Backing the ruble with gold

The Soviet government, for example, openly admits it faces serious economic problems that it will not be able to solve on its own. “We need your help” is the message that clearly comes through from Soviet officials both in the USSR and from Soviet delegations visiting here in Canada.

Mining companies could play an important role in that attempt to resurrect the Soviet economy. Obtaining reliable information from the USSR has always been a problem, but there is little doubt that the geological resources are there. What is lacking is the expertise to exploit those resources, the equipment required to do so at competitive costs and the infrastructure of goods and services that we take for granted in Canada.

But even if Canadian entrepreneurs can help overcome all those obstacles — and there’s no doubt they could, given a mineral deposit with sufficient appeal to warrant the effort — there is another, more fundamental hurdle facing any business venture in the Soviet Union. That is the political reality of a currency that has no value beyond the Soviet Union’s boundaries.

If one makes an investment in the USSR, and if it proves to be profitable, is there any guarantee those profits can be expatriated? And if the profit is in rubles, it becomes virtually worthless outside of the Soviet Union. “You may as well stick it in your ear,” says Keith Steeves, a senior vice-president at Teck Corp. and one of the businessmen who accompanied Prime Minister Brian Mulroney to Moscow in late November.

So the ultimate goal for the USSR, if it wants to attract foreign investment, is a hard currency, one that can be easily converted into other hard currencies such as the U.S. dollar. The Japanese yen faced the same problem after the Second World War. Today the yen is accepted everywhere. A similar transformation has to occur with the ruble.

There is one way to add instant credibility to the Soviet currency — simply back the ruble with gold. Economists may snicker, but the gold standard would be recognized and accepted by anyone who wished to do business with the Soviet Union. In fact, if the ruble were backed by gold, it might prove to be the benchmark currency against which all others would be measured.

If the USSR has insufficient inventories of gold to effect such a drastic monetary change, Canadian companies would certainly be able to help increase those inventories provided there was a chance to get a sufficient return on investment.

If the ruble did become a gold-backed currency, it would have tremendous repercussions on gold miners around the world. Not only would it put pressure on other governments to back their currencies with gold, it would take a great deal of gold out of circulation, thereby driving up the price.

It may seem farfetched today, but the pace of change in Eastern Europe and the USSR is astounding. A year ago how many would have predicted that the Berlin Wall would cease to be a barrier between East and West Germany? In light of the changes now taking place, the concept of a gold-backed Soviet currency has considerable appeal.

]]>