Are currency reserves really money?

Money was invented to represent a store of value. It’s easier to exchange cowrie shells, tobacco or gold than it is to barter, say, cows for property.

Nowadays, currency reserves are computer notations. If countries can’t use their reserves to buy stuff, what’s the point of having them?…

**If Russian Currency Reserves Aren’t Really Money, the World Is in for a Shock**
**Sanctions have shown that currency reserves accumulated by central banks can be taken away. With China taking note, this may reshape geopolitics, economic management and even the international role of the U.S. dollar.**
**by Jon Sindreu, The Wall Street Journal, 3/3/2022**

**After Moscow attacked Ukraine last week, the U.S. and its allies shut off the Russian central bank’s access to most of its $630 billion of foreign reserves. Weaponizing the monetary system against a Group-of-20 country will have lasting repercussions....**

**Barring gold, these assets [foreign currency reserves] are someone else’s liability — someone who can just decide they are worth nothing. ...**

**The entire artifice of “money“ as a universal store of value risks being eroded by the banning of key exports to Russia and boycotts of the kind corporations like Apple and Nike announced this week. If currency balances were to become worthless computer entries and didn’t guarantee buying essential stuff, Moscow would be rational to stop accumulating them and stockpile physical wealth in oil barrels, rather than sell them to the West. At the very least, more of Russia’s money will likely shift into gold and Chinese assets. ...** [end quote]

China holds over $1 Trillion in U.S. Treasury assets. I’m sure they are watching to see what happens with Russia. The Chinese are probably wondering what would happen if the U.S. froze their Treasuries. If this causes China to buy fewer Treasuries, interest rates will rise.

There are several disadvantages to owning physical gold. The one advantage to holding gold is that it is real and tangible. Its value can’t be canceled by an enemy’s unilateral decision.



Another benefit to gold: very dense store of value.

$630B in gold is a cube 7.8 meters per side.

$630B in money, in $100 notes, at $2.4M per briefcase, is roughly 16 meters per side, roughly 8X the volume.

It’s apparent that Russia doesn’t hold physical dollars in their vaults. (even if they could, how do you spend, as a nation, large sums of paper bills?). The question is, where would Russia hold its gold? I know that many foreign countries hold “their” gold at Fed Reserve vaults.

We are trying to avoid WW3 by not directly fighting the Russians. I fully understand this. But this is still a very risky war for the world and for the USA.

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Ok, found an answer to some of my own questions:…

Weaponizing the monetary system against a Group-of-20 country will have lasting repercussions…

For the last 20 years, Putin has played the rest of the world in order for Russia to gain entrance into the international institutions and be viewed as a “world power” once again.

The price of admission to the international institutions is that you have to be willing to live in a “rules based” global order. By attacking a peaceful, sovereign nation who posed no threat whatsoever to Russia, Putin has made it clear that he rejects the “rules”.

He (and by extension Russia) is therefore being expelled from the global financial system.

By invading Ukraine, Putin made “long-lasting repercussions” inevitable. He is to blame. It is his fault. The “long-lasting repercussions” are his and his alone. It is a terrible and dangerous moment in human history and I hope “our side” does not misstep. However, even if they do, it is still the fault of Putin for setting the awful cascade of events in motion.


If countries can’t use their reserves to buy stuff, what’s the point of having them?

Countries (150+ of them) CAN use their reserves to buy stuff, or as backing to buy stuff.
Countries (5 or 10 of them) that invade neighbors may not be able to use their reserves.