Moscow can find other places to sell bullion, Sergey Kopylov says
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As part of their unprecedented economic sanctions against Russia, the US and its allies announced last week they were moving to block financial transactions with Russia’s Central Bank (CBR) that involve gold, aiming to further restrict the country’s ability to use its international reserves. RT talked to Sergey Kopylov, a junior partner at consulting company BSC and a lead researcher at Plekhanov Russian University of Economics, to find out what it means and whether Western countries could really freeze Russian bullion holdings.
Sanctions mean that the sale or purchase of gold by Russia is prohibited in a number of countries, such as the US, UK, Switzerland, Europe, and others. In addition, they prohibit the circulation of gold bars produced in Russia starting from March 7, Kopylov said.
“Potentially other jurisdictions may also follow the same sanctions. However, to date, all the countries in the Middle East and Southeast Asia have refrained from supporting the sanctions regime. Thus, there are no obstacles to the sale of Russian gold in these regions, apart from the historical absence of such a practice,” he said.
The sanctions have deprived Russia of the opportunity to carry out transactions with its gold on most organized trading floors. However, the trading volume of the Shanghai market alone is 1,800-1,900 metric tons per year, which is comparable to the CBR’s volume of gold and forex reserves (2,299 tons) and far exceeds the annual production volume of 331 tons a year, according to 2020 data.
On the possibility of secondary sanctions on China and India, Kopylov pointed out that no such restrictions have been applied over their purchases of other goods yet. Moreover, these countries have repeatedly stated that they do not intend to impose any restrictions on trade with Russia themselves and will perceive the introduction of secondary sanctions extremely negatively, which will entail their retaliatory measures. “It is unlikely that gold will be different from other goods,” Kopylov said.
“I believe that the sanctions regime against Russia has failed, since these sanctions have been adopted only by Western countries (USA, Canada, Europe, Great Britain, Australia, New Zealand),” he said, noting that not all members of the British Commonwealth have supported the sanctions. “But, of course, sanctions in general are mutually painful,” he added, citing US President Joe Biden’s words that Europe has to pay the price.
Kopylov explained that third countries and their residents (including nations that have imposed sanctions) may be holders of Russian gold issued and marked before March 7. It is not possible to distinguish this gold from the gold in the CBR’s reserves, which was also all issued before this date. In addition, there is a technical possibility of changing the marking of newly produced gold. “In the Middle Ages, any gold that came to Persia had to be melted down and re-marked. This is an old and widespread practice. Thus, the country of origin of the gold can be replaced,” he said.
The researcher concluded that a ban on the purchase of Russian gold could lead to a redistribution of the market among the players, a fundamental change in supply chains, and the destruction of traditional trade ties. “At the same time, I do not expect that this redistribution will result in additional market turbulence. Russia may well increase the share of gold in its foreign exchange reserves, which, given the arrest of their part denominated in foreign currencies, would be appropriate,” Kopylov said.
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