Russia’s Gold Buying Spree and its Effect on the US Dollar

There is a sense of might that is often associated with Russia, a sense of rootedness, of ancient presence. This is due to the fact that Russia was, for a long time, one of the largest and most powerful empires in the world. However, as of late, this stereotype of Russian might and firmness has begun to slip. This is due to the fact that it lost, quite decisively, during the middle of the 20th century to its only major cultural competitor: The United States of America.

In the 21st century, America, thanks to its success in wars and its victory in the space race, has become the world’s major cultural exporter. Much has come of this development, not the least being the rise of the US dollar as the world’s major currency. Conversely, Russia, after the fall of the Soviet Union, has seen a steady decline in its currency. The Ruble was once a major contender in the world of foreign exchange, but these days it doesn’t seem to hold much weight. Russia has attempted to bolster its currency by purchasing dollar assets, however, a recent move by Russia seems to indicate an end to this trend.

Russia, seemingly inspired by a similar move performed by China recently, has begun selling of dollar assets and inflating its gold reserves. The gold buying reached an amount equivalent to over six billion dollars, the largest purchase made by the Russian government since the dissolving of the Soviet Union. This seems to be an attempt on Russia’s part to destabilize the American dollar, thereby ending its reign of supremacy and creating a vacuum that Russia can attempt to fill using its Ruble. The selling of dollar assets in favor of gold assets seems to be becoming an increasingly common trend among America’s economic competitors.

Russia’s purchase was so large that it accounted for a third of the world’s total spending on gold. The resulting impact on the American dollar has been, predictably, not too healthy for the currency. A marked decline in the value of the dollar was noticeable almost immediately after Russia finished purchasing the gold. Conversely, the price of gold seemed to rise, further inflating the value of Russia’s gold reserves.

The sudden influx of dollar sold by Russia into the foreign exchange market has resulted in economic shockwaves spreading out throughout several countries. These countries, particularly powerful Middle Eastern countries such as Jordan, Saudi Arabia, the UAE and Qatar, all possess currencies that are pegged to the US dollar. The marked decline in the value of these currencies due to the faith these countries have placed in the dollar might result in them shifting to a more stable currency, perhaps the Chinese Yuan or maybe even the Russian Ruble. With the rise of the Indian Rupee as a strong currency as well as the stability enjoyed by the Eurozone and British Pound, the dollar’s decline looks to be inevitable.