Russia's Gold-for-Food Plan Nails It: Analysis
***Golden Specifics: Breaking out the details
Some form of this plan will succeed. They did their homework. The West should negotiate the peace if they want what is good for everyone
Good morning: A couple days ago Russia announced publicly their intention to use Gold as a payment solution in international commodity trade. They intend to start with Grains, a food mainstay.
This post is a breakdown and summary of that announcement in total. But first here are the pertinent and all important details about how they intend to facilitate Gold in this way.
Contents: (2200 words)
BRICS Gold and the 3 Definitions of Money (Refresher)
**Golden Specifics: Breaking out the details (Pros start here)
Russian Proposal Analysis: The whole article summarized
1- BRICS Gold Satisfies All 3 Definitions of Money Now
There are 3 definitions of money. Money can be a
Store of Value
Medium of Exchange
Unit of Accountancy
Money does not have to be all three at the same time to be considered money. The Russian solution however, ambitiously proposes Gold be *all* three. And to our eyes, while there are many vulnerabilities and many risks seen and hidden, they are at least approaching the problems/risks correctly. They want to succeed. Here is how Russia and the BRICS define Gold as money
Store of Value (SOV)
We all know that is what Gold has been forever. Despite being demoted officially in favor of the USD, it remains the store of value it has always been. This plan uses Gold as a reserve asset. Reserve Assets are Stores of Value.
Medium of Exchange (MOE)
The USD and Fiat in general along with their accompanying market structures put in place by the G7 made it extremely impracticable to use Gold as a medium of exchange (aka Settlement Medium). This is on top of the fact that Gold is bulky and has a physical presence not transferrable electronically with high degree of certainty the collaterol is actually there. Full explanation of MOE economics in Gold’s MOE Problem and this section of Pozsar’s Gold-mageddon writeup.
Blockchain enables Gold to compete as an MOE again. Gold is now both physically real, and a digital abstraction. The difference between trading gold electronically and Gold held on a blockchain is collateral verification. If it works, NFTs will serve as contracts and security measures for physical gold verification. IF IT WORKS.
There is considerable risk here. But it is extremely important to note: The risk is overcome by trust. The tech is merely a tool to make trust a little easier. There is centralization risk here. How they mitigate that is key.