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Out of the past – How western sanctions policy is reviving ancient systems of trade

  • Samuel Geddes Samuel Geddes
  • Source: Al Mayadeen English
  • 16 Mar 2023 00:06
  • 3 Shares
5 Min Read

In the face of the west's economic war on both Moscow and Tehran, the old Volga-Caspian trade has found new life.

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  • Out of the past – How western sanctions policy is reviving ancient systems of trade
    The emergence of a new gold-backed currency would be the first precedent for the development of other currencies backed by particular natural resources

Sanctions incentivise the Global South to issue commodity-backed currencies, decouple from the west

With the northern winter over and Europe having dodged industrial collapse, at least until next year, the western business press seems only now to be realising the double-sided effects of the sanctions intended to cripple Russia over its war on Ukraine. 

While the intensity of the sanctions regime has reiterated the all-pervasive power of the US dollar, it has also demonstrated to the world the inherent risk of storing its sovereign wealth in US-denominated assets. The speed with which half of Russia's pre-war treasury of $600 billion was stolen by the US-led financial system shows that even the wealth of a G20 nation is not safe should it run afoul of Washington's foreign policy. 

Moscow, having been expelled from the western-controlled international financial system, plugged the first monthly deficit of this year, at around USD$24 billion with part of the remaining half of its strategic cash reserve, much of which is in the form of the oldest and least traceable form of wealth, gold.

Rather than relying on another electronic messaging system to facilitate its trade, which Moscow has now done in conjunction with Iran, Russia can pay for foreign goods and services and receive payment for its own in gold. Because of its density in value, huge sums of money can be shipped both discretely and relatively easily. 

That the US and its EU-G7 satellites have already sanctioned imports of Russian gold is a given. It does however, demonstrate a widening gap between the dollar's importance in global banking and finance, and its increasingly uncertain role in physical trade.  

A Persian coin backed by Russian gold

Russia, which is unofficially both the world's leading holder and producer of gold, has announced plans to introduce a gold-backed digital currency with Iran, referred to as the "Persian Gulf Token." According to Russian media, the currency will be trialled in the port of Astrakhan, on the north shore of the Caspian Sea. 

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It is worth noting that the exchange of raw materials and precious metals via the Caspian between north-eastern Europe and Western Asia constituted the original monetary system of the early Russian state. From roughly the 8th to 11th centuries, Viking trading posts along the Volga River exchanged everything from furs, amber, and slaves for the eastern Islamic-world's vast mineral deposits. The millions of silver dirhams uncovered as far afield as Sweden testify to the region's first monetary economy. 

In the face of the west's economic war on both Moscow and Tehran, the old Volga-Caspian trade has found new life. A gold-backed "Persian Gulf Token," whether digital or physical in nature would represent a surreal merging of hyper-modern technology with the most ancient store of value and age-old regional trade-patterns. 

A future of commodity-backed currencies?

The emergence of a new gold-backed currency would be the first precedent for the development of other currencies backed by particular natural resources. One could imagine the Arab and Persian Gulf-regions leveraging their still unrivalled oil and gas reserves as the basis for a new internationalised currency. 

Likewise, those nations rich in reserves of lithium, Bolivia, Chile, and Argentina, could monetize their reserves of what is already one of the most strategic minerals. The prospect would be especially tantalising for such states as the Democratic Republic of Congo. While among the very poorest and least developed of all countries, it sits on a mountain of untapped mineral wealth, at least USD$24 trillion by some estimates, including most of the global supply of cobalt. A single ingot of the mineral already fetches more than its weight in gold, or US fiat money.  

Such moves by leading commodity producers in the Global South would represent an epochal rebalancing of economic power in the world.

Due to both relatively small size and lack of natural wealth, the economies of Europe would find themselves at the very bottom of such an emergent economic order. 

The United States too likely considers such a strategy to be its greatest geopolitical threat. Ironically, this emerging strategy is largely of its own making, due to the outright weaponization of the dollar and its role in global finance from the early 2010s onwards. It remains highly unlikely that the dollar will be dethroned from its dominance of banking and finance, but the dollar's weaponization will increasingly lead to this becoming its niche rather than just one aspect of its global economic dominance. 

As it seemingly cedes the trade in physical commodities to states it considers its enemies, the west is creating an historical opportunity for the producers of the world's critical commodities, whether gold, oil or lithium, to assert their true economic power and independence. 

Time will tell whether this opportunity is seized or lost.

The views expressed in this article are solely those of the author and do not necessarily reflect Al Mayadeen’s editorial stance.
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Samuel Geddes

Samuel Geddes

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