Russia is considering creating a gold-backed cryptocurrency to build an alternative international payment system as the country continues to seek a path toward de-dollarization.
According to the Russian news agency TASS, Governor of the Bank of Russia Elvira Nabiullina said the bank would consider a proposal for a gold-backed cryptocurrency at the request of the State Duma (the lower house of the Federal Assembly) even though the bank would prefer to advance payments in national currencies.
This is yet another in a series of moves by Russia and other countries to minimize dependence on the US dollar.
Russia has been rapidly accumulating gold. The central bank purchased another 15.55 tons of the yellow metal in April. Russia has expanded its gold holdings by 71.53 tons through the first four months of 2019. This continues a multi-year trend. Russian gold reserves increased 274.3 tons in 2018, marking the fourth consecutive year of plus-200 ton growth.
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Meanwhile, the Russians sold off nearly all of its US Treasury holdings. According to Bank of America analysts, the amount of US dollars in Russian reserves fell from 46% to 22% in 2018.
A move to a gold-backed cryptocurrency is a controversial subject in Russia. Nabiullina said the central bank’s position hasn’t changed.
“We are … against using cryptocurrency in our monetary system. We don’t see cryptocurrency taking on the role of money. In this regard, we are definitely saying no.”
But for government officials looking for independence from a global system built around the dollar, a gold-backed cryptocurrency is an attractive option. It would combine the technological advantages of a fast, secure electronic payment system with the historical stability of gold as money.
Given the US government’s history of weaponizing the dollar, it comes as no surprise that Russia wants to minimize exposure to the greenback.
The fact that the global system facilitating financial transactions uses the dollar gives the US a great deal of economic and geopolitical leverage. The Society for Worldwide Interbank Financial Telecommunication (SWIFT) enables financial institutions to send and receive information about financial transactions in a secure, standardized environment. Since the dollar is the world reserve currency, SWIFT facilitates the international dollar system.
In 2014 and 2015, the US blocked several Russian banks from SWIFT as relations between the two countries deteriorated. Last fall, the US threatened to lock China out of the dollar system if it didn’t follow UN sanctions on North Korea.
In order to shake loose from US control, there have been efforts to limit exposure to the US dollar by setting up alternative payments systems and financial channels that don’t rely on the greenback. The Russians have already developed an alternative payment system that has reportedly surpassed SWIFT in popularity within the country. According to the Central Bank of Russia, 416 Russian companies and government organizations had joined the System for Transfer of Financial Messages (SPFS) as of September.
And it’s not just countries that have traditionally rocky relations with the US looking for alternatives. In September 2018, the EU announced plans to develop a special payment channel to circumvent US economic sanctions and facilitate trade with Iran.
The development of a gold-backed cryptocurrency could be another step down the road toward global de-dollarization.
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