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China's Gold Reserves May Back the Yuan

SHANGHAI (Dow Jones)--China's gold reserves may serve as backing for the yuan as Beijing promotes its use overseas, said Zheng Lianghao, managing director of the World Gold Council's Far East division, the Shanghai Securities News reported Monday.

Zheng, who was speaking at a forum over the weekend, said increasing gold holdings would provide China with a useful hedge as the dollar faced the possibility of depreciation, according to the report.

In late April, the official Xinhua News Agency quoted Hu Xiaolian, the head of China's foreign exchange agency, as saying China's gold reserves had risen 454 metric tons since 2003 to 1,054 tons.

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Wouldn't that be self defeating ?

If they could pull it off putting downward pressure on the dollar (our debt). I can just see American's fighting to be first in line to buy Yuan now. After all, it is as good as gold, is it not ?

China does not have any gold reserves to speak of

they were cleaned out long ago.

By the way?

China has a central bank and GUESS WHO OWNS IT?

Nope...the Chinese don't own their central bank anymore than you and I own the federal reserve.

Guess who owns "Dow Jones New service"?

Come on now, this is an easy quiz.

They own the banks and the media...ok? Have for a long long time. This is why we don't bother with the media around here...right?

Unify

Really.

Odd, since they've been buying PM's like mad for over a decade now...

We're all familiar with China having a central bank.

What I guess you are missing is that China will be the new tax-slaves for said central bank... they are not only making money, they're better capitalists than we are now. Which means, since the US of A is now squeezed pretty much dry, they are moving to greener pastures.

Which means we are screwed. All we are doing is tracking the downfall.. which was the point of the OP.

~Live life to its fullest, with an open heart, open arms and most important... an open mind~

One angle.

There was actually very few FRNs printed to create the housing bubble or the derivatives problem. Instead there was the creation of credit and by doing there was actually not enough FRNs in circulation or in sectors of the economy to pay off the debt. Now many of those who gave credit to the U.S. government have stopped doing so, such as China, and are now wanting to spend their FRNs, not in the U.S. since we don't produce anything they want, but it developing countries such as Brazil. This means that FRNs are removed from the American market with one hand which requires the government to pump money out to the people with the other. So how is the government do this, well it is creating more debt, which the Federal Reserve is holding in the form of Treasury notes as it prints more and more and more money. The difference is that when China accepted treasuries, it was in exchange for goods that we imported. When the Fed holds treasuries, there is nothing recieved for the Treasury Notes from the Federal Reserve except paper money.
grant

Not just China. Russia has

Not just China. Russia has just switched their portfolio so that the Euro is their default reserve currency:

http://english.pravda.ru/business/finance/19-05-2009/107581-...

Why can't we do that to

Why can't we do that to reset the Dollar's position? Is the Bretton Woods Agreement of 1971 the date the Treasury Dept. turned over ALL monetary responsibility to the Fed, giving them control of the presses? After that date, no more $5 bills with the red seal, no more "Legal Tender" currency backed by hard assets held by the Treasury Dept. From that moment on, ONLY green seal notes backed by absolutely nothing, correct?

Would it be corrective if the Treasury Dept., irresponsible though they are, were restored their monetary authorities, and revert the Fed to containing commodities panics like they were SUPPOSED TO DO back in 1913?

I mean, Greenspan basically MADE the housing bubble, did he not? The Fed CREATED a problem in commodities that it was supposed to prevent, right? Seems to me that if the Fed cannot be disposed of, it should at least get its wings clipped back.

Perhaps some greenbacks with red seals and some shiny yellow metal backing them might shore up what's otherwise inevitable collapse.

Correct me where I'm wrong on any of these. I want to be on top of these things.

"Cowards & idiots can come along for the ride but they gotta sit in the back seat!"

One angle.

The problem is actually worse than what you explain above. There was actually very few FRNs printed to create the housing bubble or the derivatives problem. Instead there was the creation of credit and by doing there was actually not enough FRNs in circulation or in sectors of the economy to pay off the debt. Now many of those who gave credit to the U.S. government have stopped doing so, such as China, and are now wanting to spend their FRNs, not in the U.S. since we don't produce anything they want, but it developing countries such as Brazil. This means that FRNs are removed from the American market with one hand which requires the government to pump money out to the people with the other. So how is the government do this, well it is creating more debt, which the Federal Reserve is holding in the form of Treasury notes as it prints more and more and more money. The difference is that when China accepted treasuries, it was in exchange for goods that we imported. When the Fed holds treasuries, there is nothing recieved for the Treasury Notes from the Federal Reserve except paper money.
grant

well...

We can't because we would have to physically have the gold to do it. We don't. Haven't had it around for years, probably. The last bits of it were, oddly enough, under WTC7 when it went down.

:(

~Live life to its fullest, with an open heart, open arms and most important... an open mind~

The first country that does this...

The world wants sound money, and the first country that resumes gold backing for their currency is going to become the financial center of the world. Could be China, could be Russia, could be South Africa or Switzerland.

-jcr

"The problem with trying to child-proof the world, is that it makes people neglect the far more important task of world-proofing the child." -- Hugh Daniel

As Jim Rogers has said, the

As Jim Rogers has said, the problem with the yuan is it lacks convertibility.
..................
"The main thing that I learned about conspiracy theory is that conspiracy theorists actually believe in a conspiracy because that is more comforting. The truth of the world is that it is chaotic..." —Alan Moore

..................
"The main thing that I learned about conspiracy theory is that conspiracy theorists actually believe in a conspiracy because that is more comforting. The truth of the world is that it is chaotic..." —Alan Moore

Will the Yuan replace the

Will the Yuan replace the dollar as the worlds currency, now that the Yuan is going to be backed by something of value as opposed to the dollar's thin air?

I think Mao would be scratching his head at this.

"Fascism should more properly be called corporatism because it is the merger of state and corporate power." - Benito Mussolini.

Hello Google Dollars! "You

Hello Google Dollars!

"You are a den of Vipers.I intend to rout you out and by the Eternal God I will rout you out."

"If this mischievous financial policy [greenbacks], which has its origin in North America, should become endurated down to a fixture, then that government will furnish its own money without cost. It will pay off its debts and be without debts. It will hav

If only we followed our Constitution.

Brazil is happy to accept the yuan, especially if backed by gold.
grant

Brazil has an interesting history

involving currencies. This from Jim Sinclair at jsmineset.com:

Finally a major event has taken place that is a US dollar milestone.

The financing and extremely important event is the arrangement between China and Brazil displaces the dollar as China becomes the major trading partner with Brazil. Since then the Rial has been celebrating and the dollar has been depressed.

This is a once in approximately a century replacement of a trading currency that has always meant a dethronement of the deposed and coronation of a new currency king.

The last time this happened was when the US dollar supplanted the British Pound as the major trading currency and entity with Brazil 79 years ago.

It took the Brits 300 years to supplant the Portuguese Escudo with the British Pound.

Only twice has this occurred in 379 years. This is obscure to most but not to Mr. Paulson the hedge wizard. Obscure to most, but not to our gang at JSMineset.

The dollar died in Rio and that means everywhere.

The dollar is in for a very cold winter.

Read the entire post at http://jsmineset.com/2009/05/21/three-extremely-important-po...

If the yuan (RMB) ever

If the yuan (RMB) ever becomes a more sound currency backed by gold, it will make complete sense to invest in yuan. China is going in the right direction. Our country, sadly, is not.
..................
"The main thing that I learned about conspiracy theory is that conspiracy theorists actually believe in a conspiracy because that is more comforting. The truth of the world is that it is chaotic..." —Alan Moore

..................
"The main thing that I learned about conspiracy theory is that conspiracy theorists actually believe in a conspiracy because that is more comforting. The truth of the world is that it is chaotic..." —Alan Moore

Saying goodbye to the dollar.

President "Lula" is in China for three days beginning today to expand trade with China.
China today opened their markets for direct trade with Brazilian meat products and other markets, with plans to open Chinese markets for Brazilan pork to be held in August.
One issue being discussed by China and Brazil s to bypass the FRN and trade in both the yuan and real.
grant

The world revolves around Ron Paul

They're listening to him. :)

31.4 Billion

It is worth about 31.4 Billion. 1054 metric tons = 33 886 886.9 troy oz @ $927 an oz

How much in the USA?

And what is that worth?

Yes, please BUY this wonderful libertarian BOOK! We all must know the History of Freedom! Buy it today!

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You beat me to it Treg!

Same question for the central bank of every nation on earth.

"Fascism should more properly be called corporatism because it is the merger of state and corporate power." - Benito Mussolini.

and you BOTH

beat my ass to it as well.

Global currency competition

The US made an amazing profit since WWII by being in charge of the world's reserve and international commerce currency. Everyone knows this. Now that the dollar is getting ready to collapse, there will likely be a fierce battle to see who gets to replace the US as the banker to the world. Everyone wants that profit. China is already on the move. But if there is a total collapse of the dollar, the losses worldwide will be astronomical. And people are going to be very reluctant to buy into another unbacked currency after having just been scorched by one.

To win this fight, the smart candidate is going to offer a currency with backing. Will it be fully redeemable in gold? That would sure make it an attractive option. That is what I would do if I were China . . .

Whoever wins is irrelevant, so long as...

the currency is backed by a commodity (and they allow anyone to redeem it).

Using 'oil' or 'gold' as a medium of exchange rather than paper backed by threat of force is a good thing; I don't care if you call it a yen, a dollar, or a loony.

Who ever makes the move gains a little in that their currency will be universally accepted, but they won't be able to pull off the financial coup that the US did post WWII. It will be impossible to inflate without risking a run on their reserves and hence their hands will be tied to a great degree.

Sort of

The commodiy backing needs to be compact, fungible, and non-perishable. You aren't going to be able to redeem your paper currency for barrels of oil or bushels of wheat at the bank. So precious metals win there. Other than that, I agree with you that the actual commodity backing the currency doesn't matter.

As for your second point, remember that the US started out after WWII with a 100% gold backed dollar but managed to find a way to inflate the hell out of it. Essentially it was a bait and switch. We got the world to accept the dollar and then when they were fully invested, we pulled the backing. China could do the same thing.

New currency is International SDR.

China is in a position to either hold the U.S. debt or more likely transfer it to the international SDR reserve. In either case it will have leverage on the world market and can if it wishes negociate trade in yuans. Brazil for example is currently trying to stablize the fall of the dollar, as dollars continue to flood into the country. It too is transfering it's reserves into the International SDR reserves system.
Just have to see where this leads us.
grant

Perspective

Thousand metric tons, that's a million kilo's, so we're talking 28 billion dollars or so... Now to replace the dollar, one needs a bit more then that. Even if the US would sell its eight thousand tons (that it is supposed to have......) to China, and the gold price tripling, we're not even at one trillion dollars.

According to that woman in charge of reviewing the FED, talking about trillions is just details, and hey these people know what they're talking about ;-) So I wonder how this would work out in the near future. It's a very good thing, of course, that these options are being explored.

Gold price

Why would you limit gold price to tripling?

The only reason the gold price is so low is that it was de-monetized. If gold becomes the world's money again, its exchange value in terms of dollars could increase ten fold or more. The law of supply and demand will push the exchange value up until the new, increased demand is met.

If it happens, this is the powerball jackpot for gold investors.

Gold price

You have to consider that the total amount of gold extracted from our lovely planet earth only grows slowly today.

Still, mining is profitable at certain locations with a gold price around $950 per 31 grams... The more expensive it becomes, the more locations could be mined for a profit. So there will be some vague upper limit to the gold price, measured in work hours per gram.

If you think about any fiat currency vs gold, yeah there is no limit as the fiat currency may drop endlessly. A dollar or a 5 euro bill only has intrinsic value for people owning a fire place.

SteveMT's picture

They are smart. We are dumb.

They are in the driver's seat. We are the trailer being pulled along for now.