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UPDATE 2-Putin discussing pegging the rouble to gold, Kremlin says

(Adds quotes, central bank governor, releads)

April 29 (Reuters) - Russian President Vladimir Putin is discussing the idea of pegging the rouble to gold and other goods, the Kremlin said on Friday, a move that if approved would directly link Russia’s currency to bullion for the first time in more than a century.

A powerful Russian security official said this week linking the rouble to bullion could give Russia more “sovereignty” over its financial system, which has been battered by Western sanctions since Moscow sent troops into Ukraine on Feb. 24.

Asked about the idea on a conference call with reporters, Kremlin spokesman Dmitry Peskov said “this question is being discussed with Putin”.

However, the governor of Russia’s central bank, Elvira Nabiullina, told reporters the idea was “not being discussed in any way”.

Russia produces around 10% of the gold mined globally each year and is a major producer of oil, gas, metals and grains.

In what some saw as an attempt to link the rouble with gold, Russia’s central bank said in March it would buy gold at a fixed price of 5,000 roubles a gram until June 30.

But two weeks later, after the rouble had strengthened sharply, it backtracked and said it would buy at negotiated prices.

Many currencies have in the past been pegged to gold or silver. Russia adopted the gold standard in 1897 but, like many countries, abandoned it during the First World War as governments printed money to finance the conflict.

The rouble was indirectly linked to gold under the post-World War Two Bretton Woods system, in which countries linked their currencies to a U.S. dollar that was in turn pegged to gold, said Alexander Mihailov, an associate professor of economics at the University of Reading.

But the connection to bullion was severed when the United States in 1971 stopped allowing conversion of dollars to gold.

Nikolai Patrushev, the secretary of Russia’s Security Council and a close Putin ally, said on Tuesday that proposals on pegging the rouble’s value to gold and other goods were being drawn up.

“The most important condition for ensuring Russia’s economic security is reliance on the country’s internal potential,” he said in an interview with government newspaper Rossiyskaya Gazeta.

Asked if these ideas contradicted economic theory, Patrushev said “they do not contradict the conclusions of economic science, they contradict the conclusions of Western economic textbooks.” (Reporting by Reuters Editing by Guy Faulconbridge and Mark Potter)

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