"To fully support a gold peg for the ruble, those 2298.53 metric tons of gold must be adequate to account for every ruble within the money supply"
Has any country's currency ever been "fully supported" in that manner? I.e. has any country's central bank or treasury ever had enough gold to redeem every unit of physically printed currency, much less any of the broader measures of "money supply"?
It seems to me that currency ostensibly backed by PMs has always been a confidence game. It doesn't require full backing. It just requires enough to withstand "runs". As long as the small number of people who show up at the window can successfully redeem their paper for specie, and confidence remains, most of them won't.
You just hit upon the reason Nixon felt compelled to stop redemptions of dollars for gold in 1971. France, and then others, figured out the confidence game and were using the discount window to drain the US gold reserves -- of which there were not nearly enough.
In practical terms, you are right that the treasury needs only hold enough gold to cover likely redemptions. However, the problem with a fractional reserve approach to the gold standard is that someone eventually figures out a way to break the bank.
In the case of Russia, putting the ruble on the gold standard requires them to make a credible pledge to redeem rubles for gold. As George Soros demonstrated when he broke the back of the pound and drove the pound out of the ERM, a well-timed run in a currency can be devastating.
With a third or less than required gold reserves to support the ruble at current money supply levels, can Putin credibly claim adequate gold reserves to support a true gold standard?
Right, Russia hasn't made any pledge to *sell* gold for at a particular exchange rate, only to buy it, and only for a limited period of time. So I don't see any of this as Russia attempting to set a hard peg between the Ruble and Gold -- at least not yet. It will be interesting to see what happens this summer, when their "bid" expires. IIRC, that happens on June 30th.
Given the CBoR reduced interest rates in Russia from 20% to 17% this past week, I don't see Russia pursuing a hard peg to gold any time soon.
A key point about Nixon and Connally cramming fiat currency down the throats of the world's central bankers in 1971 that has been largely ignored: the central bankers went along with it.
Why?
Because central banks LIKE fiat currency, and the CBoR is no exception.
Putin might be able to put Russia on a sound money footing, and the economic reverberations could be devastating for the dollar--but then Putin is stuck with the gold standard.
Is he really anxious to go there? I'm not convinced.
"To fully support a gold peg for the ruble, those 2298.53 metric tons of gold must be adequate to account for every ruble within the money supply"
Has any country's currency ever been "fully supported" in that manner? I.e. has any country's central bank or treasury ever had enough gold to redeem every unit of physically printed currency, much less any of the broader measures of "money supply"?
It seems to me that currency ostensibly backed by PMs has always been a confidence game. It doesn't require full backing. It just requires enough to withstand "runs". As long as the small number of people who show up at the window can successfully redeem their paper for specie, and confidence remains, most of them won't.
You just hit upon the reason Nixon felt compelled to stop redemptions of dollars for gold in 1971. France, and then others, figured out the confidence game and were using the discount window to drain the US gold reserves -- of which there were not nearly enough.
In practical terms, you are right that the treasury needs only hold enough gold to cover likely redemptions. However, the problem with a fractional reserve approach to the gold standard is that someone eventually figures out a way to break the bank.
In the case of Russia, putting the ruble on the gold standard requires them to make a credible pledge to redeem rubles for gold. As George Soros demonstrated when he broke the back of the pound and drove the pound out of the ERM, a well-timed run in a currency can be devastating.
With a third or less than required gold reserves to support the ruble at current money supply levels, can Putin credibly claim adequate gold reserves to support a true gold standard?
Frankly, I don't see it happening.
Right, Russia hasn't made any pledge to *sell* gold for at a particular exchange rate, only to buy it, and only for a limited period of time. So I don't see any of this as Russia attempting to set a hard peg between the Ruble and Gold -- at least not yet. It will be interesting to see what happens this summer, when their "bid" expires. IIRC, that happens on June 30th.
Given the CBoR reduced interest rates in Russia from 20% to 17% this past week, I don't see Russia pursuing a hard peg to gold any time soon.
A key point about Nixon and Connally cramming fiat currency down the throats of the world's central bankers in 1971 that has been largely ignored: the central bankers went along with it.
Why?
Because central banks LIKE fiat currency, and the CBoR is no exception.
Putin might be able to put Russia on a sound money footing, and the economic reverberations could be devastating for the dollar--but then Putin is stuck with the gold standard.
Is he really anxious to go there? I'm not convinced.