In any country in the world, its national currency is one of the main guarantors of its independence. Moreover, its issuance is carried out by a central bank owned by the state. Only the United States is different. A private financial company, the US Federal Reserve, is responsible for issuing the dollar, one of the world’s primary reserve currencies. Many believe that its shareholders run the global economy. It is a little known fact that during the early 20th century, Emperor Nicholas II helped finance the authorized capital of the US Federal Reserve System [FRS].
The Russian Empire as the world arbiter
Despite the popular opinion that pre-revolutionary Russia was the gendarme of Europe, in reality it was a world power that sought not only to end wars, but also to create an international body regulating relations between countries. While on the throne, Emperor Alexander II in 1868 initiated the signing in St. Petersburg of the convention on the “rules of war”. This document, in particular, provided for a ban on the use of a number of inhumane types of weapons. Nicholas II followed the example of his grandfather by organizing the First World Peace Conference in 1899. With the active participation of the last Russian emperor, a proposal was made to create the League of Nations, the prototype of the UN. It sounds incredible, but even then, at the end of the 19th century, Nicholas II spoke from a high rostrum about the need to end the arms race.
Money is the engine of politics
Simultaneously with the discussion of the creation of the League of Nations at the beginning of the 20th century, proposals were raised for the establishment of an international financial body. Its functions were to include the regulation of financial disputes between different countries. It was then that the proposal to create the US Federal Reserve appeared. From the earliest days of its existence, this financial institution was essentially an international private bank, which was required to have its own authorized capital, denominated in gold. Today, the US dollar is not backed by either gold or the mass of commodities in the United States. But in 1913 everything was different. At the time when the FRS was created, the dollar, like the ruble, was obliged, if necessary, to be exchanged for an equivalent in gold. Not surprisingly, the US Federal Reserve had large reserves of gold as its charter capital.
Where did it come from?
Under US law, however, American banks involved in the creation of the FRS, could not utilize their gold as authorized capital. It was assumed that it would be provided by those countries, for the settlement of financial disputes between which the FRS was created. The major world powers showed little interest in the proposal to finance the authorized capital of the FRS with their own gold and foreign exchange reserves. This was done only by Emperor Nicholas II from Russia’s vast gold reserves. The contribution of the Russian Empire to the US Federal Reserve amounted to 88.8% of its authorized capital in gold! At the same time, Russia was supposed to receive 4% of the invested funds annually, as dividends. However, soon after the establishment of the FRS, the 1917 Russian Revolution broke out, and then the Imperial Family were murdered by order of the new Bolshevik regime.
The USSR, refused to recognize the debts of Tsarist Russia, and, accordingly, did not have any rights to its income from foreign assets. There was no one to pay interest to the FRS. Had the history of Russia taken a different course, perhaps today it would be the owner of the printing press of the world reserve currency.
© Paul Gilbert. 25 November 2021