Tuesday, January 23, 2018
Rusvesna — Russian Central Bank buys 100% of the gold mined in Russia
This not only adds to gold reserves but it also pumps rubles into the economy without "debt financing" or taxation to "balance the budget."
Fort Russ
Russian Central Bank buys 100% of the gold mined in Russia
Rusvesna - translated by Inessa Sinchougova
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12 comments:
Could just buy some Russian ICOs and save their backs...
Yes, but substituting gold as central bank reserves for saving in USD aids in de-dollarization. One could also say that the Central Bank of Russia expects gold to outperform the USD. But there is more to it that that.
It’s a subsidy to the gold mining industry. It might make some strategic sense (to prop up the value of a commodity you are a major priducer of), but it’s not a sustainable long-term strategy.
Still ends up as deposit balances in the banks... then on the left of the bank books reserve assets .... it’s bearish...
No “reserve drain”... it’s like QE.... without the reserve drain of the treasury bond issuance the banks have to Leverage these non-risk assets .. it’s not good...
The funds go from the cb through the commercial bank to the company, which uses the funds to pay expense, including the wage bill. Then the funds are spent on, creating a flow through the economy.
Funds created are always held in deposit accounts since all monetary transactions involve exchange of goods for money. That money is always saved either in bank accounts or cash. But that saving is largely temporary unless it is put in time accounts or invested financially in financial instruments that constitute portfolio saving.
Turn over determines the velocity of the flow of funds through an economy. It's the velocity of transactions that counts in the degree of economic stimulation of the flow. As long as quantity can be increased to met the increased demand, price remain stable.
Regardless of whether the government spends fiscally or the cb spends on real asset purchases like gold, non-government net financial assets increase.
Since real asset purchases by the cb don't show up on the Treasury's books, it's "overt money financing."
Does Elvira realize this, or does she just think that she is de-dollarizing by holding reserves in gold rather than USD?
It’s just the way depository/payments systems are done these days Tom... you have a govt CB and a network of depository institutions... it’s a standard set up... the problem is combining the credit function and depository function in THE SAME regulated entity... they should break those two functions out as we are no longer “lending out the deposits!” etc as per monetarism ...
She’s just doing what they all have been trained to do...
It depends on whether one favors government injection of net-financial assets or bank credit and net zero financial assets with the private sector expose to default risk.
One way to moderate financial risk under capitalism is to increase government contribution and decrease private lending.
The leverage ratio implies that as government increases, private sector lending is restricted by the ratio.
If government steps up with the funding needed to maintain effective demand at full employment, there is less risk than trying to make private credit carry the load.
Banks don't like this since it is not a profitable for them.
It works at cross purposes as they buy the gold from the mining firms and then that creates a nice deposit for the mining firm but then when the mining firm want to go in and get a loan to put another mill into operation the bank has tell them no as they are using the capital to cover the new deposit asset......
It’s self defeating... same thing as when govt runs surpluses look at Deutchebank going under meanwhile Germany has the big surpluses...
Why don't they just invest their retained earnings in new capital goods rather than borrow?
Investopedia:
Polyus Gold (PLZL.ME)
Polyus Gold operates five mines in Russia that produced nearly 2 million ounces of gold in 2016. It is the largest gold producer in Russia and in the top 10 globally, with probable and proven reserves of 64 million ounces. Its Olimpiada mine is the eighth largest gold mine in the world. With 23 percent of Russia's total gold output, Polyus dwarfs its closest competitor Polymetal International (POLY.ME), which produces just 11 percent.
In 2016, Polyus Gold reported revenue of $2.45 billion and profit of $1.44 billion, an increase of 44 percent over 2015. Polyus has a market cap of $17.34 billion, making it the 14th largest mining company in the world by market cap as of November 30, 2017.
The 4 Biggest Russian Mining Companies
I agree with you Tom, it is just disguised fiscal spending, fully employing the gold sector. A classical strategy, there are usually better ideas, but it's a good "for want of anything better" idea. The gold bubble has lasted thousands of years, so it is a decent replacement for dollars or other currency reserves. Another way that sanctions intended to harm + economics that gets everything backwards --> sanctions helping Russia. With enemies like these, who needs friends?
“Why don't they just invest their retained earnings in new capital goods rather than borrow?“
Firms may want to run more leveraged than that themselves... the board of the mining firm will designate operating Leverage Ratio to officers and directors to follow... firms are in business to make munnie.... this is what they train people to do in the business departments...
In 2016, Polyus Gold reported revenue of $2.45 billion and profit of $1.44 billion, an increase of 44 percent over 2015.
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