Russia moves away from the $ in earnest – The $ is getting vulnerable!

Ruble Gold and oil.

The Russian Trading System, Russia's premier stock market, announced Monday that it would start trading in gold, oil and oil products on June 8^th. 

The stock exchange also said it would start trading in futures and options on oil and oil derivatives, including Urals brand, diesel fuel, jet fuel and fuel oil. Trade will be in rubles based on prices calculated by the Platts agency.

The derivatives section of the RTS, known by its Russian acronym Forts, will trade futures and options on gold in rubles based on the London Stock Exchange evening fixing rate.

From the end of this week onwards the Ruble road will be a most interesting one. The importance of these moves is the fact that the Ruble is entering the global monetary system as a convertible currency. This has to cause a measure of attrition to the extent the U.S.$ is used. It will take some time before this is measurable, but it will be a steady process. Nations outside the U.S. are turning down these roads because of their diminishing confidence in the U.S.$.

Further switches from the $

In an extraordinary set of moves Russia has further confirmed our story of last week concerning the Stabilization fund. Could it be these switches that held the $ week over the last few weeks?

Sergei Ignatyev, chairman of the central bank, said 50% of Russia’s foreign exchange reserves are now held in the U.S.$, with 40% in the € and the remainder in the Pound Sterling, a mirror image of the Stabilization Fund. Previously it was believed that just 25-30% of the reserves were in the €, with virtually all the remainder in the U.S. $. The action could well prove to be the pathfinder for other nations intending to diversify from the U.S.$.

Russia’s central bank now boasts the world’s fourth-largest reserves, after China, Japan and South Korea, with its gold and forex holdings rising by 36% so far this year to $247bn.

Will Middle Eastern oil exporters follow suit now after leading us to believe they will? The most likely trio of these is the United Arab Emirates, Kuwait and Qatar.

It is certainly confirming a trend shift away from the U.S.$. Asian countries may well join the queue. 39% of Russia’s imports came from the Eurozone in 2005, against just 4% from the US.

The globe’s central banks together hold $4,250bn of reserves. Were these to move away from the dollar we will go to the brink of the worst foreign exchange situation the U.S.$ and for that matter any currency has ever seen since the last World War!

© 2006 Julian D. W. Phillips
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