The gold standard, and at the same time the linking of the Russian ruble to precious metals, remains an urgent topic today. Indeed, the modern Russian ruble is not directly linked to gold, which means that there is no guarantee of providing the money supply with real assets. According to some experts, the country’s gold reserves can currently cover only about 5% of the volume of the currency in circulation.
This ratio largely determines the widespread opinion that the ruble’s return to the gold standard is extremely unlikely or even impossible. The reason seems to be that the established financial system and the floating exchange rate are beneficial to certain groups that profit from it.
Nevertheless, according to the authors, linking the ruble to precious metals, albeit formally, does not make sense. We are not talking about the real provision of the entire money supply with gold, but even a nominal connection could have some advantages:
Strengthening the status of the national currency in the international arena. Historically, the «golden» name of the currency has helped to increase confidence in it from other states. No wonder the first gold coins were used mainly in foreign trade.
Connection with the historical past of the Russian monetary unit. The mention of the «golden ruble» can stimulate the interest of society, including the younger generation, in the economic history of the country.
For those who want to broaden their horizons or refresh their memory of already known information, we have prepared a short review. Have a nice read!
Terms and definitions
The golden ruble is a metallic monetary unit of the Russian Empire, introduced into circulation as a result of the monetary reform of 1895-1897. One gold ruble corresponded to 0.774234 g of pure gold and was equivalent to 1.5 rubles in credit cards.
The gold standard is a monetary system in which paper money can be freely exchanged for a fixed amount of gold. Under the gold standard, gold serves as a universal means of ensuring the value of paper money.
The history of the golden ruble
Until the end of the 19th century, the Russian Empire had a bimetallic monetary system, in which both silver and gold coins served as currency. However, the gradual depreciation of silver on the world market has led to instability of monetary circulation and the need to reform the monetary system.
The monetary reform of 1895-1897 was initiated by Finance Minister Sergei Yulievich Witte (1849-1915). The main steps of the reform:
Free exchange of paper credit tickets for gold at a fixed rate (1 gold ruble = 1.5 credit rubles).
Minting of new gold coins in denominations of 5 and 10 rubles (semi-imperials and imperials).
Limiting the issue of credit cards in accordance with the country’s gold reserves.
Devaluation of the silver ruble and its conversion into a change coin.
The introduction of the gold standard contributed to the stabilization of monetary circulation, the influx of foreign investment and the acceleration of the country’s economic development. Russia has become one of the world’s leading economies.
However, in the conditions of economic and political upheavals of the early 20th century (the Russian-Japanese War, the revolution of 1905-1907), the government was forced to resort to issuing unsecured gold credit notes. So, in 1905, 150 million rubles were issued without gold collateral. Nevertheless, before the First World War, the gold security of the ruble was mainly maintained at 90% and above.
Historical facts
Gold coins (imperials and semi-imperials) were minted from 900 gold.
In 1897, Russia’s gold reserve amounted to 1,095 million rubles and was the largest in the world after the United States.
By 1914, the gold reserve of the State Bank of Russia reached 1,695 million rubles, which was about 100% of the amount of credit notes in circulation.
The golden ruble had a solid exchange rate and high prestige in the international foreign exchange market, which contributed to the growth of Russian exports and attracting foreign investment.
The introduction of the gold standard and the gold ruble became an important milestone in the economic history of Russia in the late XIX — early XX century, ensuring the stability of the monetary system and contributing to the modernization of the country.
About gold coins
Introduction of the gold chervonets In 1922, gold chervonets were put into circulation in Soviet Russia, designed to stabilize the monetary system after a period of hyperinflation and economic crisis. The gold chervonets contained 7,74234 g of pure 900-grade gold and was essentially an analogue of the pre-revolutionary 10-ruble coin.
Reasons for rejecting gold coins
Despite the initial success in stabilizing the ruble, the use of gold coins in circulation soon had to be abandoned for a number of reasons:
Rapid wear of coins due to the softness of high-grade gold. The common method of verifying the authenticity of coins by biting only exacerbated the problem.
The limited capabilities of mints to mint the required number of coins to ensure a growing turnover.
The inconvenience of transporting and storing a large number of gold coins. As a result, gold began to be concentrated in government reserves, and paper money de facto turned into certificates for metal.
The end of the Gold Standard era
The outbreak of the First World War in 1914 marked the end of the classical gold standard in Russia and in most other participating countries. The need to finance military expenditures by printing unsecured credit notes led to the rejection of the free exchange of paper money for gold and their rapid depreciation.
After a brief return to the gold standard in the 1920s, most countries finally abandoned it during the Great Depression of the 1930s. The last country to abolish the gold standard was the United States in 1971.
The Gold standard today
In modern Russia, as in most countries of the world, there is no official binding of the national currency to gold. In accordance with the Law «On the Central Bank» of July 10, 2002, the ratio between the ruble and gold or other precious metals is not established.
However, the idea of returning to the gold standard or other forms of providing the ruble with gold in order to strengthen the national currency and reduce dependence on the US dollar is periodically discussed in the expert community and government circles.
Advantages and disadvantages of the gold standard
The main advantage of the gold standard is ensuring price stability and the almost complete absence of inflation. At the same time, it has serious drawbacks:
The instability of the gold price, depending on market conditions and difficult to predict factors (new deposits, mining technologies).
Limited opportunities to increase the money supply in accordance with the needs of a growing economy due to the need to maintain its supply of gold.
The difficulty of conducting an independent monetary policy in the context of crises and economic shocks.
Restrictions on lending to the economy and making international payments.
The gold standard has played an important role in the history of monetary circulation in Russia and other countries, but in modern conditions its return seems unlikely and impractical due to a number of fundamental limitations. Nevertheless, gold remains an important component of international reserves and a tool for diversifying savings for both governments and private investors.
