Cooking the Books 1 – Russian gold

‘The Bank of Russia has resumed gold purchases this week, but more importantly, the regulator is doing so at a fixed price of 5,000 rubles ($59) per 1 gram between March 28 and June 30, raising the possibility of Russia returning to the gold standard for the first time in over a century,’ RT reported on 2 April (

This led to speculation that, in a further bid to get round Western sanctions, Russia’s next move might be to require all its exports be paid in roubles that would in effect link their price to the price of gold. This would not be a return to the gold standard that existed up until 1914 but would be more like what the US did up until 1971 when it agreed to buy gold at $35 an ounce. This was part of the ‘gold exchange’ system where other currencies had a fixed rate of exchange with the dollar and so were linked to gold that way.

The US decision to end this in 1971 led to the present era of floating exchange rates where rates go up and down depending on the demand for a particular currency to pay for imports or to invest abroad. In practice the dollar remained the main, but by no means the only, ‘reserve currency’ as the currency in which central banks held money for their country’s international transactions.

The West’s decision to deny the Bank of Russia access to its dollar reserves may be more significant than anything Russia might do. It will be a signal to other countries that holding dollars is not as safe as they assumed and may lead them to find alternatives, even to rely more on gold. It could be the beginning of another change in the international payments system.

The previous regime in Russia – the one that came to power in November 1917 with the Bolshevik coup d’état – also toyed with the idea of a gold rouble. Trotsky, who considered himself the leader, albeit in exile, of a within-the-system opposition to the Stalin government, was an advocate of this. In an article published in English in 1935 entitled ‘If America Should Go Communist’ (, he affirmed his belief that a gold-based currency was best:

‘Your “radical” professors are dead wrong in their devotion to “managed money”. It is an academic idea that could easily wreck your entire system of distribution and production. That is the great lesson to be derived from the Soviet Union, where bitter necessity has been converted into official virtue in the monetary realm. There the lack of a stable gold ruble is one of the main causes of our many economic troubles and catastrophes.’

Trotsky mistakenly believed that Russia, even under Stalin, was in a transition from capitalism to socialism and that, during the transition, money was needed, ideally linked to gold. He was, however, aware that socialism would be a moneyless society, but that was only for the dim and distant future:

‘Only when socialism succeeds in substituting administrative control for money will it be possible to abandon a stable gold currency. Then money will become ordinary paper slips, like trolley or theater tickets. As socialism advances, these slips will also disappear, and control over individual consumption – whether by money or administration – will no longer be necessary when there is more than enough of everything for everybody!’

What he failed to realise was that the very existence, due to ‘bitter necessity,’ for money in the Russian economy showed that it was still a capitalist economy. It wasn’t in a transition to socialism. If anything, the state capitalism that existed there in his time was a transition to the more classic type of capitalism that existed in the West, and which largely came into being when the old USSR collapsed in 1991.

Next article: Bird’s Eye View ⮞

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