So Russia has been building nondollar payments systems with regional trading partners and China.
The U.S. uses its influence at SWIFT, the central nervous system of global money transfer message traffic, to cut off nations it considers to be threats.
From a financial perspective, this is like cutting off oxygen to a patient in the intensive care unit. Russia understands its vulnerability to U.S. domination and wants to reduce that vulnerability.
But Russia has created an alternative to SWIFT.
The head of Russia’s central bank, Elvira Nabiullina, reported to Vladimir Putin that “There was the threat of being shut out of SWIFT. We updated our transaction system, and if anything happens, all SWIFT-format operations will continue to work. We created an analogous system.”
Another Russian strategy to bypass sanctions has been to stockpile gold.
You Can’t Hack Gold
Perhaps Russia’s most aggressive weapon in its war on dollars is gold. The first line of defense is to acquire physical gold, which cannot be frozen out of the international payments system or hacked.
With gold, you can always pay another country just by putting the gold on an airplane and shipping it to the counterparty. This is the 21st-century equivalent of how J.P. Morgan settled payments in gold by ship or railroad in the early 20th century.
Russia’s reserve position has hit a new all-time high of $640 billion, of which $140 billion (22%) is in physical gold bullion held inside Russia. We’ll see how Biden’s digital sanctions would do against Russia’s physical gold. Once again, you can’t hack gold.
So will Russia invade? As I said earlier, I’m skeptical that Putin will invade. It seems he can get much of what he wants just with the threat to invade.
Still, the arguments for invasion are well reasoned, and it’s still a legitimate possibility. You might want to stock up on gold yourself just in case.
- Source, The Daily Reckoning via James Rickards
