Thursday, September 20, 2012

China Launching Gold Backed Global Currency

According to the article, China is recasting all of their gold reserves into small one kilo bars in order to issue a new “gold-backed” currency. Many say this will disrupt global trade and will eventually cause a collapse of the US dollar.

There can be no doubt that the US dollar will soon be history. China is recasting all of their gold reserves into small one kilo bars in order to issue a new ‘gold backed’ global currency. 

This is surely a strategic part of their recent push to sign new trade agreements with Russia, Japan, Chile, Brazil, India, and Iran. The cat is now out of the bag, the US will be given the ‘bums rush’ by the largest trading nations in the world and the dollar will go down in flames. GATA now estimates that 80% of the gold that investors believe they have in allocated accounts is long gone, the majority of it probably wound up in China.

From Financial Times:

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China’s largest gold producer is already a force to be reckoned with. But if the visionary head of China National Gold Corporation gets his way, it’s going to be much, much bigger.
As the FT reported on Friday, the state-owned group is in talks to buy a majority stake in African Barrick Gold from its parent Barrick Gold, the world’s top gold miner.

For anyone seeking an insight into the thinking behind the deal, beyondbrics has translated a fascinating article by Sun Zhaoxue [pictured], president of China National.

The article appeared this month in Qiushi magazine, the main academic journal of the Chinese Communist Party’s Central Committee. The publication is responsible for disseminating communist ideology to officials.

Given the timing of the article and the standing of its author, its contents should not be taken lightly.

Perhaps unsurprisingly, Sun argues that China should view gold as a “strategic resource as important as petroleum energy” and says the country needs to ramp up its gold reserves from their current low levels.
Gold accounts for just 1.6 per cent of China’s $3.2tn foreign exchange reserves, compared to an international average of about 10 per cent and more than 70 per cent for the US.
From Sun:
“As gold is a currency in nature, no matter if it’s for state economic security or for the acceleration of renminbi internationalisation, increasing the gold reserve should be one of the key strategies of China.”
Sun believes a core component of the strength of any sovereign currency is for it to be backed by gold. So if China is to succeed in internationalising the renminbi, it must dramatically increase its holdings of the inert metal.
Sun, a resource economist by training, also has an interesting take on global currency wars. He believes the US has been promoting a theory that gold is “useless” to keep gold in the doldrums and protect the dollar.
“It turns out the theory is nothing but a tactic used by the US… to suppress other currencies and maintain dollar hegemony. The reason that the dollar and the pound as well as euro developed from a single country currency to a global or regional currency is that these countries have huge gold reserves.”
“Although the global financial crisis originated in the US, the crisis hasn’t shaken the dominant status of the US dollar in the world and American assets are not shrinking because of dollar depreciation. America’s 8,133 tonnes of gold reserves plays an important role in that.”
China had only 1,054 tonnes of gold reserves by the last official announcement. So what is to be done?
For a start, Sun advocates boosting the efficiency of China’s domestic gold mining industry through consolidation and a big increase in investment in technology and infrastructure.
“In addition, we should encourage individual investment in gold as an important part of the state gold reserve system. Gold held by civilians is an effective complement to national reserves and very important to financial security of the country.”
Chinese people buy less than 5 grams of gold per capita annually, compared to a global average of more than 20 grams, he says, citing the World Gold Council, a lobby group for the gold miners. Sun calls for a drive to market gold and gold investment products to ordinary people, especially through the 1,600 gold shops that China National owns across the country.
Last but not least, Sun sets his sight beyond China’s borders.
At the same time, we should encourage Chinese companies to go overseas and explore resources in other countries to broaden the channels of increasing gold reserves.
First stop, Africa.
Additional reporting by Zhou Ping

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