Almost two years after the Ukraine crisis, Russia is still feeling the burn from Europe’s and the United States’ economic sanctions. The west blacklisted a number of Russian politicians, business executives, and companies focused in the financial, energy and defense industries as a response to Russia financing and arming separatists in eastern Ukraine.
During 2014, Russia struggled to maintain the value of its currency, the Ruble, and its efforts were not sufficient to stabilize the currency. The Ruble plummeted in value that year, and at the end of 2014, the Russian government made a critical decision that has reshaped its approach to rebuilding the economy; it stopped propping up the Ruble, and directed a significant amount of money toward building the country’s gold and foreign exchange reserves.
In 2015, the head of the Central Bank of Russia [CBR], Elvira Nabiullina, said that they plan to buy even more gold in future years, potentially bringing their reserves to over $500 billion. Russia’s pot of gold contained a measly $13 billion in 2000, and the country now has over $379 billion in gold bullion.
This action marks a major shift in Russia’s economic model. While holding the Ruble high was once a key aspect of Russia’s economic strategy, the value of the Ruble is no longer on the top of the country’s agenda. Russia is now focused on building a self-reliant economy that can prosper regardless of foreign sanctions, and gold is the foundation of this model.
The strategy seems to be working, but slowly and at large costs to the country’s economy. Oil prices remain low, which is one of Russia’s most crucial exports and is hindering the CBR’s attempts to move toward economic stability. Russia’s economics minister, Alexei Ulyukayev, summarized it best; “we are painfully moving toward a new model of economic development.”