Will China Make the Yuan a Gold-Backed Currency?

George Washington's picture

If China Backs Its Currency with Gold, It Could Have Profound Effects for Investors … and Consumers

Larry Edelson – - writes today:

I know for a fact that Beijing wants its yuan to eventually become a gold-backed currency,
much like the Swiss franc was originally. Backing the yuan with some
gold will certainly help it become a major international currency.

is a financial adviser who travels frequently to Asia, a former
high-volume gold trader who is interviewed a lot in the mainstream 
financial media.

I have no idea whether Edelson is right or not.  But he’s not the first to make the claim.

Doug Casey says that if one country – such as China – switches to a gold-backed currency, the dollar will be toast:

All it will take for the world to realize that U.S.
dollars are nothing more than hot potatoes is for one country (Doug
postulated that maybe China would be first) to introduce a gold-backed
currency. If China introduced a gold-backed yuan, for example, who on
earth would want anything to do with U.S. dollars?

Similarly, SafeHaven points out:

Suppose a large exporter, such as China, which
undervalues its currency and runs a large trade surplus as a result,
takes a huge radical step and goes all the way to a 100%-reserve gold
currency. The ultimate hard currency. If this succeeds, China is the new
England – the financial capital of the world, forever. Everyone else’s
money? In a word: pesos. Hard currency is Chinese currency. China’s
natural supremacy over the barbarian kingdoms of the West is restored.

Goldcore argues:

China is clearly trying to position the yuan or renminbi
as the alternative global reserve currency. The Chinese likely realise
that they will need to surpass the Federal Reserve’s official, but
unaudited, gold holding of 8,133.5 tonnes.




World Bank President Robert Zoellick recently mooted the possibility
of a return to some form of gold standard. It seems extremely likely
that senior and influential Chinese policy makers, bankers and 
government officials may be having similar thoughts.

Simit Patel writes:

China’s central bank continues to aggressively accumulate
gold. Is this a setup for making the renminbi a gold-backed currency?
Many have speculated that this is the game plan. Certainly a currency
that is gold-backed will have appeal as a reserve currency capable of
storing wealth; indeed, the reason why the US was able to position
itself as a reserve currency is largely because it was once pegged to

MaxKeiser says:

China is clearly trying to position the yuan or renminbi
as the alternative global reserve currency. The Chineselikely realise
that they will need to surpass the Federal Reserve’s official, but
unaudited, gold holding of 8,133.5 tonnes. China is the sixth largest
holder of gold reserves in the world today and officially has reserves
of 1054.1 tonnes which is less than half those of even Euro debtor
nations France and Italy who are believed to have 2,435.4 and 2,451.8
tonnes respectively.




game theory article is great because it points out that China does not
need to amass a gold stock similar to the US, it can simply go to a gold
standard now and effect a simultaneous devaluation against the dollar
(as game theory dictates that the US and all other CB’s would be forced
to follow China’s lead, or risk losing all their capital as investors
buy the only gold backed currency in the world).

And Wikileaks noted several reasons for China’s stocking up on gold.  ZeroHedge summarizes:

As the following leaked cable explains, gold is, to China
at least, nothing but the opportunity cost of destroying the dollar’s
reserve status. Putting that into dollar terms is, therefore,
impractical at best, and illogical at worst. We have a suspicion that
the following cable from the US embassy in China is about to go not
viral but very much global, and prompt all those mutual fund managers
who are on the golden sidelines to dip a toe in the 24 karat pool. The
only thing that matters from China’s perspective is that “suppressing
the price of gold is very beneficial for the U.S. in maintaining the
U.S. dollar’s role as the international reserve currency. China’s
increased gold reserves will thus act as a model and lead other
countries towards reserving more gold. Large gold reserves are also
beneficial in promoting the internationalization of the RMB
.” Now, what would happen if mutual and pension funds finally
comprehend they are massively underinvested in the one asset which
China is without a trace of doubt massively accumulating behind the
scenes is nothing short of a worldwide scramble, not so much for paper,
but every last ounce of physical gold…


From Wikileaks:



“China increases its gold reserves in order to kill two birds with one stone”


“The China Radio International sponsored newspaper World News Journal
(Shijie Xinwenbao)(04/28): “According to China’s National Foreign
Exchanges Administration China ‘s gold reserves have recently increased.
Currently, the majority of its gold reserves have been located in the
U.S. and European countries. The U.S. and Europe have always suppressed
the rising price of gold. They intend to weaken gold’s function as an
international reserve currency. They don’t want to see other countries
turning to gold reserves instead of the U.S. dollar or Euro. Therefore,
suppressing the price of gold is very beneficial for the U.S. in
maintaining the U.S. dollar’s role as the international reserve
currency. China’s increased gold reserves will thus act as a
model and lead other countries towards reserving more gold. Large gold
reserves are also beneficial in promoting the internationalization of
the RMB

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
metaStable's picture

Why would China back yuan with gold when they clearly want to be able to print more (and hence the need to have yuan as reserve currency)?

AchtungAffen's picture

They better hurry cuz gold is going dooooowwwnn

RobertBrusca's picture

Right China is going to PEG to gold and that will give their currency credibility? Right.

Let's see..

No property rights.
No recognition of trading marking.
the biggest pirating/counterfeiting country in the world
no human rights.
and we trust them to maintain the Peg to gold.

Good luck with that.


Clint Liquor's picture

The US had all the things you list in 1971 when Nixon refused to honor the request for Gold for Dollars ending the Gold Peg for the US. As long as you can trade the currency for the metal, the peg is on. As soon as you can't, the peg is off. No trust involved.

Clint Liquor's picture

Currrently, the BRICs, Middle East and Southeast Asia are trading their natural resources and manufacturing for pieces of paper created from thin air. We can expect this to continue for how much longer?

 Gold backed currencies are inevitable. It's all about settlement.

Quinvarius's picture

No one has ever claimed  the role of reserve currency without hard assset backing.  People dont want to hear dollar. pound, or yuan in the time of change.  They want to hear familiarity and safety.  They want to hear gold.  So when you say Yuan, it has to mean gold.  The idea of any reserve currency in our current situation is a joke. It is all just bad debt paper.

silverdragon's picture

The Dollar is dead and so is the Euro, China is already trading in Renminbi with many nations. The future will see them primarily trading in Renminbi with most of their trading partners. As they make most things thats a lot of trade not being done in dollars. This ends the dollars role as reserve currency.

However, it is not China's style to want to become reserve currency.

gintrap's picture

History repeating itself yet again! Rome burned whilst those responsible twiddled thier fingers. Dollar now supressed to China's advantage and makes overtaking very very easy as they have all the cash.

AnAnonymous's picture

Gold backed currency?

Would mean that any holder of gold would move the chinese currency.

How much gold China has compared to others?

And that would be relinquishing the monopoly of emission which plays so well for US citizens.


the tower's picture

Errmmm... and the currency is gold-backed because they say so?

The soundness of a currency is not based on what it's backed by, it's based on trust.

Trust has to be earned.

Fiat, gold, rhinestones... it's all the same if there's no trust.

cynicalskeptic's picture

The Chinese are PATIENT.  They play for the long term.  They view the past few hundred years of 'barbarian domination' as an abberation - a brief interruption in China's position as the center of the civilizd world.   (where was ROme getting silk from?  where did gunpowder come from?  the list is long) They also have LONG memories.  They remember all too well the humiliation of having opium FORCED on them by the British as a means to redress the balance of payments deficit draining the British Treasury.    All of Britian's sliver was going to China to pay for tea, silk and porcelain - while the Chinese wanted nothing from the British.  

They also learn from their mistakes and those of others.  Communism wasn't owkring out as planned.... the Communists became capitalists.  While all other countries gtrying to transition from agrarian to industrial economies had to borrow money to finnace factories, China got the West to GIVE them its industrial base in exchange fro cheap labor - puttiong all those unneeded peasants to work earnign foreign exchange for China.  Instead of using military force to conquer needed raw materials (as Japan tried to do in WWII and the US has tried to do now - for oil).

And while the US may have gotten away with screwing the oil producing arabs and even the Chinese for a while by printing $US like mad - they took advnatage of all those dollars they earned making  Happy Meal toys and all the other crap we 'need' and BOUGHT Australian and South American mining companies, farmland in Africa, entered into long tgerm energy contracts with central Asian states and others.... they BOUGHT materials - and governments - buying friends and influence.  They took all that paper and converted it to TANGIBLE assets.  And they use the remaining US debt they hold as leveerage over the US - we'll never go to war with China, they OWN us (nevermond that we lack the manufacturing capacity to enter such a war, much less tghe manpower or financing).  China got technology for free via sharing agreements form companies desperate to gewt access to cheap Chinese labor - or access to Chinese markets.   How many computers get made in the US?  Other hi-tech goods?  Even aircraft manufacuturing is done in 'partnership' now with Chinese firms (if you want oto sell airliners to China you have to build them there- or at least parts of them).

The Chinese saw Russia fade from influence after Communism collapsed there and have expanded their influence in that empire's far east - no need to conquer Siberia for materials when the locals trad with them readily.  China is teaming up with India, Brazil and others who (rightfullly) resent the European/US axis - and plan on taking the place that axis once had in the world.   The 'west' has lived off the labor and credit of others for the last 50-100 years.  That is ending.

Meanwhile the West tries to prop up the old system - while China takes advantage of our foolishness by buying MORE tangible assets - PHYSICAL GOLD and SILVER (along with companines and raw materials) - that are selling at discounted prices.  All the silver (and gold) mined in the US but refined in China (because it's a dirty toxic process) STAYS in China.... nevermind all the open buying every time MOPE strategy demands a smashdown of gold prices to make paper dollars look good.....


AnAnonymous's picture

They play for the long term.


US citizens do not?

As for the rest, it is fantasy.

The Chinese are scavengers, they work on the side of the US world order.

US citizens are the ones eating at the trough. Chinese eat what it is spilled.

The story about chinese buying land has to be compared (if comparable by the way in terms of magnitude) to US citizens'activity in the same domain.

Chinese activity is a pain because ultimately, it will be more difficult to snatch that land from the Chinese than it is from the usual suspects.

Classical extortion business perspective: keep the easier to extort in the position of the extorted. And Chinese are not among the easier. There are easiest people to extort.

TacticalZen's picture

Heirarchy of hedges are: Options hedge price volatility Gold hedges currency collapse Stored food/provisions hedge supply disruptions An armed and trained populace hedges a dictatorship All have their place. All are necessary for security and freedom.

celticgold's picture

the chinese girls are the hottest on MFC.....

billsykes's picture

That would be astounding.

I doubt that it would or will or can but it would be something. But if they did I would claim north American refugee status and flee to China, maybe open a Chinese restaurant.

10% discount on chicken feet and moon pies for all ZHers.




silverdragon's picture

The Chinese do love their Gold and their Silver.


fearsomepirate's picture

I wouldn't trust a Chinese gold-backed currency for the same reason trusting America's gold-backed currency was the most foolish thing you could do after that wannabe dictator got elected in 1932. People forget what the big incentive is for inflating a fiat currency. No, it's not for maintaining an "export model" (ever heard of Germany and Japan? Lots of exports, low inflation).  

Inflation appeals to governments for one reason and one reason only--it allows the government to spend in excess of its revenue. Governments hate gold because it's a shackle. Even if China moves to gold, it will be temporary because the last time I checked, the Chinese have a government, and governments chafe at restraints. First time they want an aircraft carrier or a dam or something and don't have the cash, gold goes right out the window?

Don't believe me? OK, your pal FDR just needs to see your gold for a minute. 

Bagbalm's picture

 I can't even trust these not to poison my dog to save a couple cents, and you think they will hand over gold for paper? Amazing niavete.

Non Passaran's picture

Well earlier today in a comment to another post I said the same (not about dog food, but about the unbelievable warped logic of "investing" in Chinese fiat instead of PM's) and earned two minus points. Gotta love the logic of Yuan Fanbois!

If I have a dollar equivalent of 10 Oz of gold, should I:
A) buy 10oz of gold
B) convert my USD into "gold-backed, but in the future (wink, wink)" yuan and "save" at a negative real interest rate

Those who voted me down (all votes I got were down) say B is the way to go.
Go figure!

boogerbently's picture

Buy gold !!!

The price is going up (to "inflate" the fiat).

Jam Akin's picture

As the rest of the world economy slows and China's export markets do simultaneously there will be a point of crossover at which it will be more to their advantage to access cheaper imports of needed resources by floating the illusion of a fractionally gold backed "people's currency" that they can still print up at will.  After all, exchanging freshly printed Renminbi for US$ is how the state got its $ horde.  Now swap the US$ for physical gold by suppressing the paper markets which still exert some effect on physical prices and by the end of the exercise you've traded all the way up Exeter's pyramid.  Clever those Chinese leaders...always thinking ahead.  But really its all about the party retaining power at the end of the analysis.

Clowns on Acid's picture

It will either a gold backed, fractional reserve system or war. Even at 20:1 gold vs fractional reserve, at least there will be a standard rather than outright printing of worthless fiat.

I think that the world will choose the barbaric relic rather than barbarism.

Timing of this development cannot be very far away. 2 years maximum.? IMF will be in the forefront of this movement to maintain its power.

It's all about maintaining power right?

Element's picture

IMF is a dead man walking. When France falls on its butt (and anyone reading Reggie Middleton can see it will) what's Legarde going to do, throw them a used toothpick? 

When Sovereign default rolls through European capitals and both the Euro and EU banks are abandoned, while there's yet another European head of the IMF, even when they promised there wouldn't be another (and despite the fact that Legarde does try hard to look brown-ish), thus the IMF is finished. 

What good are they?  It's only there to serve the bankster elite's interests and cough up bank bailout money, and has contributed to making things worse for the locals.  But that has always been the number one criticism of the IMF, wherever it has intervened.  And now European locals will want the IMF gone too. 

But it was Merkel that wanted the IMF involved in Europe to kick-in with the donor's bucks, remember?

Merkel stands firm on IMF rescue for Greece

12:26 GMT, Thursday, 25 March 2010

Chancellor Angela Merkel has told Germany's parliament she will insist that the IMF is involved if debt-ridden Greece needs to be bailed out.

Before heading to an EU summit in Brussels, she made clear she would disappoint other countries like France, which want a purely EU bail-out.


i.e. Zarko knew France was screwed, but now, if the IMF was going to be involved, it would be better if a European Frenchy was still heading it up.

When the money runs out this time the IMF is finished, hence Legarde's running around the world recently, pleading for more donor funds.  And when Australia recently said it would be back in surplus next FY Legarde same day piped-up with the speil that "surplus countries" now have "a special responsibility to support global growth and recovery".

Oh yes ... gimme gimme gimme!!!


And Washington definately won't tollerate the IMF around when it's the US's turn to face the music.

Xkwisetly Paneful's picture

Is this a false flag event preceeding a US attack George?

Because afterall we know the US wars to protect the petro dollar like when it invaded Europe after the creation of the Euro.

No different than the others, you have no fucking clue when it comes to China, none at all.

for one extremely obvious thing as their population ages and the former one child policy has one spoiled child responsible for two aging adults they are hardly going to be in a position to have resources sit on a shelf which is exactly what the fully backed currency imbeciles desire.

of course there are a million other obvious things and ten million not so obvious things.

BTW it is hilarious too, this notion that gold is safety all the while the same entities that manipulate everything else hold the most gold too. GReat stuff, I am going to get over on the fiat guys by holding something they also happen to hold all the cards too as well. Just genius.



cynicalskeptic's picture

Presuming that the US still HAS gold - and didn't trade it for oil under the table since the 70's......    And do you think China's demographcs are worse than Eurpoe's or the US?  China has a hell of a lot more people than either - and they're better and better educated.  Look at who are the best grad students here in the US in science and engineering.... newsflash - they aren't Americans.....

The puppetmasters of the old system are losing their grip.  How desperate they will be to maintain their hold is the only question.  

AmazingLarry's picture

Gold isn't backed by anything.

rawsienna's picture

wil not happen - although gold will go up anyway. No rule of law/property rights that can be trusted in China- at least for another 25-50 years.  Only then can it be a reserve currency - GOld backing it is irrelevant. Gold will go up, but having nothing to do with gold backed yuan

Yohimbo's picture

none of you seem to be paying attention to this article....thats good...it never happened.

Dr. Gonzo's picture

My thoughts are they could have a Gold Yuan along side the old paper Yuan and make little fan fare about it and say it's only for select trade. The gold Yuan would be used initially for trade in oil with Iran and whatever else suited them. Then old Yuan would eventually die along with all the other international fiat as new contracts are made and the new international gold currencies popping up around it would phase them out. It's easy to do. Kind of the exact oposite of when they issued Facebook share at $38 with much fan fare saying they'd probably go $300 instead of $3. You just do it and you pretend like it's not a big deal and it's just limited when you know all along it's the new future. People will believe it too. Then the people will watch in slow motion horror as all their money dies. It's a simple solution if you ask me and it HAS TO happen one way or another.  When I get my crystal ball out to predict the future the first thing I do is ask it is what would be the easiest way for TPTB to cheat, decieve, steal from, default on, and impoverish their people. The answers come so much easier using this approach.

Non Passaran's picture

I like your approach to research, chief, but in this particular case the result seems a bit suspicious. Like with the USD now, making this gold yuan available would create a way for all sorts of abuses by exporters and importers alike.
The gold yuan would have to be something that's more difficult to obtain than the foreign currency right now. Also if you can buy gold in China - and you can - you probably wouldn't sit and wait till your paper yuan savings become worthless. So I'd say something is missing in your theory.

goldgalore's picture

Don't think it is possible at the moment as their leaders will not know how to react to a strong RMB. Their exports will crumble and yields will be so low that all holding RMB will buy properties (good for those holding it) driving prices up and causing the poor with nothing to buy. Then social unrest kicks in and leaders will be loss as to how to pacify millions of unhappy people.

Besides, there is obviously shadow banking in their financial system, so unless they clean this up, no point opening up their system.

infiniti's picture

Fucking hilarious. Pull up a chart of China's M1 or M2 and then tell me with a straight face that China is going to peg their money to an extremely rare hard asset.

bankruptcylawyer's picture

the yuan a reserve currency?


ordinarily these would be fighting words. but really, while the dollar is a reserve currency, the euro USED to be thought of as a competitor. china is fighting for second place. and they are doing it RIGHT when greece will default and bring down the euro. 

seriously guys , china is playing chess---they are overtaking the euro. 


in africa, turkey, central asia polynesia, australia, and maybe even india russia  and japan and south korea------many more companies and banks and retail outfits are going to accept yuan. 

this isnt about going to war with the united states by attempting to force the issue. china isn't going to step on u.s. turf where dollarization has already taken place ( south and central america ) , or where the u.s is arlready threatening to go to war ( iran ) this is about the rest of the globe.  

global capitalism is just starting. china knows it and it appears to be winning. 




sitenine's picture

China will not back Yuan with Gold.  That would be stupid.  At this point in history, Gold is an asset reserve, not a currency.  China knows that it can peg a fiat in any way it sees fit, and the rest of the World accepts it - the advantages of this power are self evident (as are the dangers).  WWIII is well underway, and the weapons of choice are paper.  Burning paper has very little consequence to a well managed centrally planned State - loosing your Gold is death.  Wake the fuck up!  We are at war, and the shot heard round the World is asset encumbrance.  Luckily, for now, paper buys Gold.  Gold will not be worth its intrinsic value until there is a clear winner (and losers) declared in this war to end all wars.  When that time comes, there will be those with Gold, and there will be those without.  Period.  Got Gold?

Illya Kuryakin's picture

China has a small credibilty problem to overcome before their dreams of world currency domination come true. 

I hold physical but not for any reasons alluded to in this post.

Clint Liquor's picture

Why would anyone want a Gold backed currency when fiat has been such as successful way for Governments to fuck their people.

Seriously folks, by the time this Keynesian/Fiat clusterfuck is over it will be five generation until people trust any kind fiat again. It has happened before, you know.

narnia's picture

if the monopoly legal tender is pegged to gold & the central planners who control the monopoly can change the peg, what good does the gold backing do?  

NewWorldOrange's picture

Good point. But all decisions are made at the margin as they say, and so you can bet that many millions of people and institutions around the world would be incentivized just enough to switch some part of their wealth into the Yuan. And that would cause the Yuan to skyrocket, making Chinese exports much less popular. Given their entire economy is based on exports, you'd think they woudn't want to do this. Yet they've said for years now they INTEND to replace the dollar as the world's currency. I think they understand that their export based economy can't go on like this for long and then they'll need something else like for their currency to be the reserve. They've said as much. But TPTB don't like changes to the status quo and they'll milk the export engine for all they can first, and that could be quite a few years yet. Or maybe not, and India could even beat them to it, or at least have a competing reserve currency backed or partially backed by gold. REALITY dictates that it must happen eventually -- currencies backed by something real, in a real, convertible sense. China could probably virtually destroy the U.S. almost overnight with the simple announcement that they're currency is even just 50% backed by bullion (and they have huge stores of rare earth metals bigger than all other nations combined.) Or in other words, KEYNESIANISM AND ITS PROPONENTS IN THE GOV/FED/MEDIA/ETC ARE THE MOST SERIOUS THREAT TO OUR LIVES AND NATIONAL SECURITY TODAY BY FAR.

You get the government you deserve sheeple. Which means by logical extension, that what most Americans today deserve is to work like slaves in Foxcon-like factories for a dollar a day to provide lots of cheap, cool gadgets for the Chinese. Then again, given China's penchant for population control...

Element's picture

And sovereign defaults haven't even begun yet, but still up around $1600.  Give us a genuine sovereign default (with no bailout) and we'll see where gold then goes.

I think the biggest problem for China's foisting a reserve currency on the world is the lack of confidence in it, in China, and in the rest of the world.  They can't even float it off USD yet?

So it's totally unproven, literally an unknown quantity (like faceplant).

And yet we're supposed to accept Yuan as USD replacement?

Gold backing or no, I just can't take that very seriously.

nmewn's picture

"China is buying gold to protect" their elites...same as it ever was...same everywhere. Their assholes at the top are no different from our assholes at the top.

Our duty (as blue collar plebes) is to remove as much gold & silver from their grasp as possible to limit their destructive tendencies towards us.

Round eye or slant...it makes no difference...greed & power lust are universal human traits.

walcott's picture

yes its gold backed except you can't redeem it for physical gold.

The euro was gold backed too when it started.

g3h's picture

Not going to happen.

Joe The Plumber's picture

I love gold but there is no way that china is going to hang its workers on a cross of gold. Any of you thinking that china is going to a fully convertible gold backed currency dont understand why all governments are unanimous in their opposition to a gold currency.

China is buying gold to protect themselves from the dollar and dollarized financial system

Also there is no such thing of a partially gold backed currency. You are either on a gold standard where gold is convertible at a fixed rate to paper currency or you do not have a gold standard. Freegold is not a gold standard either since it fluctuates in value compared to other currencies.

_underscore's picture

China would protect its workers with a gold standard. All the investment would flow into China, the middle-classes would expand hugely, commodities/ raw material would become cheaper for them - no need to export 1c plastic ducks anymore to survive. Examine your statement: "China is buying gold to protect themselves from the dollar..." & ask yourself if that isn't in contradiction to your previous assertions. It can't be a protection & a liability at the same time.

 Partially backed gold standard? Surely it's where you set the 'convertibility bar' - has that rate of exchange been discussed yet? The Swiss 'gold franc' is suggested to contain just 0.1 g gold, perhaps that an interesting initial benchmark.


deez nutz's picture

Gold backed currency? I'll believe it when I see it.   

The world is much more enamored in the strength of green paper backed by the good faith and honor of a country with most fukking corrupt politicians, central bank and banking system in the world.  

If tutenkhamun died today the egyptians would say "fuck gold" and wrap him and bury him in benjamins, the currency of kings!