Bullion Bulletin: Our currency but your problem

Control of money is inextricably linked with the exercise of power. Nowhere better illustrates this than Russia’s attempt to enforce on the citizens of the occupied Ukrainian city of Kherson the use of the Rouble, displacing Ukraine’s currency, the Hryvnia. Russia has blitzed the city with missiles. Kherson has been under military Russian occupation since early March. The Russian-backed ‘authorities’ in Kherson are now insisting that only Russian currency is legal tender. Russia is fighting this war on several fronts, including the financial – it is demanding that countries deemed to be ‘hostile’ pay for its exported gas in Roubles.

Control of money and what can be used as money is synonymous with the power of government, reinforced if necessary by punishment. If the ‘hostile’ gas importing countries refuse to pay in Roubles, Russia has threatened to cut off their supply. In Kherson people have come out on the streets against the removal of Ukrainian flags, the re-routing of Internet access through Russian-annexed Crimea, that schoolteachers must adopt the Russian curriculum, the currency diktat and other symbolic demonstrations of Russian authority. But such protests have dried up after people have been arrested, abducted, tortured and otherwise harmed. Enforcing a switch of money has its brutal side.

The US Dollar has for many years been seen as a place of safety, thanks largely to US economic hegemony and trust in US judicial institutions; recently the Dollar has reached its highest levels since 2002 and has gained nearly 9% against a basket of currencies since Russia invaded Ukraine. It is still seen by many investors, governments and individuals as the world’s reserve currency.

But the Dollar’s position as top dog is increasingly being questioned. The International Monetary Fund (IMF) points out that a strong Dollar is piling pressure on low-income countries, with about 60% of them at risk of debt distress. A former US Treasury Secretary, John Connally, said in the 1970s the dollar is ‘our currency, but it’s your problem’. That’s still true today.

Attempts to bypass the Dollar’s dominance and achieve monetary ‘independence’ need not be as crass as what Russia is trying. The creation of Bitcoin was seen (at least in part) as a means of dispensing with the Dollar, of trying to avoid it being ‘your problem’. But even cryptocurrencies are not impervious to questions of confidence. Cryptocurrency fans had a nasty jolt last week. More than $200 billion was wiped from the entire crypto market in a day. The spark for the collapse was the tanking of a Stablecoin, TerraUSD, which was supposed to mirror the value of the Dollar. But it slid to less than 30 cents on Wednesday last week.

There are growing signs that we could be on the verge of a bear market. The S&P 500 is on the edge of moving into bear market territory, which is usually held to be a drop of 20% or more from its last peak. By Thursday last week, the index was down about 18% from its 3 January peak. The Nasdaq Composite is well into bear market territory, down 29% from its November high. The last serious bear market started on 11 October 2007; two years later stock markets were down by around 35%; the gold price was up by 40%.

In a bear market, there is generally a ‘dash for cash’ – liquidity becomes more important. Gold tends to do well. With Glint you have gold in an ultra-liquid form, gold that can be used as money. At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.