THE NATIONALIZATION OF THE RUBLE
This is a translation from Russian of an article by Nikolay Starikov, who addresses problems of Russia’s national economic development within the current global financial system. The article is not structured as logically as I usually prefer and the author’s suggestions require further analysis, but still it provides some fresh, out-of-the-box thinking, the main feature of which is the realization that the highly-promoted global financial system of our time prevents national economic development of entire countries.What is it? Why? What for? There are a lot of questions. Let us answer them one at a time.Why is it so vital to raise the issue of nationalization of the Russian monetary currency? To all appearance, it is already ours. But the point is that it is just that, an appearance. After World War II, bankers from the Anglo-Saxon world have created a very peculiar financial system, which contradicts any common sense. These days, we are witnessing its inevitable collapse. The essence of what Americans offered the world is very simple – since most of the gold stockpile “migrated” to the US after the war, the post-war economy was to be built on the basis of the dollar. This meant that only the dollar (and the British pound, but to a lesser degree) would be backed with gold while all other currencies of the world would have no gold content. They would be convertible into gold through their exchange rates to the dollars and pounds. So dollars would now serve as a scale to weigh currencies one with another. In order to make that happen, the entire world would have to accumulate dollars and pounds rather than gold. A particular country wound now be authorized to issue its national currency in proportion to the dollars and pound in its reserves. In a similar way, paper money would previously be backed with gold reserves, but as of 1944 the US and the UK displaces gold with their own currencies.
The dollar and the pound became key currencies (or global reserve currencies according to the modern terminology). What was the result? All other currencies became secondary at once. But the main outcome of the Bretton Woods arrangements was the ability to clone the American financial system throughout the world. The private Federal Reserve System monopolized the issue of US dollars in 1914. Now, since 1944, the right to print money in other countries was shifted from the government into the hands of private central banks. On the surface, the bankers’ logic was flawless. Since there would be little or no gold sitting in countries’ reserves, it would be easy to prevent any swindling in the form of an unsecured money supply. While gold, which is easy to count but hard to move around, ends up sitting in a “basement”, currency reserves can be stored on a correspondent account in a bank. Is there a better way of making sure that Norwegian krones or Mexican pesos are secured with dollars? Who would be the controller? Neither Norway nor Mexico can be objective in this matter. There is a need for independent bankers. In fact, quasi-independent is a better word since, while being independent from Norway and Mexico, their central banks are part of a system that controls the whole world. In other words, the US and Great Britain placed their people in each country in order to control adherence to international financial agreements. A central bank independent from a national government has thus become a norm, which had never been the case before. There would always be a state treasury with money being issued by the government rather than some quasi-independent entity. Thus, the pillars of the current financial system have been placed, and it is that same system, whose agony we are witnessing right now. The functional agents of the system are the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD).
Any IMF member-country must ensure an instant exchange of all the national currency for the dollars and pounds from its reserves. This rule must be observed at any time. Otherwise, you will not be admitted into the IMF. You will not be counted among the “civilized” nations. It is important to remember that.
This is how the system works:
• Russia sells some commodity on the global market;
• $100 enters the country;
• The central bank buys these dollars at the currency exchange;
• These dollars enter the central bank’s reserves;
• RUB 3,000 enters the Russian economy.
The parity is thus observed. What if the price of that commodity climbs up? Russia now receives $110 instead of $100. The parity is disrupted, and the central bank needs to correct the situation. It lowers the dollar exchange rate, buys dollars cheaper and injects into the domestic economy a smaller amount of rubles per each incoming dollar. Quite the opposite occurs when the price of the commodity drops down – the central bank ends up raising the dollar exchange rate. In any case, there exists a strict correlation between the money supply inside Russia and the dollar supply coming from outside. Thus, we are quite vulnerable. We are not fully independent. In today’s world, a very ridiculous financial system is in operation. Several countries in the West are printing colorful pictures on pieces of paper considered money, which are used to purchase real goods while the rest of world collects them. So who is going to prosper in this case? The answer is obvious. And this situation is considered normal. Those who print money have the face to teach democracy and economics to those who work for that money. And there is another aspect to it – countries are obliged to live within their means. Russia, for example, spends what it has earned. Should needs increase (e.g. pensions have risen, new military equipment has been purchased, construction projects for the Sochi Olympics have been started), then new sources of funding must be identified. The country ends up entering international markets and earning additional dollars to print more rubles in order to pay out pensions or settle accounts with factories for completed orders. Without more dollars, the country cannot print more national currency.
In other words, countries of the world have to live within their means while the US and countries printing reserve currencies can afford living within their needs. Should a need arise to pay out pensions, build factories, assist “young democracies”, they simply print more money. To be exact, they borrow that money in exchange for their treasury bills, but that does not make any difference because no-one in the US is thinking about cutting their spending on wars, benefits and grants. On the contrary, the spending keeps growing to match the actual needs. The ever-expanding US national debt in the US is a perfect illustration – it is around $13 trillion. It was less than $10 trillion two years ago. How long can this madness continue? Ask yourself this question. How long would you be able to continue spending beyond your means? But Russia is obliged to be strict in preserving the parity and live within its means. The Russian central bank will be watching very closely. So is the Russian central bank a governmental agency or not? Partially, it is. Just as much as the Russian leadership is partially free in their actions. As the central bank lowers the refinancing rate today, it continues guarding the dollar parity. Ideally for the system, the central bank must not be state-owned, but in reality the authorities have it under their control. It is noteworthy that the authorities have given up the idea of “nationalizing” the central bank. So there is some kind of equilibrium – the central bank is “obedient” as long as there are no attempts to make it a full-fledged governmental office. But it is time to move on because a country that ties its money supply with external markets and some other country’s currency leaves its economy bound hand and foot. We are obliged to sell our commodities and accept dollars in order to simply have rubles in our own economy. That is why countries of the world line up for access to US markets even though it may entail dumping practices and forcing local populations to live from hand to mouth.
We are robbed twice. First, we are robbed when we sell our products on THEIR markets for THEIR prices. With the printing press at their disposal, the bankers control the money supply. By means of futures, they are capable of inflating or deflating prices on any commodity. Second, we are robbed when we, having received THEIR currency, are obliged to enter THEIR markets and purchase for THEIR prices what we need. On markets you cannot control, you tend to be robbed twice. It is akin to a peasant from a countryside, who is prevented from selling his potatoes himself and ends up selling his produce to a middleman for nothing but peanuts. Then he goes to another middleman and buys something paying the full price for it. You might ask why we have agreed to such a system. Why do we sell on such a market? Because there is no other market in the world. It is the only one, and those are its rules. We have “consented” to them after the collapse of the Soviet Union by joining the IMF and signing its enslaving agreements. Do you remember the monetary shortage at the time of Mr. Gaidar’s reforms? The reason for it was in the fact that the country could not print its national currency because it had no foreign currency. Think of the news we were hearing back then – the IMF approved a loan of several million dollars for Russia. That meant there would be money to pay pensions and liquidate public sector salary arrears. While IMF’s loans are in dollars, pensions are paid in rubles. What is the correlation between the incoming dollars and the domestically circulating rubles? Now you know. And all this constant talk of inflation in case more rubles are printed is nothing but a smoke screen for the system that sucks blood out of Russia and the entire world. As for the currency board (which requires a national currency to have a fixed exchange rate with a foreign currency), there is another destructive aspect.
Preservation of backwardness.For example, Russia has sold its commodity to the amount of $100 on the global market. This allows us to print RUB 3,000 to construct a new pen factory. Let us pretend that the construction cost is exactly RUB 3,000. While the construction period is 3 years, there is an urgent need for pens now. What is Russia forced to do? It ends up buying pens from abroad for 3 years spending $30 a year. As a result, instead of $100, we are left with only $10. The construction period will have to be extended because we will have to be buying pens in subsequent years otherwise we will have nothing to write with. So this is how the process of modernization gets dragged out forever and ever. But that is us – they do not have such a problem. The USA and Great Britain recently joined by Europe can simply print necessary amounts for R&D, new technologies, or anything else. They are under no obligation to “save” their dollars or pounds – they can use their computers to come up with as much money as they need.
Under the current global market system, Russia is doomed to lag behind. Thus, we cannot be possible be content with such a system. As much as a soccer team, into whose goal a referee keeps awarding penalty kicks, cannot be content with him. Such a referee should be dismissed from the game. Similarly, it is time to change the global economic system. The time has come. There was a reason for the question posed above about how long one can continue spending beyond one’s means. How long will you be able to take out loans in exchange of your IOU’s? Sooner or later, the borrowing will have to come to an end. The same is true for the world economy. Both the US and other so-called “developed” countries live in this vicious system – they simply print more money when it becomes necessary. They are not in any way better than Greece. They are all bankrupt. The US, for example, is responsible for the largest debt ever while carrying the burden of a global superpower. So the United in its current form (economy-, politics- and probably territory-wise) is bound to disappear – it is only a matter of time. The collapse of the vicious system of printing money “out of thin air” is eminent and predetermined by the system itself corrupting entire nations and continents by turning them into consumption machines financed by debt. The US and their satellites are eminently bound to grow weak and get off the stage. There is no point in forecasting exact dates in this regard – instead, we should look into what is going to happen after that. As we all know, nature does not tolerate vacuum. The same can be applied to the field of finance. In order to prevent a major global economic breakdown stemming from the collapse of the dollar system, alternatives must be considered.
Things can only develop in three possible ways:
1. All countries may want the dollar status for their currencies. There will arise several reserve currencies with chaos and wars as a result of their rivalry.
2. Only one country may replace the dollar with its currency. For that country, it will entail a quick rise to prosperity and high living standards followed by a quick decline.
3. No currency may be able to attain the dollar status. This is the most acceptable variant, which implies that all countries on this planet will be living within their means.
Russia must set the example for that third variant, which is the most acceptable for the entire planet, whose resources are on the brink of being depleted as a result of this mindless consumption race occurring in countries capable of printing reserve currencies. The golden standard will be of no avail either. Trust in gold is not that different from the trust in the dollar. Besides, both the dollar and the global stock of gold are currently in the same hands.
What must we do?We must nationalize the ruble. What does it mean? It means that we must separate the internal markets from the external ones. Today’s ruble is not entirely ours since the set of factors that conditions the ruble emission is not under our control. Think again about the example of the pen factory and the lack of funds to finish its construction since most of the funds ends up being allocated on purchasing pens from abroad. Let us do the same math again, but in new conditions. Given that the supply of rubles is no longer tied to the amount of the Russian Central Bank’s dollar reserves, the solution is obvious and simple: the dollars will buy pens from abroad, while the rubles will finance construction of facilities for manufacturing such pens domestically. In this exact way, China has separated its internal markets from external ones, and the results of such a policy are pretty evident – the Chinese are able to manufacture goods and sell them abroad. Even though they sell their products cheap, they still have means to finance further development. Why are they able to sell their products cheap? Do they not have bills to pay? Yes, they do, but domestic prices in China are meager. That is why the Chinese work for a pay that no American will be willing to work for. Should domestic prices in China rise to the world market level, the Chinese economy will be done for. This explains why the West keeps on insisting that China should allow the yuan to appreciate thus making it more expensive as compared to the dollar. As the yuan goes up, so will salaries, wages and prices in dollars.
Thus, the first step for Russia is secession from the IMF and others similar institutions designed to keep the entire world in bondage. The dollar noose must be cut. Now the amount of printed rubles will not be determined by how many dollars we have but by the actual needs of our economy. How can we calculate that? In exactly the same way as the United States calculates the amount of dollars needed for its economy. Just as the European Union does the same. The best justification would be that from now on Russia issues rubles based on the value (in rubles) of all natural resources explored on its territory. It is quite amusing that subsequent steps are no rocket science; they are dictated by common sense itself. Since we are breaking down the disadvantageous system, we have absolutely no need in the central bank in its current form, but we do need a financial regular. Under any regime, it was the Treasury that performed this function. Let it remain the same now regardless of the official name. It may continue to be called the Central Bank. If the essence is changed, there is no need in changing plaques.
The second step will be the nationalization of the central bank and amendment of laws regulating its functions and performance. Now the central bank will be responsible for the money in circulation and the stability of the national currency. The second step must occur simultaneously with the first one. Next comes the third one.
The third step will be to trade Russian goods for rubles only. Do you want to buy our oil or gas? Be my guest, here is a Russian currency exchange for you! No compulsion, no coercion, but pure and simple market economy. Go ahead and change your dollars for our rubles.
Let me provide several explanations. This “revolution” must be carried out when the US is the weakest, but prior to the actual collapse. What will be the reaction from the international community? Laughter and ridicule, most likely. They will not be eager to buy for rubles. But we can wait. One may refuse to buy French cheese for 150 years and bring France’s cheese-making industry to its utter ruin. But as for Russian oil and gas, one can do without them for not more than a month or even less. They have nowhere to go – they will have to comply sooner or later. That is when the ruble will become a currency backed with real assets. And those shooting for the dollar’s fame and honor would be in quite a fix since there had already appeared a real rather than virtual currency. Who would be interested in a new currency backed by nothing? Now let me calm down the troubled minds of the most suspicious – I do not mean another iron curtain. Nobody would be closing down currency exchange booths. If you need dollars, go ahead and buy them in Russia for Russian rubles. But you are not going to need them soon. Why? Is there anybody in Europe, who buys dollars when leaving the EU or keeps his or her savings in them? No, there is not. They take their euros and travel with them. Should the need arise, they can exchange them for local currencies of whatever countries they visit: the US, Russia, Egypt, etc. Only the most eccentric Germans will think of opening a dollar bank account in Germany. In exactly the same way, the need for foreign currencies inside Russia would come to naught and we would start travelling with our rubles in our pockets while the rest of the world would be willing to accept and exchange them because our rubles would buy them our natural resources and goods. For the ruble, this is exactly the path to full convertibility, which we have been talking about for so long but have been unable to achieve. And it is not going to until Russia starts trading with the rest of the world for rubles.
In other words, the nationalization of the ruble is the fastest and simplest way towards its full convertibility and strengthening. But we must understand that the nationalization of the ruble is only a vehicle rather than a destination. What does Russia need? A technological breakthrough. This will require purchasing technologies. Why does everybody sell those for dollars only? Because it is for dollars that one can buy real assets throughout the world. As soon as we start selling real assets rather than virtual ones, there will appear demand for our currency and the ruble will appreciate. Other countries will start stockpiling rubles just like they stockpile dollars to purchase US treasury bills. The ruble cost of technologies will be less, and that makes purchasing them much easier. And what is the most important is that we will be the ones to print rubles in quantities we will find necessary. This is what will provide the funding for the long-awaited technological breakthroughs, domestic R&D projects, and purchasing specialists from abroad. The technological modernization of Russia is impossible without attracting industrialists from the West. There was not a single time in our history that we carried out a modernization without any assistance from the West. Peter the Great used to invite foreigners. As a result of Stalin’s talks with the US, it was foreign specialists that used to work on most major industrialization projects under initial 5-year plans according to foreign designs until our own science was able to bring about domestic breakthroughs. So what is it that can encourage western technologies to come to Russia?
China attracts them with cheap labor. Do we have anything to offer? Only cheap natural resources. In the current situation, due to the dollar connection we end up raising prices for domestic consumers up to worldwide levels, while exactly the opposite must be occurring. Sounds paradoxical, doesn’t it? Who officially owns the deposits of natural resources in the Russian soil? The Russian people do. So the oil deposited deep below belongs to the entire society. But if some oil company extracts that oil and delivers it to the surface, the company miraculously ends up owning that oil and pays all possible taxes on it. And that is where the core of the problem gets lost entirely. The owner – the Russian people represented by the elected government – gets paid only a portion for its property. The contrary must be occurring. The provisions of our Constitution must be filled with substance again – it is the government that should be hiring an oil company as a contractor to extract the oil rather than allow the company to simply pay taxes on the oil, which miraculously changes its public status. When all the extracted oil in Russia becomes state-owned, the government will have full control in determining its domestic price. While the external price (in rubles) depends on the world market, the domestic price can be WHATEVER as long as extraction and processing costs are covered. As for profits, the government can easily go without them for a while. And all this will attract western industrialists to build factories here in Russia. Why will it be profitable to them to work in Russia? In fact, it will be profitable to anybody who will own or be willing to build an industrial enterprise in Russia regardless of their citizenship.
Simply because the domestic price on energy resources (oil, gas, etc.) for industrial enterprises must be significantly lower than the world market. The owner is entitled to selling his/her commodity at any price. Nobody can take away that right from him/her. But only one common owner in the form of the government can do that. This is how the Chinese government was able to provide cheap labor. This is the fourth step out of the mess that we are in now. Cheap energy, cheap raw materials, and cheap fuel are our competitive advantages, which are not being implemented because we are stuck in the current financial system, and we should get out of it as soon as possible. What I am suggesting here is not a ready-to-use program, but a set of theses, each one requiring further detailed analysis. But, if challenged by anyone anywhere, I am ready to defend each one of them as well as the need for development in the above-mentioned direction. I am convinced that these actions are right, but we can only talk of a general direction at this point. In spite of that, we must understand that actions aimed at pulling Russia out of the crisis can be of worldwide significance for further development of mankind currently entangled in the financial cobweb. Let us summarize the sequence of actions, remembering that they will work only if their entirety and order are preserved.
The nationalization of the ruble is the path to Russia’s prosperity.The nationalization of the ruble is the decoupling of the ruble from world reserve currencies. Our national currency must become fully independent and cease to be a reflection of the foreign financial system.
• Step 1 is to secede from the IMF and others similar institutions designed to keep the entire world in bondage
• Step 2 is to nationalize of the central bank and amend of the laws regulating its functions and performance.
• Step 3 is to trade Russian goods for rubles only.
• Step 4 is to significantly reduce prices on Russia natural resources for all those who will be developing industrial production inside Russia. The way to accomplish this is to comply with the Constitution of the Russian Federation, which states that the interior of the Russian soil belongs to the Russian people, i.e. the Russian Government.
Just as the theater of the absurd is hardly conducive to staging a classical play, the current financial setting is hardly conducive to the wholesome development of our country. And we should not be afraid to correct the errors of the past. The ruble is waiting to be nationalized…
The original article in Russian can be found at http://nstarikov.livejournal.com/141088.html
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