Russian Lawmaker Calls for Creation of Gold-Backed Cryptocurrency to Circumvent Sanctions
A Russian lawmaker has suggested his country should develop a gold-backed cryptocurrency for payment of arms exports and other goods as a way to circumvent Western sanctions and limit his country’s dependence on the dollar-based global banking system.
Vladimir Gutenev serves as first deputy head of the economic policy committee at the State Duma – the Russian Parliament’s lower chamber. He suggested Russia should develop a gold-backed cryptocurrency as he called for a suspension of treaties with the US, including the non-proliferation of missile technologies agreement.
According to CCN, a website reporting on cryptocurrency news, Gutenev said a switch to crypto would enable Russia to avoid US dollar-based commerce and reduce its dependence on the SWIFT payment system.
[Russia should] consider the possibility of conducting transactions in cryptocurrencies that are linked to the value of gold. And I’m sure that this will be a very interesting option for China, India, and other states as well.”
SWIFT is the Society for Worldwide Interbank Financial Telecommunication. The system 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.
SWIFT give the US a great deal of leverage over other countries. The US has used the system as a stick to keep other countries “in line” before. In 2014 and 2015, it 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.
Gutenev did not offer any specifics on his proposed gold-backed cryptocurrency, but Russia certainly has put itself in position to make such a move by buying gold for more than three years. Russia has added to its gold reserves every month since March 2015. The trend continued in July with the Russian central bank adding 26.1 tons of the yellow metal to its hoard, according to the International Monetary Fund. It was the largest increase in Russian gold holdings since last November.
According to Russian central bank, the country’s gold reserves were valued at $77.4 billion at the end of July.
Meanwhile, the Russians have reduced their holdings of US bills, notes and bonds by about four-fifths. Russia dumped nearly half of its US debt in April. In just that one month, the Russians sold off $47.4 billion of its $96.1 billion in US Treasuries. Gold is “a 100 percent guarantee from legal and political risks,” Central Bank of Russia First Deputy Governor Dmitry Tulin said at the time.
China has also been buying gold. Many analysts have said both China and Russia are increasing gold reserves specifically to minimize their dependence on the US dollar and possibly to create a foundation for an alternate payment system.
Russia and China aren’t the only countries seeking to limit its dependence on the greenback. Last week, German foreign minister Heiko Maas called for the creation of a new payments system independent of the United States.
Gold-backed cryptocurrency isn’t some kind of futuristic fantasy. The British Royal Mint launched a crypto token backed by $1 billion in gold bars earlier this year. The Perth Mint has also announced plans to launch a gold-backed crypto.
The blockchain technology that underlies cryptocurrencies makes it possible to create a decentralized payment system that is very difficult to hack or manipulate. In simplest terms, the blockchain is an extremely secure, digital record book where you can record information. More technically speaking, the blockchain is a distributed database. Think of it as a ledger that is replicated and stored on thousands of different computers. The fact that it is distributed across multiple locations means it’s decentralized. The redundancy in the system makes it extremely secure. No one computer is necessary to make it work. That makes it nearly impossible to hack or shut down.
The secure, decentralized nature of the blockchain makes it perfect for recording transactions. Combining the security of a system built on blockchain with the stability and trustworthiness of gold could make it possible for countries like Russia and China and create payment systems independent of the US dollar, thereby minimizing America’s influence over their policies. It remains to be seen whether the Russians can actually create a viable payment system other countries will use, but the potential for de-dollarization certainly exits.
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