Even the Bundesbank is giving the usual sign of desperation about gold

By Ambrose Evans-Pritchard
Daily Telegraph, London
October 10, 2003

a href=http://www.money.telegraph.co.uk/money/main.jhtml?http://www.money.teleg...
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ixfrontcity.html

BRUSSELS -- Russia is to start pricing its huge oil and gas
exports in euros instead of dollars as part of a stragetic
shift to forge closer ties with the European Union.

The Russian central bank has been amassing euros since
early 2002, increasing the euro share of its $65 billion
(40 billion) foreign reserves from 10 percent to more than
25 percent, according to the finance ministry.

The move has set off a chain reaction in the private sector,
leading to a four-fold increase in euro deposits in Russian
banks this year and sending Russian citizens scrambling
to change their stashes of greenbacks into euro notes.

German officials said Chancellor Gerhard Schroder secured
agreement for the change-over on oil pricing from Vladimir
Putin, the prime minister, while on a trip to Russia this week.

The two leaders have forged a close personal bond and are
both keen to check American economic and diplomatic power.

Mr. Putin was coy about German media reports on the deal
yesterday but acknowledged that Russia was exploring the
idea. quot;We do not rule out that it is possible. That would be
interesting for our European partners,quot; he said.

A switch to euro invoicing would not affect the long-term price
of oil but it could encourage Middle Eastern exporters to follow
suit and have a powerful effect on market psychology at a
time when the dollar is already under intense pressure. Russia
boasts the world's biggest natural gas reserves and is the
No. 2 oil exporter after Saudi Arabia.

Yesterday the dollar recovered slightly against the yen and
euro, but the International Monetary Fund and the European
Central Bank both warn that America's ballooning current
account deficit, now over 5 percent of gross domestic
product, will lead to further declines.

Oil is seen as so central to the global power structure that
the choice of currency used for pricing has acquired almost
totemic significance. The switch from pounds to dollars
after the Second World War has come to symbolise
sterling's demise as a world reserve currency.

If the dollar were ever displaced by the euro, it would lose
the enormous freedom it now enjoys in running
macro-economic policy. Washington would also forfeit the
privilege of exchanging dollar notes for imports, worth an
estimated 0.5 percent of GDP.

Maxim Shein, from BrokerKreditService in Moscow, said
the switch to euros makes sense for Russia since it
supplies half of Europe's energy needs. But the move is
also part of a global realignment stemming from the Iraq
war, which threw Russia, Germany, and France together
into a new Triple Entente.

quot;Abandoning the dollar is tantamount to a curtsey to the
EU,quot; he said. For now, IMF figures show the dollar remains
king, accounting for 68 percent of foreign reserves worldwide
compared with 13 percent for the euro.

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