(John Laughland for RIA Novosti) - There used to be a habit of framing
old Tsarist bonds and putting them on the wall. Lenin's decision to
renege on the Russian imperial debt meant that it became mere paper,
interesting only as a historical relic. In the light of the recent
financial crisis in the USA, could the same thing happen now to the
bonds issued by the American government, and could the country which
has dominated the world for the last half century now enter history as
a bankrupt state? And what can Russia do in the circumstances?
The decision by the US government to inject $700 billion into the
financial system means that the already gigantic annual budget deficit
of the American state (previously some $450 billion a year) will now
rise by a factor of three. The total state debt of the USA will rise to
well over $11 trillion. It is obvious that such a colossal debt can
never be repaid. Instead, it will be serviced by more debt in the
future. The contrast with Russia, which has painstakingly sanitised its
state finances to the point that it now has more money to lend than the
IMF, could hardly be greater.
The recent financial crisis itself grew out of this American culture
of debt. To some extent, all countries share it: since 1914, all
countries use paper currencies, i.e. debt instruments which are never
redeemed. Whereas before the First World War, bank notes were
essentially vouchers for specific amounts of gold cash, now the
"promise to pay the bearer" (which remains inscribed on British bank
notes) is in fact hollow.
In America, this basic culture of debt is aggravated by the fact
that other countries use the dollar itself as a reserve. This means
that the United States can export dollars in order to pay for its
imports without the dollar losing value. Other states also need dollars
to buy key commodities like oil. The USA can therefore export paper
currency almost indefinitely - the famous "deficit without tears"
analysed by the great French economist, Jacques Rueff. Naturally, if
the state itself encourages such a culture of debt by issuing
unredeemable paper currency to pay for imports, and by accumulating
such mountains of debt, then it is no surprise if the American
financial markets themselves operate on the same basis. But the
collapse of those markets is only a symptom of a much deeper problem,
the basic insolvency of the American state itself.
What can Russia do about this? At first sight, Russia's role in the
international financial system does not seem very large. However, as a
major exporter of hydrocarbons, her role in the world economy is
actually very important. As the age of the dollar draws to a close,
Russia will have to consider selling her oil and gas not in the
devalued American currency, but instead in the euro used by most of her
customers. It is surely unnatural for two geographical neighbours to do
such large volumes of business using the currency of a distant and now
ailing nation.
Second, the Russian leaders might also consider making their own
currency, the rouble, convertible into gold. The idea of gold
convertible currencies is extremely unpopular among most economists:
they dismiss gold as a "barbarous relic" (to use the famous phrase of
John Maynard Keynes) and suggest either the present regime of paper
currencies or, at best, a link to a basket of commodities.
Both these solutions are highly artificial and based on the same level
of state control which has now just so spectacularly failed. Indeed,
which is more "barbarous" - the reintroduction of gold as an instrument
of payment, or the practice of amassing huge quantities of the precious
metal to keep it locked underground in the vaults of central banks?
The contempt of the Keynesians notwithstanding, it is an indisputable
fact that gold does remain the ultimate store of value, which is
precisely why states own so much of it.
Russia has less to fear than other countries from the introduction
of a currency convertible into gold. Governments are typically hostile
to gold because it reduces their discretionary power over the currency
and the economy: they say that the money supply cannot be made
dependent on the production of gold mines. In reality, this argument is
bogus because the amount of mined gold already in existence vastly
exceeds the yearly production, so mining does not in fact have an
appreciable impact on supply. But, as it happens, Russia is a major
producer of gold anyway and therefore to some extent controls
production.
Secondly, Russia is vulnerable to her status as an exporter of
primary materials - and as an exporter generally - especially in the
age of inflation which is about to dawn. The more the Russian economy
exports, the more her national paper currency will rise, making those
exports more expensive. This is bad for an export-oriented economy. By
contrast, the value of a gold rouble would depend not on the trade
balance of the Russian economy at all, but instead simply on the price
of gold itself which generally remains stable with relation to other
commodities.
Russia has shown surprising success in putting an end to the
unipolar world of which American strategists have dreamed now for over
a decade. There are no permanent victories in diplomacy, however, but a
shift in the structure of the world financial system would help to
entrench recent gains.
John Laughland is a British historian and political analyst, and
Director of Studies at the Institute of Democracy and Cooperation in
Paris
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
