Gold is replacing the dollar

Aug 3, 2023·Alasdair Macleod

Financial developments in the Russian and Chinese axis are being generally ignored. The confirmation by Russia that a trade settlement currency for an expanded BRICS is on the agenda at the Johannesburg summit later this month has barely been reported, and even sound money advocates are highly sceptical.

But all will be revealed in three weeks’ time. Meanwhile, this article looks at how gold standards could return in the wake of a new gold-backed trade settlement currency, if that is what emerges, using the currency board model as a template. 

This is followed by an explanation of why gold reserves must cover the bank note issue. I assess the cover afforded to both the rouble and the renminbi, incorporating assumed levels of non-reserve gold bullion held by both Russia and China. The conclusion is that both nations have ample cover to implement proper gold standards. And that gives the opportunity for other allied nations to implement currency boards with the renminbi.

The availability of above ground gold stocks to support a global retreat from fiat currencies back to the stability of legal money — gold — is then addressed. The conclusion is that with bullion having migrated in vast quantities from the west to the east in recent decades, there is a deficit for the fiat-committed western alliance and nations in its sphere of influence to back their own currencies. 

A gold standard is similar to tried and tested currency boards…

All the vibes coming out of the Russian and Chinese axis strongly point to a new gold-linked trade settlement currency being proposed at the BRICS summit in Johannesburg later this month. Until the details are revealed, we won’t know what this proposal actually is, whether it will fly, whether it will be simply imposed on BRICS members, or if they will have a say about its introduction and if so its form. All we can deduce is that Russia is leading this project and as an educated guess it will incorporate work by Sergei Glazyev.

What we do know is that the majority of the world measured by population and GDP (on a PPP basis) is becoming confident enough to throw off the yoke of American imperialism, and with it will go the hegemonic power of the fiat dollar. And remaining tied to the dollar, it would appear that the days of western fiat currencies are similarly numbered. 

In the western alliance, economists and investors alike will have to re-educate themselves about how the relationship between gold and credit works, and what is required to ensure that the link between them endures. Our politicians will have to wean themselves off from their habitual promises to give everyone everything. They will have to stop believing that they know how to deliver outcomes better than free markets. Social legislation must be rescinded, regulations annulled, and responsibility for the actions of individuals handed back to them.

The position of Russia, China, the members associates and dialog partners of the Shanghai Cooperation Organisation, and BRICS+ is far stronger. None of them are burdened with the social and socialist responsibilities of the so-called advanced nations. They are in a position to operate currency boards to secure the value of their credit systems. But instead of a currency board attached to the dollar, it must be attached directly or indirectly to gold. A gold standard can be regarded as a type of currency board — indeed, it was its forerunner. 

According to the IMF, 

“A currency board combines three elements: an exchange rate that is fixed to an anchor currency, automatic convertibility (that is the right to exchange domestic currency at this fixed rate whenever desired), and a long-term commitment to the system, which is often set out directly in the central bank law. The main reason for countries to contemplate a currency board is to pursue a visible anti-inflationary policy.”[i]

It was the way in which colonial Britain ensured that a colony’s currency was firmly tied to sterling. I remember from my youth in Kenya that the Kenya shilling was exactly the same as a British shilling at twenty to the pound. That rate held until independence in 1963. Today, there are 181 KES to the pound, and the pound has also lost 99% of its purchasing power since 1971 measured in gold. 

The IMF article goes on to say,

“A currency board system can be credible only if the central bank holds sufficient official foreign exchange reserves to at least cover the entire narrow money supply. In this way financial markets and the public at large can be assured that every domestic currency bill is backed by an equivalent amount of foreign exchange in the official coffers. Demand for a “currency board currency” will therefore be higher than for currencies without a guarantee because holders know that rain or shine the liquid money can be easily converted into a major foreign currency in the event of a testing of the system. Currency boards’ architects contend that automatic stabilisers will prevent any major outflows of foreign currency. The mechanism works with changes in money supply within the currency board country — a contraction in the case of a flight into the anchor currency — which will lead to interest rate changes that in turn will induce investors to move funds [back into the currency board currency].”[ii]

The operation of a monetary authority becomes strictly limited to controlling the currency issue, swapping the domestic currency for the anchor currency on demand. It must be prohibited from funding government spending, the government operating its banking facilities with commercial banks instead. Banking supervision must be devolved to a separate agency to ensure that the issuance of domestic currency does not get bound up in responsibilities as lender of last resort.

The classic gold standard operates differently in some respects. In common with a currency board system, the currency issuing facility is separated from banking responsibilities, but gold backing need not be 100%. Sir Isaac Newton came up with a minimum 40% formula. And under the 1844 Bank Charter Act, the Bank of England’s issuing department had to back every additional bank note in circulation with gold, exchangeable for bank notes in sovereign coins.

The charts below show how a stable measure of narrow money, such as bank notes in issue, relates to price stability, while broader measures of credit are free to respond to commercial demand without leading to runaway inflation.

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These charts covered the six decades following the introduction of Britain’s 1844 Bank Charter Act, which had the effect of severely limiting the note issue, while permitting commercial bank credit to expand as commerce demanded. While the latter expanded nearly eight times, prices (the lower chart) were remarkably stable, particularly as the savings ratio rose from the 1880s onwards. Clearly, for a gold standard to work, it is the note issue to which credit values are anchored.

Critics of currency boards and gold standards say that they are too inflexible, which is, of course, the point. But without the encumbrance of welfare commitments, it is relatively simple for a government to ensure it never runs a budget deficit. For many emerging economies today, the weakness of their currencies has been due to mismanagement, lack of international credibility, and misguided monetary policies. 

There has also been an evolutionary issue for many African nations. They had made enormous economic and social progress under colonial rule. Understandably, they then sought self-determination which undid many of the advances made in the decades before. Furthermore, many African politicians flirted with communism, only being kept in America’s sphere of influence by foreign aid — which too often fed political corruption. Having suffered from combinations of corruption and mismanagement, they are now offered a better alternative of investment in their infrastructure by China, frequently on the basis of local partnerships.

This is the basis of BRICS+: a new industrial revolution for emerging nations willing to join in. Cementing these prospects will not be Keynesian stimulation. It will be sound money, which means credible gold standards. And a gold-backed trade settlement currency will be the first step.

A gold-backed trade settlement currency offers energy and commodity exporters a better alternative payment medium to dollars. This is one motivation for Russia to devise and back it, supported no doubt by the Saudis and Iranians. It is not popular with India, which has pursued similar monetary policies to Britain. Indeed, relationships between the Reserve Bank of India and the Bank of England have been close historically. But India is likely to be told the payment terms for her energy imports — perhaps sweetened with a discount offered — which means she will have to go along with it.

The second step will involve major currencies within the BRICS block migrating onto gold standards, most likely starting with Russia and then China. The initial move to a gold-backed trade currency is likely to undermine the dollar’s purchasing power, leading to higher oil and gas prices, particularly as depleted reserves need replenishing ahead of the Northern Hemisphere’s winter months. Oil has already risen 18% since end-June, and further price rises will take pressure off Russia’s deteriorating finances. And as the dollar sinks further, a gold standard can be introduced as protection for the rouble, leading to lower, stable interest rates for the domestic economy.

We know this is an objective for the rouble from comments by Sergei Glazyev, President Putin’s senior economic adviser, echoed by Putin himself. Furthermore, a sliding dollar is likely to take down other currencies with it so both the rouble and renminbi are likely to seek protection through gold.

Russia’s gold

Officially, Russia has monetary gold reserves of 2,302 tonnes. But in addition, there are unknown quantities of gold held in the State Fund of Russia and the State Fund for Precious Metals. Anecdotally, these two funds are said to contain an extra 10,000 tonnes between them, bringing Russian state holdings to over 12,000 tonnes. Whatever the true figure is, it is possible that Russia has more gold to monetise than the US Government’s 8,133 tonnes, which is unaudited and rumoured to be wildly overstated.

In an article for the Moscow newspaper Vedomosti last December Sergei Glazyev wrote that,

“Large gold reserves allow Russia to pursue foreign financial policies and minimise dependence on external lenders. The amount of gold reserves affects the country’s reputation, credit rating, and investment attractiveness. Large reserves allow you to plan the state budget for a long time buying off many economic and political risks.”

Glazyev is known to hold similar views to Putin, which presumably is why he was seconded to head up the Eurasian Economic Union committee, which is considering a replacement for the US dollar for trade and commodity pricing. And the practicalities of that situation strongly point to gold being the backing for trade settlements. Glazyev is also the mover and shaker behind the beefed-up Moscow gold exchange. And Russian gold mine output at 325 tonnes is planned to be enhanced and was second only to China’s 375 tonnes last year. 

If we assume that altogether the Russian state can monetise just 10,000 tonnes of its gold, then its gold reserves cover M0 (which we take as proxy for the note issue) four times over, and mine output currently adds a further 11% cover annually. Russia has much to gain from putting the rouble onto a gold standard, which can be easily maintained. The monetary authorities would only have to refocus policy to exercise greater control over M0, which in the year to May was destructively inflated by 24%. 


China’s gold

China took its first deliberate step towards eventual domination of the physical gold market as long ago as June 1983, when regulations on the control of gold and silver were passed by the State Council and gold was in the early stages of a protracted bear market. The following Articles selected from the English translation set out the objectives very clearly:


Article 1. These Regulations are formulated to strengthen control over gold and silver, to guarantee the State's gold and silver requirements for its economic development and to outlaw gold and silver smuggling and speculation and profiteering activities.

 Article 3. The State shall pursue a policy of unified control, monopoly purchase and distribution of gold and silver. The total income and expenditure of gold and silver of State organs, the armed forces, organizations, schools, State enterprises, institutions, and collective urban and rural economic organizations (hereinafter referred to as domestic units) shall be incorporated into the State plan for the receipt and expenditure of gold and silver.

Article 4. The People's Bank of China shall be the State organ responsible for the control of gold and silver in the People's Republic of China.

Importantly, under Article 3 the PBoC is able to allocate gold purchases to other state entities, such as the Peoples’ Liberation Army and the Communist Party Youth Wing, only retaining a small balance for reserve asset purposes. Otherwise, accumulating large quantities of bullion would have been made difficult without this secrecy. Additionally, China has deliberately developed her own gold mine output so that she became the largest producer in the world, mining 6,869 tonnes since 2002. State-owned refineries process this gold along with doré imported from elsewhere.

The regulations quoted above formalise the State’s monopoly over all gold and silver, which is exercised through the Peoples Bank. They allow for the free importation of gold and silver but keep exports under very tight control. On the basis of these regulations and as subsequently amended the PBoC established the Shanghai Gold Exchange in 2002, which remains under its total control and permits the general public to acquire gold. The intent behind the regulations is not to establish or permit the free trade of gold and silver, but to control these commodities in the interest of the state, even when in the possession of members of the public.

This being the case, the growth of Chinese gold imports recorded as deliveries to the public since 2002 is only the most recent evidence of a deliberate act of policy embarked upon forty years ago. China had been accumulating gold for nineteen years before she allowed her own nationals to buy any when private ownership was finally permitted. Furthermore, bullion had been freely available, because in seventeen of those years, gold was in a severe bear market fuelled by a combination of supply from central bank disposals, leasing, scrap, rapidly increasing mine production and investor selling, all of which I estimate totalled about 76,000 tonnes in all. The massive expansion of derivative gold products freed up the supply of physical bullion as well. I assess that as much as 25,000 tonnes of that 76,000 total were quietly accumulated by the PBoC before the public were permitted by the PBoC to buy and own gold in 2002.

Put in another context, the cost of China’s 25,000 tonnes of gold equates to roughly 10% of her exports over the period. And the eighties and early nineties in particular also saw huge capital inflows when multinational corporations were building factories in China, all of which accumulated as foreign exchange in the PBoC’s hands. However, the figure for China’s gold accumulation is at best informed speculation, but given the determination expressed in the 1983 regulations and subsequent events it is clear she had deliberately accumulated a significant undeclared stockpile by 2002, allocated into various state entities. 

So far, China’s long-term plans for the acquisition of gold appear to have achieved some important objectives. Deliveries to the public through the SGE since only 2008 have totalled over 22,000 tonnes, gross of returned scrap, probably exceeding 23,000 tonnes since 2002. 

Assuming that China’s monetary authorities have 25,000 tonnes of gold available which they can monetise, its M0 money supply would be covered about 1.5 times at current gold prices.

Why now is the time for rouble and renminbi gold standards

Evidenced from a number of disparate threads, there can be little doubt that China and Russia are moving towards protecting their currencies and their entire joint project for global industrialisation of emerging economies from an increasingly likely collapse of the post-Bretton Woods fiat currency system. In this context, it started with China’s secret accumulation of gold bullion dating back to 1983, which continued after the establishment of the Shanghai Gold Exchange in 2002. If the PBoC had accumulated 20,000—25,000 tonnes by then, the total could easily exceed 30,000 tonnes today.

Russia came late to this policy, only accelerating its plans to acquire monetary gold following the western alliance’s sanctions. Nevertheless, both nations appear to be in a position to cover their narrow money supply measures comfortably. And from empirical evidence, with suitable reforms it is the narrow measure of money in the form of bank notes issued by the monetary authority which matters in this respect. And as if to confirm an even wider adoption of gold standards, it is usually Asian central banks reporting the accumulation of higher gold reserves.

The other side of gold standards for China and Russia is an accelerated destruction of the US dollar’s purchasing power. This is a course upon which the US dollar is set anyway with its debt trap increasingly visible. But it is China and Russia’s different economic objectives which lead many observers to believe that gold standards are unlikely, with China seeking to protect the value of her export markets by not undermining the major fiat currencies.

Doubtless, this latter point was raised by Janet Yellen at her recent meetings in Beijing, followed by Henry Kissinger. Yellen’s meetings occurred in the days after Russia confirmed that a new gold-backed trade settlement currency is on the BRICS summit agenda later this month. We can reasonably assume that the danger of this move to the dollar’s standing set alarm bells ringing at the US Treasury. Presumably, Yellen was unable to move the Chinese, which was why Henry Kissinger was sent in a last-ditch attempt.

But China’s focus is increasingly on protecting her investments in Asia, Africa, and Latin America. She is aware of the damage that rising dollar interest rates inflicts on these emerging nations. So are the emerging nations, a fact which undoubtedly encourages them to seek protection by joining BRICS. 

Only this week, we find that cash-strapped Argentina has secured from China the equivalent of $1.5 billion in yuan to pay to the IMF as part of a $2.5 billion obligation. China probably believes that America plans to use rising interest rates to drive a wedge between her and emerging nations minded to join BRICS. Argentina needed rescuing from this fate. The Argentinian loan was probably too big for the New Development Bank (the BRICS equivalent of the IMF) but the NDB stands ready to finance the smaller African nations in debt to the IMF.

America has used the trade threat continually since President Trump first introduced discriminatory trade tariffs against China. In the wake of sanctions against Russia, analysts in Beijing are probably concluding that America would lose more than she would gain by implementing trade threats. And as a possible geopolitical dividend, a disunited EU might not follow suit, splitting the western alliance. Therefore, not only will China have changed her trade policy objectives, but for her, hastening the dollar’s demise by reintroducing gold into the monetary system is now the preferred goal.

Global gold distribution

China’s gold policies since 1983 have introduced distortions into the global distribution of gold bullion holdings. By locking up significant quantities of bullion, liquidity available for nations outside the China-Russian axis has become severely limited. To illustrate the point, the table below attempts to identify broad categories of ownership based on an extrapolation of an assessment of above ground stocks carried out by James Turk of Goldmoney with economist Juan Casteñada in 2012, using US Geographical Survey numbers for subsequent years. That work convincingly pointed out that there was no support for the estimates adopted by the World Gold Council, which compared with Goldmoney’s estimate overstated above-ground stocks by about 17,000 tonnes. Accordingly, I believe that in 2022 the total figure is now 191,584 tonnes, not the 208,874 tonnes assumed by the WGC. This difference is material.

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The following notes to the table are by way of explanation:

  • Goldmoney’s estimate of above ground stocks, compared with that of the WGC illustrates the impact on the bottom line, which in this table would otherwise show a balance unaccounted for at 68,535 tonnes. This balance includes undeclared state holdings of gold by Russia and China, which as we have seen could exceed 40,000 tonnes, leaving little room for private investors holding bars and coin.
  • Jewellery is mostly owned by Chinese, Indian, and other Asian nationals, who traditionally use it as a savings medium as much as ornamentation. This explains the size of this category.
  • The Central Bank official reserves are collated by the World Gold Council, as are estimates for gold-backed ETFs. We can assume these figures as reported are accurate, but include double counting.
  • Double ownership of gold through leases and swaps was the subject of detailed research by analyst Frank Veneroso presented to a conference in Lima in 2002.[iii] He concluded that between 10,000—15,000 tonnes of central bank gold was leased or swapped. I have assumed the lower figure, despite the material increase in central bank gold reserves since 2002. This is supported by further analysis which follows.

The last bullet point needs further explanation. Under the IMF’s gold accounting rules, 

“Monetary gold is gold held by a monetary authority principally as an element of its foreign exchange reserves (also sometimes called international reserves). To qualify as monetary gold, the gold must meet the International Monetary Fund’s (IMF’s) definition of monetary gold and the monetary authority must designate the gold as part of its foreign reserve portfolio. Monetary gold includes allocated gold bullion and unallocated gold accounts with non-residents that give title to claim the delivery of gold.”[iv]

An unallocated account arises when a central bank delivers gold under a lease or swap arrangement to a bullion bank, or an institution such as the Bank for International Settlements in return for a deposit credit. The bullion bank takes the bullion onto its own balance sheet, so the central bank loses possession. That the IMF permits a central bank to record this credit as monetary gold despite having given away possession means that there are at least two owners for a given quantity of bullion. And that assumes only one rehypothecation, when there can be no theoretical limit to the use of bullion for a chain of transactions in this fashion.

It seems reasonable to assume that unallocated monetary gold is concentrated on the central banks not aligned with the Asian hegemons and firmly in the western alliance camp. The notional total of the latter groups’ holdings is about 26,000 tonnes, depending on which nations are included in the definition, in which case only 16,000 tonnes can be assumed to exist in physical form. Confirmation of this situation came, perhaps, from the difficulty with which Germany sought to repatriate some of her bullion which was meant to be held as earmarked gold (in custody) at the New York Fed.

The major players arranging this merry-go-round are the NY Fed and the Bank of England, which between them currently report physical gold vaulted for foreign central banks totalling 10,874 tonnes. From websites for the major non-Asian holders (Germany, France, Italy, and Switzerland) we know that 5,066 tonnes of this total are for these major holders, except for France, which stores almost all its gold in Paris. Between them, they store 5,271 tonnes of their gold in their own jurisdictions. That leaves 5,808 tonnes held at the NY Fed and the BoE held for the other central banks notionally allied to the West, which is the vast majority of their recorded holdings.

After allowing for the 5,271 tonnes above stored elsewhere, there is still an approximate 10,000-tonne gap between the 26,000 tonnes derived above and the 10,874 tonnes recorded in New York and London. This suggests that there are significant levels of unallocated gold involved, calculated as follows: 

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While the calculations in the table above are far from complete, there appears to be a significant gap between total claimed bullion holdings and what is stored in the two main centres. 

In the first table, we noted that 46,898 tonnes of global above-ground gold were unaccounted for. That includes the undeclared bullion holdings of China and Russia, which from the analysis in this article could total over 40,000 tonnes. Private investment holdings in bar and coin will also be in this unexplained balance. The only way in which these two large quantities can be accommodated in the 46,898 balance is due to the double counting and multiple rehypothecations of central bank gold.

 Otherwise, the numbers don’t add up.

This leaves very little liquidity for nations trying to escape the impending collapse of the post-Bretton Woods fiat currency regime by seeking to implement their own gold standards. It also calls into question the survivability of the entire bullion banking system, being caught horribly short of deliverable bullion if the market attempts to unwind its positions.


Not only are there clear advantages to the Russian and Chinese axis from supporting a new trade settlement and commodity purchasing gold-backed currency, but the rapidity of its introduction could take the world by surprise. There is now little doubt that the fiat currency regime based on the dollar has run its course, leaving multiple debt traps to be sprung in the western alliance and an outlook of stagflation or worse. 

In other articles for Goldmoney, I have covered the various aspects of an existential crises facing the world’s fiat currency regime. These range from government debt traps, and the bank credit cycle turning down, to the ability of the major central banks to rescue failing commercial banks, given they themselves are in negative equity. The gross values of many derivatives should also be recorded on bank balance sheets, to properly reflect counterparty risks.

To these problems can be added a collapse of the entire bullion trading system, revolving around swaps and leases and frequent rehypothecations of bullion. When the music stops, the extent of the problem which has grown since the early 1980s will become known. The end of the fiat currency system, no doubt accelerated by a move to incorporate gold back into the Russian and Chinese financial systems is likely to be the trigger.

At the very least, if China and Russia’s grand project is to proceed, the renminbi and rouble must be protected from a fiat currency crisis. This is the moment for which the Chinese have been preparing since 1983, and the Russians more recently sparked by western sanctions. They at least have sufficient bullion available to cover their narrow money supply with ample margins and are the two largest nations by goldmine output. A move towards gold backing of other currencies is likely to prove more difficult, because of the shortage of monetary gold due to the double counting of reserves through leasing and swaps. The only solution for many of the BRICS attendees in Johannesburg later this month will be to piggy-back on China’s yuan though a currency board relationship. The rest of the world faces the grim prospect of being ensnared in a widespread fiat currency collapse with no visible escape.

[i] Are currency boards a cure for all monetary problems? IMF Quarterly December 1998, Volume 35, Number 4.

[ii] ibid

[iii] See

[iv] See IMF Note 6 — Monetary gold