Not all that glitters is gold…
We use the term «gold», of course, allegorically, without implying that the state should start issuing gold coins into circulation. In our understanding, a «gold» is a stable and freely traded ruble, and that’s all.
THE HISTORY OF THE GOLDEN RUBLE
The gold standard, and with it the linking of the Russian ruble to precious metals, is an urgent topic today.
The modern Russian ruble, as we know, is not tied to gold, i.e. there is no guarantee of providing the money supply with real assets. According to calculations from open sources, the country’s reserve in precious metals, in all its scales, can barely cover 5% of the convertible currency.
This is not least related to the opinion that the ruble will not become gold again and a return to the gold standard is a priori unattainable. The reason is obvious: the current financial picture is beneficial to a certain circle of people who benefit from the current floating exchange rate.
Linking the Russian ruble to the precious metal, in our opinion, does not make sense. However, we are not talking about the real relationship between money and gold, but only about its formal mention. We do not propose to issue only money backed by real assets again, no! But a formal (verbal) relationship could, as we believe, solve several problems.
- First of all, we are talking about the status of the national monetary currency. It cannot be excluded that the name of the national currency of a particular state may partly influence the formation of a trusting attitude towards it from other countries. Therefore, linking the ruble to gold, albeit formally, may well cope with such a task. It is no coincidence that the first gold coins were used only in foreign trade transactions. Secondly, in the phrase «golden Russian ruble» there is an indication of the historical past of the monetary unit. We do not see anything wrong with this, on the contrary, we think that no parent will mind if his student child learns a little more about the historical past of his country. Although, perhaps, for some young parents, this information will turn out to be news.
reference
For those who want to broaden their horizons or refresh their memory of already known information, we have prepared a short review. Have fun reading!
TERMS AND DEFINITIONS
The golden ruble is a metallic monetary unit of the Russian Empire, introduced into circulation in 1897.
The gold standard is the provision of paper money with real assets.
Before the First World War, the ruble was provided with gold due to the operation of the so-called gold standard in the country. As a rule, the security was maintained at a level of at least 90%, any deviation from the standard was unacceptable. However, due to extreme necessity, it still took place. A striking example is 1905 (the Russian—Japanese War), when the depletion of the gold reserve forced the government to print 150 million unsecured rubles. Before that, the Russian Empire had a bimetallic monetary system, i.e. silver and gold were stored equally in the royal treasury. But the paper ruble was more strongly tied to silver.
WHEN WAS THAT
Starting in 1843, gold imperials and semi-imperials were used in Russia along with silver metal money and paper credit cards. Initially, they had the status of a special currency for foreign trade. Only after the monetary reform of 1895-1897, initiated by Sergei Witte, the Minister of Finance of that time (1892-1903), gold was introduced into domestic circulation in the country. As a result of the reform, the gold ruble was declared the main monetary unit, which corresponded to 1.5 credit rubles. Gold coins in denominations of 5 and 10 rubles and credit cards were put into circulation, which could be freely exchanged for gold.
ABOUT GOLD COINS
Soviet chervonets of the 900th sample appeared in 1922, which allowed to stabilize the ruble exchange rate. The content of pure gold in one chervonets is 7,74234 g.
At different periods of history, most often in a crisis, it was necessary to temporarily withdraw precious metal coins from circulation. Subsequently, gold coins had to be completely abandoned for several reasons:
1) high—grade gold coins, having increased softness, lost their original appearance very quickly (and this is not surprising, because people actively bit them to check the authenticity of coins — so dents and scratches appeared on the surface of the coins);
2) the rapid growth of trade turnover could no longer be ensured by minting coins in the required volume;
3) the coins weighed a lot, which caused inconvenience during transportation, so they decided to store the gold in the treasury and paper money became a kind of certificates for it.
HOW LONG DID THE ERA OF THE GOLD STANDARD LAST
With the outbreak of the First World War, the exchange of credit notes for gold stopped, and they turned into paper (unsecured by real assets) money. Exorbitant military expenditures forced the tsarist government to issue huge masses of depreciating banknotes, monetary surrogates appeared, and hyperinflation began.
After the abolition of the standard in the USA (1971), almost all countries abandoned the currency peg to gold.
The official ratio between the ruble and gold or other precious metals is not established (in accordance with the Law of the Russian Federation dated July 10, 2002 «On the Central Bank»).
THE PROS AND CONS OF THE GOLD STANDARD
One of the main advantages of the gold standard is the almost complete absence of inflation, which means that providing the ruble with gold could significantly strengthen it. Therefore, options for reducing dependence on the dollar are being discussed in government circles.
Disadvantages:
1) gold has no fixed value, its value is determined by the availability of supply and demand, and it is quite difficult to predict the true reserves of gold in the earth’s crust and the cost of mining methods that may be discovered in the future;
2) the constant need to accumulate money supply requires a correlative growth of the gold fund, which is also possible only up to certain limits;
3) in case of crises, it becomes necessary to issue an unsupported currency volume;
4) the complexity of internal macroeconomic transformations;
5) limited lending to individuals and legal entities;
6) problems in making international payments.
