Far Away Events Matter

Living remotely as we do one tends to believe that the events in places like Washington, Moscow, Tokyo, or Beijing have few consequences for us.  The recent US money printing has opened us to new challenges to the economic dominance we have enjoyed since WWII.  These effects are already being felt by each of us at the gas pump and in supermarkets, but there is more coming, much more.

A recent and poorly covered event tied to the war in the Ukraine was Russia’s need to stabilize their currency, and they did so swiftly by relinking the Ruple to gold and requiring payment for oil in Ruples.  This had the immediate effect of halting the erosion of the Ruple.  The Russian and Chinese Central Banks have been accumulating gold in large quantities for over a decade.  Once the Russian currency stabilized, they came back off the gold connection, but it was there, and the effect was there for all to see.  It is possible that they never even conducted a transaction in gold, and just the hint was enough.

There was another strange quirk in this event that went unnoticed, and that relates to China.  China agreed to a currency exchange with Russia during the war, and for that brief period they were also on the gold standard by the coupling of their currencies. 

According to the World Gold Council, the United States still has the largest gold reserve.  However, don’t get too confident, we are also the largest economy with spiraling debt.  Russia, who has the world’s fourth largest gold reserve, is only the eleventh largest economy.  China has the seventh largest gold reserve, and the second largest economy.

So, who cares?  No nation is on the gold standard, they simply cannot tie their currency to gold without exercising considerably more fiscal and monetary discipline.  No modern politician will agree to stop the money printing and lose votes, so this event went largely unreported here, but I think not in China.

There is more to this story that takes place in Japan and will affect us all.