The news that Russia may be returning to the gold standard has come out.
The real news is
“a Russian lawmaker disclosed government plans to pass a bill to remove a 20% value-added tax on gold investments. “
It’s interesting! So, I analyzed whether Russia could move to the gold standard.
The conclusion is that They can return to the gold exchange standard, but not the gold standard.
Please note that this is my analysis as an individual investor.
The websites I referred to are as follows.
Business Knowledge Source（Japanese only: ビジネス知識源）
Central bank websites of each country
Bretton Woods System
After the World War 2, the U.S. was on the gold exchange standard.
This means that there is no need for 100% gold reserves.
One troy ounce of gold was pegged at $35.
Let us look at the financial condition of the Fed in 1950 and 1970.
Year 1950
Total assets: $44.6 billion
Gold holdings: 26,000 tons = $29.2 billion
Gold reserve ratio: 65.4%
Year 1971
Total assets: $90.2 billion
Gold holdings: 8,133 tons = $9.2 billion
Gold reserve ratio: 10.1%
The exchange of gold for dollars was suspended on August 15, 1971. This was the famous Nixon Shock.
Looking at the history of the U.S., it would seem that a gold exchange standard can be established with gold reserves of 10% or more.
How about Russia?
Assumptions are as follows.
1 Russian ruble = $0.014 (the rate before the crash)
1 troy ounce of gold = $2,000
The calculation results are as follows.
Total assets of the Central Bank of Russia: $756 billion
Gold holdings: 2,298.5 tons = $147.7 billion
Reserve ratio 19.5%
Russia can return to the gold exchange standard in the current state.
If we were to apply the rate after Russian ruble crash, the reserve ratio would be nearly 40% because total assets would be reduced by half.
How about other countries?
Using the same indicators, we calculate below.
China: total assets $6.5 trillion
gold holdings $125.3 billion
reserve ratio 1.9%
India: total assets $416 billion
gold holdings $48.4 billion
reserve ratio 11.7%
EU: total assets $9.3 trillion
gold holdings $609.7 billion
reserve ratio 6.5%
U.S.: total assets $8.9 trillion
gold holdings $523 billion
reserve ratio 5.9%
Japan: total assets $6.2 trillion
gold holdings $54.4 billion (market value equivalent)
reserve ratio 0.9%
India may return to the gold exchange standard.
Summary
From the above discussion, Russia can return to the gold exchange standard, not the gold standard.
We will have to wait and see what the Russian government does in the future.
