Russia has been steadily growing its gold reserves in recent years, with the central bank seeking to ensure Russians that they had a fairly stable and valuable asset in times of potential economic crisis. Now, even as this reserve stock of gold steadily appreciates in value due to inflation, war, and commodity shortages, the big question remains whether Moscow will be able to really sell its reserves if needed.
Russia’s central bank has almost doubled its gold reserves since the mid-2000s, making Russia the world’s fifth-largest gold reserve after the United States, Germany, Italy and France. The total amount of Russia’s reserve amounts to $140 billion, and its function is to ensure that the country has a sufficient amount of stable and valuable assets no matter what occurs on the global stage.
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Now that the ruble has plummeted, and the Russian economy is in serious trouble as a result of sanctions over the war in Ukraine, the sale of precious metals currently poses very serious problems for Moscow. Due to sanctions, the institutions of the United States, the United Kingdom and the European Union will not be able to do business with the Russian central bank. Merchants and banks could buy Russian gold through indirect channels, but they would risk not only penalties but also serious damage to their reputation. In addition, U.S. senators are already prepared to impose secondary sanctions on anyone who buys Russian gold.
In other words, the special situation in Moscow is that although the Russian central bank bought huge amounts of gold in view of such crisis situations, if they cannot sell it to anyone during the difficult period, the size of the reserve becomes irrelevant if it is actually unusable, Fergal said. O’Connor is a lecturer at Cork University Business School.
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Some analysts say Moscow could try to sell some of its gold reserves to central banks in other more-friendly countries, such as India or China. In addition, all precious metals could be traded on the Shanghai Gold Exchange, but that would only mean a small amount, added Jeff Christian, CEO of CPM Group.
This is where the plan for a new sanction presented by U.S. senators becomes important. Indeed, if Washington punishes everyone who buys Russian gold, it could deter institutions in India and China from buying, and Beijing has a strong incentive to avoid conflict with the U.S. at the moment.