Every kid in school has to learn about decimals in math and how to keep track of like values.
Such a little thing as the location of a decimal point has a big impact.
I am reminded of this because of the current crisis over Russia’s possible annexation of the Crimea.
Some hard money proponents are reporting that Russia is threatening to dump its dollar assets and demand payment for its oil in gold.
Now there are many factors that influence the price of gold. Russia is just today’s headline.
If Russia does what it threatens to do, would it have any impact?
That’s where the decimal point comes in.
All of its foreign exchange reserves total roughly $423 billion. Not all of these assets are dollars, but even assuming that they are, the foreign exchange market trades trillions of dollars every day. That little decimal point difference between hundreds of billions to trillions means that Russia could dump everything and it will cause hardly a ripple.
Asking for gold payment would delight many in a symbolic way. Even if some oil buyers would decide they had no choice but to pay the price, huge percentage slices of the value of gold would go to middle men. Sellers of bullion would get their percentage, insurers of gold would get theirs as would shippers, security and everybody else along the chain of custody.
There were sound reasons why Italian bankers in the 14th century introduced letters of credit. These eliminated virtually all of the handling charges for gold.
That was the introduction of the paper standard. Nothing has supplanted it.
If Russia introduces its own form of paper gold, we are back where were started. Paper is still paper and gold is still gold.
Decimal points are important, and no more so when evaluating the feasibility of the Russian government to carry out its threat. It can do so, but the surprise would be how little impact there would be.
Gold may go up from here or it may go down, but its price will be swayed by the Federal Reserve’s growing balance sheet, which is now over $4 trillion, China’s huge credit growth of the last five years of $24 trillion and world trade in general, which also is measured in multi-trillions of dollars.
Decimals do matter when assessing the Russian financial headlines. The financial danger will pass as quickly as the headlines.
Buzz blogger Dave Harper is winner of the 2013 Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper “Numismatic News.”