanctions on anyone trying to do business with Russia, but at the same time, they are circumventing their own sanctions by importing oil, fertilizer and other commodities and even reselling these goods to EU countries.
– Are You referring to the US? How are they doing this?
– I would like to avoid making any direct references, but we are witnessing it as we speak. As for how this is done, it’s pretty simple. Let me give you an example. If an oil tanker has less than 50% of Russian oil in it, it doesn’t officially transport Russian oil. So, if your tanker has 49% of Russian and 51% of Norwegian, Dutch or British oil, then it is officially transporting Norwegian, Dutch or British oil.
– Is that legal?
– It’s not illegal, but it most certainly is immoral. Especially given the fact that sanctions are imposed on any party buying Russian oil or natural gas, resulting in untold damage to our economies. Countries which are overseas rely on tankers, so they can easily implement this strategy. The EU, on the other hand, is connected to Russia via a series of pipelines. There’s no way for us to use “less than 50% of a pipeline”. Which is why cheap moralizing about the EU supposedly financing the war in Ukraine is dishonest, at best.
– But even if the EU decides not to impose sanctions on Russia’s energy sector, how could it resolve the issue of rubles for gas, given the recent statements that it will not use rubles?
– I believe those are just political statements designed for domestic use. If the EU had any alternative to the Russian energy sector, it would’ve sanctioned it by now. This implies that we will need to find a way to pay for Russian natural gas and oil. Whether EU officials will give in to Russia’s demands or maybe find a middle ground is irrelevant. What’s realistically possible and relevant is that our economy will be disrupted and damaged beyond repair for the foreseeable future if we fail to find some kind of arrangement with Russia. Seizing Russia’s massive forex (foreign exchange) assets proved to be unwise in this regard, because it undermined the confidence in both our currency and our international financial obligations. In the world of finance and banking, this is the Holy Grail and it would’ve been much better had we left it alone.
– You’ve mentioned the freezing of Russia’s assets. What happens if Russia defaults on its debt payment due to the seizure of these forex reserves?
– There is a 30-day grace period for most bond payments. We can only hope that the US Treasury will stop blocking Russia’s attempts to make the bond payment. However, if the US continues blocking Russian payments, in US dollars or any other currency, the Russian government can take legal action. More specifically, it can cite external forces preventing the payment, which technically isn’t considered a default. While legal proceedings are underway, any bond payments are postponed for the duration of the legal process.
– What do You think the usage of rubles in international trade can lead to?
– As we all know, the ruble isn’t a global reserve currency, unlike the US dollar, pound sterling, euro or the Japanese yen. We might add the Chinese yuan to this list, since it’s already effectively used in that capacity. However, the seizure of Russia’s forex assets and the sanctions imposed by the EU have pushed the ruble to a free fall. In order to prevent hyperinflation, the Russian Central Bank pushed the interest rates to 20%, preventing further loss of value. However, this didn’t turn back the clock. It was simply damage control. What actually turned back the clock is Russia’s announcement it will only be taking rubles for natural gas and oil payments. That was when the Russian currency regained not just all of its value, but also exceeded the pre-sanctions exchange rate. In addition to this, Russian Central Bank also announced it will be pegging the ruble to gold. More specifically, a gram of gold will be worth 5000 rubles. This would make it the first gold-backed currency since US President Nixon abolished the gold standard in 1971. However, some analysts have stated that Russia will also be pegging the ruble to natural gas, oil and even diamonds and other commodities, making the demand for ruble even higher.
– What do You think Russia’s end game with all this be?
– It’s very difficult to say, but I have a few ideas what Russia hopes to achieve with all this. The first consequence may very well have to do with the price of gold, more specifically the difference of the price of gold in rubles and US dollars, after Russia pegged a gram of gold to 5,000 rubles. If the price of gold on the world market is over 1900 dollars per ounce (around 28 grams), when converted into rubles, an ounce can be bought for an equivalent of 1,500 dollars. In doing this, the Russian Central Bank artificially raises the value of the US dollar by around a quarter, which may seem like a good thing for the Americans, but it will actually lead to everyone rushing to buy these gold-backed rubles in Russia and then buy gold for a price which would effectively be 25% lower. This could have a dramatic effect on the world financial market. The value of the ruble would begin to rise sharply due to high demand, because everyone would want to buy it with their stocks of US dollars and euros, while the value of US dollars and euros would go down in the process. This would soon lead to other countries pegging their currency to gold, while looking to replace both US dollars and euros in order to make profit, but also to prevent a rapid devaluation of their currency due to the reliance on foreign exchange reserves. All of this would have a synergistic, almost cascading effect, an exponential growth, where one effect reinforces and pushes the other. By doing this, Russia could cause sudden hyperinflation of the US dollar, which the US would be able to slow down only if it started buying rubles, but which would also lead to further skyrocketing demand for the Russian ruble. The same goes for the EU and its currency. Again, this can lead to a very sharp increase in the value of the ruble to 50 rubles per dollar, then 45, 40, 35, etc. In other words, we might see the ruble going back to pre-2014 levels and even more. The price of gold would also increase sharply due to high demand, as well as the ruble which would now be pegged to gold. Countries which have large gold reserves would have an interest in buying and selling gold only in rubles or any other currency firmly pegged to gold, because the price of gold in US dollars and euros would be very unstable. All this would be such a shock to the global financial architecture, that I don’t see any other way to describe it, but to say it would be equivalent to Russia’s economic and financial nuclear strike on the US and EU. At the moment, these top countries of the global financial system can do very little to prevent or even mitigate the consequences of such a world-altering process.
– But do You think this could potentially lead to a direct confrontation between Russia and the West, given how the political West reacted to similar attempts by Saddam Hussein or Muammar Gaddafi?
– I can’t really comment on something that extreme. What I can say is that I really hope it will never come to that, given the fact that Russia is one of the world’s premier powers. Such a conflict wouldn’t just be economically devastating. It would lead to physical annihilation of our civilization. I don’t even want to think about it. What I’m saying is that the economic and financial consequences would be unlike anything we’ve ever seen. Of course, this doesn’t mean the West is completely incapable of answering economically. The current problem is that we have too much politics involved in the financial sector. Western countries need to focus on a wiser economic and financial response to this crisis. Ideology and geopolitics should be left out of this, because we need to defuse the situation, not make it worse.
– Let’s hope it doesn’t come to any escalation. Thank You for Your time, Mathias.
– Let’s hope it doesn’t. The pleasure was all mine.
Quick answer Nope. Russia has no friends left, and Russia’s % of world economy is 1.95% and shrinking fast.
Who would waste their time with the Ruble? It’s to unstable and only ever shrank in value. Would you risk parking a billion dollars in it even for an hour? You could lose 5% by then.
you are wrong…If I could, I would buy ruble and dump the Dollar. Ruble is pegged to gold now. Putin is being nice by only demanding Ruble for gas. What happens when he demands Rubles for oil? fertilizer, metals, everything else ..?
Yes, you’re right, but most peoples don’t have the concept of gold backed money.
They’ll learn fast.
Then Russia go broke and Russians hang him.
Dream on Je_han.
The fact you can’t explains a lot, you are a Failure with a grudge against all those who did succeed.
Poor ol’ sad Ukrotard. Failed Ukrainain CIA project go bye-bye.
More ukrop cope. I somehow knew the bots would be out in full force in this article cuz everyone knows the western regime is dead and the gold backed Ruble is a major factor in this.
It’s not even about Russia. It’s about showing a path to others. Russia basicly did what Moamer Gadaffi tried (brilliant idea btw), and he was brutally murdered for that reason alone. It was not about democracy and beeing a “brutal dictator”. It was about oil, and plans to sell oil in gold-backed libian currency, and harm the petrodollar. If one small Lybia was enough to cause enough interest to create a western coalition to kill and destroy those plans, you can only imagine how serious the situation is now, with Russia. If Russia manages to go on with this, and it seems it manages perfectly well, there is absolutely no reason why countries like India, China, gulf oil exporters etc, would not jump on that train too. And it’s already happening.
Irony is, that China will very likely save US from total collapse and hyperinflation, if things go that far. China is not seeking for vengeance, and would prefer the world where they can continue to trade, and for trade you need stability, not chaos.
So thats why Putin has been gobbling gold for himself since 2015. Putin’s gold castles will sooner or later be worth billions of dollares, and all American true patriots will be left in rows to soup kitchens. What a bastard.
nah American patriots have been buying gold for as long as they have guns dehydrated foods and isolated off grid properties. Hell american patriots have been screaming the demise of the petro dollar for thirty years!! True American patriots are way ahead in this game.
Correct. After Russia military, the greatest menace for the globalist US deep state cabal is those 200 millions peoples guns (100 legal and another 100 supposed illegal); so, they will make anything, stage everything, to grab US peoples guns.
Absolutely YES ! In fact the fall of the US economy started in 1971 when they succumb to the ashkenazi fake jew banksters for leaving the Gold standard and start making air-money and triggered a steady continuous inflation. Thus all american society was in all sectors took prisoner. Just 1 example: before 1970 it was enough for the clasic american family that only father work to provide a decent life. After that, it was required that wife to go work, and now, things arrive at the point that even with both working, they can’t sustain a proper decent life for theirs families and must go on bank loans. Next phase, the former conspirator bandits will have for agenda the Minimum Wage Social Assistance and the full circle will be complete.
At least they have (had) an economy.
The children are raised by the pedos.
I have requested to all countries when you sell your products on other countries then demand for your own currencies. This will increase the values of your currencies.
you need economics 101 a high value currency is not always a good thing. Having a low valued one can be of great benefit
Ukraine is a fake state. It would never work for NATO as a military base.
It could change the global economy by introducing toilet paper as money currency.
Much more useful than the gangster US-petro dollar will be in a year.
Good one, actually that hat Putin declares. Only the west will find a way to wipe their ass with something els, like roubles.
Interesting article.
You mean funny and unfunded, not scientifically.
Putin is taking on the criminal global selfish elite now because of the gold backed Ruble! What other country is there to physically confront the global beast system? Without God man is a beast!
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Now, Putin makes few countries on earth worth 1 gazzilion time more than before. I mean those countries with rich GOLD DEPOSITS. My country is number 2 in Europe after Russia. But that’s also a very very bad news. We are a US whore-colony full of thieves and traitors. Our Rosia Montana (Tomato Montana or Red Montana in rude translation) gold resource is from the preroman era. We have there an estimated 350 tones officially (I mean officially credited by US/EU mobs), but in reality there is over 1500 tons still not extracted. And over 5.000 tons of silver. Besides tens of tons of rare materials such, wolfram, molibden, zirconium, titanium, etc..Bad news because they will steal them all, just like our petrol and gas (which btw are enough for internal use, second country in Europe in this position also). And my fellow countrymen are weak and very easy to deceit peoples. Our only hope is together with Russian federation, but how to do this when the grip of CIA suffocate all our institutions and political parties ?
If only the gullible fools knew that “Atomic/Nuclear bombs” do not exist. Atomic Bombs are ss much of a WW2 fairy tale as the WW2 Holocaust fairy tales. The same nasty Jews were involved in both deceptions for global power. The largest weapon, is a fake Jew psychological weapon, the masters of deception. There are no comical Jew Nukes that any nation has, its all for the gullible idiots to talk about like sheep.
Wauw nooooo, I am afraid let’s surrender to Putin, he got us he is so smart and strong ! The Russian threat to dollar hegemony is nothing but a fantasy, do not let those idiots make you afraid, let them play their game and we ours. We are not witnessing the dawn of a new post-dollar world. The current ‘strength’ of the rouble and its supposed gold peg represent nothing but the weakness of Russia’s economy and its fiscal management in the face of Western sanctions, writes Hess. Western sanctions imposed on Russia in late February saw the rouble plummet to unprecedented lows, prompting Russia’s Central Bank to more than double interest rates to 20 percent and setting off fears Russia’s economy could collapse. Since then, the rouble has largely recovered, at least officially. Russia’s Central Bank even announced a link between the rouble and gold – and on April 8 it cut back the baseline interest rate from 20 percent to 17 percent. Combined with discussions of a rouble-Indian rupee trade arrangement, and Russia’s expanded currency surplus on the back of high hydrocarbons prices, this has been trumpeted by Russian propaganda as evidence Moscow is not only withstanding the West’s economic war, but as the potential end of dollar dominance. Moscow is not alone in making this argument and this line of thinking is not limited to its echo chambers on the far right and far left, either. However, in reality, the current “strength” of the rouble and its supposed gold peg represent nothing but the weakness of Russia’s economy and its fiscal management in the face of Western sanctions. First, it must be understood that the rouble’s strength, while not wholly illusory, is the result of an extreme decrease in trading levels, and the Russian government’s own capital controls. The rouble is not quite an inconvertible currency yet – Russia’s banks are not yet under a blanket ban – but almost all trading takes place on Russia’s MOEX exchange. Exporters are required to sell their foreign currency to the state. Russia’s currency controls also mean that the rouble-gold peg is no return to the gold standard. A gold standard means that one can freely exchange a paper currency for gold. Russia’s gold peg, inversely, was to force Russian gold producers and sellers to accept a fixed amount of paper money for their gold production. Therefore, the Russian “gold peg” should be seen as akin to the fixed price for cigars in Cuba rather than as any serious threat to the international financial order. Russia’s central bank abandoned the policy on April 7 anyway, though this has received considerably less attention from dollar doom-mongers and Kremlin propagandists. In contrast to the fevered end-of-dollar-dominance commentary, no notable foreign investors have gone long the rouble, as the Kremlin’s own currency controls prevent them from repatriating gains. In countries neighbouring Russia, which have seen an influx of Moscow and Saint Petersburg’s intelligentsia in the aftermath of the war, the real rouble rate available at most cash counters is far lower than the official rate. At home, however, Russia has slightly eased currency convertibility. Russians can now transfer $10,000 abroad per month, though this is of course far too little to fill a single superyacht’s tank. In effect, what is happening is that the Russian central bank is underwriting an artificial exchange rate for Russians, but particularly for Russian importers. By doing so, the Russian state is losing hard currency on each transaction, which is why Russia’s foreign exchange reserves declined by $39bn in March even as its central bank was barred by sanctions from intervening directly in rouble markets. The Russian state has to fulfil this role as demand for the rouble from abroad remains negligible. The vast majority of Chinese-Russian trade is not on rouble terms, and even the minority that is carried out in roubles is typically linked to the dollar, for example via international oil and gas prices, meaning that there is little financialisation of the rouble in Chinese banks. Russian firms, too, have only a thin history of issuing yuan debt. Talks with India could bolster demand somewhat, but Delhi doesn’t offer the kind of exports Russia needs, particularly in the aftermath of Western technology sanctions. This is why President Vladimir Putin has been trying to get European countries to pay for their natural gas imports in roubles. Many have been bewildered by the demand and thought it unlikely to have a major impact, pointing out that it simply means that Western firms would be exchanging their dollars and Euros for roubles, rather than Russian exporters, where the state dominates. However, it is precisely who the transaction is with that matters – creating demand for the Russian rouble from Western firms would not only support the rouble’s continued convertibility by keeping a hole in the sanctions regime open, but would also shift the currency risk off of the Russian state somewhat. Yet as Putin’s invasion of Ukraine continues to unleash new horrors, these gaps in the sanctions regime may well close – discussions about how the West should tighten its sanctions are continuing on a daily basis. If the rouble becomes completely inconvertible, Russia could be forced into a dual-currency system with a convertible and non-convertible version, as seen in Cuba or China with its domestic and offshore yuan (CNY and CNH), respectively. For now, Russia can sustain its illusion of rouble strength thanks to a strong current account surplus meaning it has hard currency to spend, even as it faces looming default and has seen most of its assets frozen. This will no longer be the case if Europe ultimately does agree to an oil and gas embargo. The Russian state may also grow tired of effectively subsidising its importers and those seeking to take cash abroad, given Putin’s turn to autarky and lashing out against fifth columnists. The risks of a further rouble collapse are very real. Russia’s threat to dollar hegemony, however, remains a fantasy. Maximilian Hess is a Fellow at the Foreign Policy Research Institute and a Political Risk consultant based in London so not a mr. Nobody jobless idiot Southfront tiolet guy “Drago Bosnic, independent geopolitical and military analyst” For the record this “pegging is no more, and even before it was only untill june 30. Have a nice sleep hahahah!
Except for that MOST GOLD HAS BEEN STOLEN AND IS HIDDEN SOMEWHERE
For all we know Israel doesn’t have it The Bank of Britain doesn’t have it Governments don’t have it
we suspected for a very long time stolen gold was smuggled for Israhell, I was confirmed by people from different countries that a same method of smuggling gold reserves was carried out
Do someone believe that Fort Knox is full of gold? I am sorry to inform that most gold is gone and nobody will audit. Same for Britain, same for Switzerland and Germany. They don’t have a 10% of the gold they declare. GOLD IS GONE AND WE LOST THE TRACE OF IT ALREADY YEARS AGO
Some resource-rich country like Brazil, Argentina, Australia, South Africa may come forward and say they have 1 billion tons and then what, how do they disprove it? Will they also audit their own gold-platted reserves?
If you back your money in gold then somebody – not some country – will own your money.
Give a monkey a gun, and sooner or later he will suck on the barrel with his finger on the trigger. Biden is the monkey.
3 things are remarkable after this propaganda piece; 1) how easy it is to get people trapped by a faked scientifically article or by any fake good news what so ever, mostly imaginable ones. Seen the poor performance of the Russian world army. Brought by a nobody , jobless (independent he calls it) in (geopolitical) and (military analyst) speaking about economical politics and currencies! He might maybe be able to explain you the use of cruisers without been blowing in the air or their location but about economics and their impact? It is like a plumber telling you how to invest your money. 2) how few people react, how they react and how dumb is an other interesting fact, but that those illiterate make a point concerning an issue that is idiot in it self is explaining a lot about the level of the modal Putin adapt. 3) that Southfront is a dustbin where you can throw anything in if it is only bringing a positive message for Putin, fact or better even nonfact, only it needs to bring $ in mark it $ not Roubles.