China's Monetary Ascension Is Paved With Gold

Tyler Durden's picture

Submitted by Stefan Gleason via MoneyMetals.com,

The world monetary order is changing. Slowly but steadily, global trade and currency markets are becoming less dollar-centric. Formerly marginal currencies such as the Chinese yuan now stand to become serious competitors to U.S. dollar dominance.

Could gold also begin to emerge as a leading currency in world trade? Over time, it certainly could. But the more immediate implications for gold’s monetary role center on its increasing accumulation by central banks such as China’s.

On October 1st, the Chinese yuan is slated to enter the International Monetary Fund’s Special Drawing Right (SDR) basket of top-tier currencies. It will share SDR status with the U.S. dollar, euro, British pound, and Japanese yen.

Before the yuan officially becomes an SDR currency, the World Bank intends sell $2.8 billion in SDR bonds in Chinese markets. The rollout of SDR bonds in China began August 31st. According to Reuters, China’s promotion of SDR bonds “is part of a wider push in China to… boost demand for Chinese yuan and diminish reliance on the U.S. dollar in global reserves.”

King Dollar won’t be dethroned overnight. But the place of prominence the U.S. dollar – more accurately called the Federal Reserve Note – enjoys as the world's reserve currency will indeed diminish over time.

Yuan’s Inclusion in the SDR Currency Basket: Merely a Part of China’s De-Dollarization Strategy

China and Russia have mutual geostrategic interests in helping to promote de-dollarization. Toward that end, the two powers are engaging in bilateral trade deals that bypass the dollar. Annual bilateral trade between China and Russia has surged from $16 billion in 2003 to nearly $100 billion today. When China hosts the G20 summit in September, it will make Russian President Vladimir Putin its premier guest of honor.

U.S. officials are none too pleased. They fear Putin aims to expand his global reach by forging stronger ties with China.

Putin strengthening ties with China

According to the South China Post, “Some Western analysts have viewed the recent, rapid enhancement of such collaboration as the beginning of a partnership set on destabilizing the U.S.-led world order and diminishing Washington’s capacity to influence strategic outcomes.”

Some in the Hillary Clinton campaign even fear that Russia will interfere in the upcoming U.S. election to try to block Hillary’s path to the White House. Russian hackers have been implicated in a number of recent “leaks” that damaged the reputations of U.S. banks and the Obama administration. Wikileaks founder Julian Assange has hinted at further releases. Hillary’s allies openly speculate that these Wikileaks hacks are being sourced from Russia.

But the Russians and the Chinese aren’t counting on cyber warfare to dethrone King Dollar. In addition to bilateral trade deals and strategic plays for regional economic dominance, the two powers are bulking up on gold. Over the past several years, Russia and China have each been adding massively to their gold holdings.

World’s Central Banks Becoming Net Gold Buyers

Since 2009, China’s officially reported gold holdings have jumped by 60%. The enlarged gold stockpiles held by the People’s Bank of China helped China win ascension into the IMF’s elite SDR currency basket.

It’s part of a larger trend of world central banks becoming net gold buyers. They were net sellers throughout much of the 1990s and early 2000s. That helped keep gold prices suppressed. But since 2010, central banks have been net buyers of gold – to the tune of more than 500 tons per year.

Central Bank Demand for Gold

Russia alone added 172 tons of gold in 2014 and 208 tons in 2015. By swapping some of its U.S. Treasury securities for bullion bars, the Russian central bank has become the world’s seventh largest gold holder. Yet gold makes up just 16.2% of Russia’s monetary reserves, which is a lower proportion held by its Eurozone neighbors.

Russia likely isn’t done accumulating. As the world’s third largest gold producer, Russia can readily supply itself with more.

A similar scenario figures to play out in China, perhaps even more dramatically so. China’s “official” gold hoard of 1,823 tons as of August 2016 gives it the world’s sixth biggest gold reserve. Yet relative to the size of China’s economy and currency supply, its gold stash doesn’t amount to much – just 2.3% of total monetary reserves.

Unofficially, China likely has additional gold reserves that it doesn’t report. But even if China’s real gold stash is double or triple what it actually reports, as some analysts suggest, that still leaves the country of 1.3 billion people with far less gold backing than Russia, the United States, Europe, and some of its Asian rivals. China has a lot more gold accumulating to do in the years ahead.

China's Gold Reserves

Chinese leaders aim to be regionally dominant. In order to secure that position they are moving to own and control greater shares of the gold market. The recently opened Shanghai Gold Exchange gives China a direct mechanism for controlling the physical gold market in Asia.

It’s a way for China to take at least some control away from Western governments and banks that have traditionally dominated the gold trade out of London and New York.

When the Chinese yuan becomes an SDR currency this fall, that could be the inflection point for a new multi-polar currency regime that sees the Federal Reserve Note decline in stature as central banks scramble to stock up on the ultimate money: gold.

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LetThemEatRand's picture

"King Dollar won’t be dethroned overnight. But the place of prominence the U.S. dollar – more accurately called the Federal Reserve Note – enjoys as the world's reserve currency will indeed diminish over time."

Which is exactly why Tarzan hear war drums.  TPTB may or may not actually do it, but they are intent on convincing the rest of the world that they would rather turn the place into glass than lose the ability to print wealth for themselves via the US dollar and their favorite printing press, the Federal Reserve.

Paul Craig Roberts talks a lot about a desire for global hegemony, and the US military does have a history of taking out countries that dare to trade in other than US dollars.

Boris Alatovkrap's picture

REAL wealth! Not fiat toilet paper manufacture by bankster for purpose of theft from citizenry.

Okay, okay, now please, visit new Poll of Boris… "Who is ZHer?"

https://twitter.com/BorisAlatovkrap/status/771843248537022464

Escrava Isaura's picture

Self indulgency?

 

Spare us please.

 

roxyNL's picture

It's the beginning of the end for the US!

 

ZLYman's picture

Sorry, Boris.  Requires Twitter account. I do not have.  Nor FaceCrook.  Never will.  But I am almost stateless.

Lynn Trainor's picture

I gave up Facebook too, and no more Twitter as of yesterday.  Saw the specter of censorship surfacing too much for my comfort.  People just wanna be free!

Nemontel's picture

The Chinese are very cunning and are planning to lead the new monetary paradigm. http://www.truthjustice.net/economy/spectacular-chinese-gold-demand-2015...

ersatz007's picture

If I remember correctly I believe I read here on ZH that based on some estimates China may have north of 15k tons of gold.  Even if this is a huge over statement I wouldn't be surprised that their actual holdings are hugely understated.  

Does anyone remember the article to which I am referring?  

Escrava Isaura's picture

Backed by gold?

 

Say it become the case, then, there’s a global recession.

 

How will gold help China jump start its domestic economy?

 

LetThemEatRand's picture

I don't think China gives a shit about next quarter or the next 100 quarters, if they can gain world prominence again over time.  Since I've been born, China went from being a relatively poor country to being the world's manufacturer.  They have a virtually endless workforce willing to work for pennies on the dollar compared to Western workers.  They have most of the best technology thanks to the "how much will my bonus be this quarter" thinking of Western CEOs, enabled by the politicians bought and paid for by said CEO's.   And China is in the process of building a real military to protect what's been handed to them on a silver platter.

centerline's picture

China is fucked.  They bled off the excess currency imbalances (steam) via massive masinvestment which so far has propped the world up (and ballooned places like Australia and NZ in bubblicious messes that even Steve Keen never saw coming).  They tried to eat the proverbial globalization elephant.  But, that elephant was rotten... stinked of monetary voodoo.

China is an opaque communist pit of corruption no different than the previous soviet era (shiny on the outside, rusty on the inside).  Or the US really except that corruption is in our face 24-7 (tip of the iceberg really, amatuer hour stuff).

IMO, just because China has tech and factories does not mean they have some sort of better angle to be next king ding-a-ling.  The industrial age is over.  They missed the boat.  Filled the void with plastic crap and the trade off was toxic rivers and air.  Seems industrialization and tech lasts shorter and shorter (e.g. Japan).

In time, who knows.  Anything goes.  But, for now, China is pegged to Western Civ in more ways than one.  Damn well they care.  Ol' Jack Ma is screaming bloody murder already.

LetThemEatRand's picture

I agree the Chinese industrialists care very much, and Jack Ma is screaming bloody murder for good reason.  I'm not so sure the jack boot communists who run the place care.   

centerline's picture

lol.  Always enjoy your posts LTER.  Got to say that we are 90% on same page and the balance is probably semantics.  China likely will be the next king of the hill.  But I think more likely a factor of western civ burning itself back into fuedal status.

Jack Ma is a prick who sees his fortunes of selling mass doses of chinese shit burgers going up in smoke.  A globablization pimp whose hookers are jumping ship (no pun intended - but hey... it works).

LetThemEatRand's picture

Same here centerline on enjoying your posts.  

I just hope the neo-feudalization of the West takes a few more decades.

centerline's picture

Me too. 

And hey... I am willing to just stick in our here like you.  I dont claim to be right all the time (wife will probably say different - haha).  But, I learn from playing the game here on ZH.  I have learned so much here.  Some has really helped shaped my own opinions.  Some has taught me that there are idiots everywhere.  ha ha.

Fight club style makes that learning process seem a bit funny... and I have actually made the mistake of forgetting in other places that it is not fight club.  Really pissed off some local people on a non-anonymous post with a "sheeple" term.  ha ha.  My wife is still mad.  I slipped.  Couple of beers and the sheeple term just flopped right out.  Frankly, I am ok letting it stick.  The idiot I wrote to fits the description.

Keyser's picture

Your western perspective on China and Russia makes me chuckle, then makes me sad that you actually believe this tripe...  Sit back and watch as China saves the world, then allows the west to take credit for the save, all while accumulating all the assets of any worth in the west for cents on the dollar... China's timeline for events is decades to centuries, not the current election cycle of some western puke that is trying to get re-elected... Both China and Russia could crush western hegemony at any time of their chosing, but do not as it is not in their best interest to de-stabliize the west as the result would be war on a global scale... 

centerline's picture

Time will tell Keyser.  I seriously doubt your version of reality will hold.  Russia is weak.  But resillient.  China is a domestic malinvestment on a scale the world has never seen before.  So big, that is more likely China will be the wall that western civ actually hits rather than China hitting the wall of western civ going tits up.  Either way, the only way China does not implode is a suddent and massive conversion to domestic consumption.  Hmmmm....  yeah... good luck.  The alternative is angry peasants.  And the money has been jumping ship for years (noting real estate in SF, NY, Miami, Vancouver, etc.... chinese cash... yeah, that always says "mecca of great investments" to me - lol).  Follow the rats Keyser.  They know whats up.

Citizen_x's picture

"China is a domestic malinvestment on a scale the

world has never seen before" ...

 

In merica we call that QE/Citadel/ALGO buy programs/

G7 nations extortion/stock buy backs/VIX smashing/,

and Crude oil daily rumors.

 

What's the difference ?

Escrava Isaura's picture

China will finish the industrial age when they do the same the US did: Expand credit to its people to buy their overcapacity.

 

Anyway, we’ll probably nuke each other along the way there, because US lifestyle will look like Brazil.

 

centerline's picture

US --> Brazil... exactly.  That is direction.  The middle class is going extinct. 

China... thier ponzi is tied to our ponzi.  Siemese ponzis.  Seperation now is a delicated and probably fatal surgery.  In engine terms, is like swapping crankshaft while the engine is running. 

Russian and other partners just don't have the mojo as China is accoustom to US style $ high octane debt fuel.  Rubles and such is more or less low octane. 

Escrava Isaura's picture

Less octane is definitely a step on the right direction.

Also, you raised an interesting point: Resilient.

If wasn’t for a chance, or should I say, outcome of WW-3, Russia would come on top.

Putin would be wise to figure out compromises. But, on the other hand, he would still have to go, because he could not be trusted by the owners of this planet.

 

 

silverer's picture

I agree with you there. The nuke thing seems more real now then 10 years ago. We're inching towards it.

Bay of Pigs's picture

You have no idea what you're talking about. They have the biggest reserves in the world and most likely have the most gold now. The US has 20T in debt and will double that again in less than a decade. Not sure how ZHers miss the elephant in the room (UST bubble).

UnschooledAustrianEconomist's picture

Still they are fucked. The same as the rest of us.

Lynn Trainor's picture

Amid all the doom and gloom, I'm always wondering if Trump can turn things around.  If things are going collapse, I'm glad he may well be the one to deal with it.

Consuelo's picture

 

 

 People want a currency they can trust.   That means there has to be something that at the very least, links it (or backs it fully) to a stable and/or growing supply of real money - i.e., gold, which has been considered the highest form of real money since it was originally traded.   Recessions come & go.   Economies and empires can survive that.   A nation's currency on the other hand...?

Escrava Isaura's picture

Gold is not, and can't be money.

The failure of the Bretton Woods system proves that linking money to a specific amount of gold will end sooner or later. The gold exchange standard of Bretton Woods did not impose a limit on credit expansion in the United States.

 

http://marketupdate.nl/en/freegold-why-gold-is-not-money/

 

centerline's picture

Agree.  Gold can be (and has been) manipulated.  Likewise, it is not elastic.  The real problem is not the "what" is money... it is the "who" that controls it. 

Freegold is an interesting concept.  I started reading about it many years ago.  Never really came to my own final conclusion about it except that it makes more sense than not.  The problem is getting from here to there IMO.

 

silverer's picture

The Bretton Woods system did not fail. They could not cover the outstanding dollars with gold, and they wanted to flood the planet with US dollars. So they repealed Bretton Woods, essentially defaulting on the entire planet. Oh, that was a good idea, right? Then they printed. And now they print more. Tell me why a $20.00 bill is worth 20 times more than a one dollar bill? Because of how it's printed? And you want to call that money? You can wipe your ass once with a one dollar bill, but will you use the same $20 bill to wipe your ass 20 times? Ask Zimbabwe how well the paper money worked out for them.

Bay of Pigs's picture

Say what you want to about China, but there are real dumbfucks when it comes to gold around here. Clueless buffoons.

Escrava Isaura's picture

Bay of Pigs: real dumbfucks when it comes to gold around here. Clueless buffoons.

Gold CAN NOT work because nothing can. Economic growth and population growth requires that the planet grows as well.

Gold, in my opinion, will be the last bubble we see. And a very short one, because gold is just another unit of account that can be easily manipulated.

  

I’ll give you a solution: US, Russia, and China kill everyone else in the planet. Then, divide the planet in three areas, and tell their people to live within those areas or you’ll ended up like the ones that just got exterminated.

 

Learning to live within your means is humanity best paradigm.

 

Good luck implementing it.

 

Lockesmith's picture

I don't know what to make of you. MDB's hilarious satire always imitates the most retarded thing a dyed in the wool leftist would say, but sometimes you speak sense, and sometimes you say even more stupid shit than he would.

Leftism is a death cult.

Human technology pushes the bounds of what our ecosystem can support and there is plenty of unused arable land left.

Lockesmith's picture

I don't know what to make of you. MDB's hilarious satire always imitates the most retarded thing a dyed in the wool leftist would say, but sometimes you speak sense, and sometimes you say even more stupid shit than he would.

Leftism is a death cult.

Human technology pushes the bounds of what our ecosystem can support and there is plenty of unused arable land left.

Escrava Isaura's picture

Yes, it did, because currency is not wealth, but a token.

However, this token was used as a tool to exploit others by moving into other countries while adding usuries—interest rates. Then, this token became a symbol of wealth, but tokens are not supposed to be wealth or carry usuries.

Anyway, any type of currency, gold included, for international/interstate trade will fail, period. Trade needs to be barter. Then, a clearing house would distributed these goods into the villages/towns, and its people would use their ”local” tokens to acquire those goods.

These would have to be heavily regulated to avoid speculations.

 

Don’t worry, none of these will ever happen. The core of most humans gene is to exploit others, doesn’t matter which religion they’re affiliated with.  

 

Lockesmith's picture

If I lend you my wealth instead of spending it now, why should I do so without a return?

If I lent you my sickle, which meant that I didn't have the use of it while you did, I would expect some of your harvest in return.

Lockesmith's picture

And currency is the grease between the cogs of human labour.

Barter is highly inefficient.

No wonder you are cheering for a large die off: the society you so furiously masturbate over would be too inefficient to support anywhere near the current population.

Squid-puppets a-go-go's picture

If china has enough gold to make the yuan a strong currency then they can more readily realise the aspiration of internalising their consumption and being less reliant on exports 

of course, then that starts the long decline that america's former middle class are scratching their heads about

Jack's Raging Bile Duct's picture

China's only strength is its slave labor wage arbitrage. That's the only thing keeping is merchantilism afloat. The moment China issues a strong currency, or attempts domestic consumption, they lose their only advantage. At that point manufacturing returns to the rest of the world in a decade. With the advances in automation, China is likely to lose this edge soon enough anyhow. The only reason why they've even been able to carry on this long with the wage slave advantage is because they are getting tons of Petrodollars with which they can buy anything.

They need to extend and pretend with the current status quo as long as possible until they can figure out what to do once their billion slaves are no longer wage competitive and lack a foreign reserve currency. USD collapse, strong Yuan, and/or transition to domestic consumption are each a path to catastrophe for China as it currently exists.

Maestro Maestro's picture

 

 

Perpetual growth is unsustainable and inevitably ends in self destruction. Wolves that eat all themselves starve in the end.

 

A peaceful and enjoyable existence eked out by living within one's means is the only attainable goal in the game of collective life.

 

Only evil bankers like you promote mindless rat race type of lives because you profit by financing and managing senseless unneeded activity (i.e. "growth").

 

 

Escrava Isaura's picture

The Amish seems to have a sustainable system, as far as I can tell.

 

Good luck implementing anything remotely closer to sustainability, because “Makes America Great Again” is what replaced “Hope and Change.”

 

Seasmoke's picture

Kill the USD = Peace.

Bunga Bunga's picture

OT:

Secret Report: German Federal Intelligence Service BND Violates Laws And Constitution By The Dozen

 

https://netzpolitik.org/2016/secret-report-german-federal-intelligence-s...

Joebloinvestor's picture

My fear is that a Chinese "gold backed" yuan will be as trustworthy as their pet food and drywall.

Consuelo's picture

 

 

 Lumber Liquidators was in a spat with the Feds some time ago on the issue of 'cheap' flooring (made in China, of course)   It 'leaked' formaldehyde fumes, presumably causing a litany of health issues.   An interview with a factory supervisor in Guangzhou during the hubbub revealed that Chinese factories can and do produce products of varying quality --- for the SAME COMPANIES...

'Stated differently', if the company wants SHIT on the half-shell - they got it.   They want quality?  No problem with that too.   The Chinese will simply make what is requested for a given price structure.   The keyboard I'm punching on is made by 'Apple', and it's going on 8 or 9 years old and still functioning like a champ.   'Made in China', don't ya know...

 

 

 

 

Sacker of Cities's picture

The only way you can have something truly gold backed is for the owner of it to be able to walk up to a window at the nation's treasury and slap the currency down and say I want some gold otherwise it could be just a lie. China will never do that (It will not even unpeg it currency) so all the talk of China and gold is nonsense.

wulf's picture

Brazil's new president first act was going to China to sign 9 new agreements covering projects from infrastructure to agriculture and said that China was now "Brazil's most-needed cooperative partner."

That was a "U.S.-backed coup", right....

Lorota's picture
Lorota (not verified) wulf Sep 2, 2016 9:17 PM

Well, if it was a China backed coup they didn't have to oust Rousseff at all. Her party (PT) had been very collaborative with China and Russia when it was in power. Besides, it is the US that has a history of supporting coups in Latin America, not China.

Omega_Man's picture

old news, rehashed, regurgitated  

GRDguy's picture

Above, "Slowly but steadily, global trade and currency markets are becoming less dollar-centric."

Hmmm. Somebody's interpretation of monetary statistics is wrong. Yesterday in the Telegraph, Ambrose wrote:

http://www.telegraph.co.uk/business/2016/09/01/dollar-hegemony-endures-a...

Okay guys, which is it?

Lynn Trainor's picture

Thanks, very interesting link.