Is China Preparing A Gold-Backed Yuan: Beijing Greenlights Purchases of Billions in Bullion
The comments below are an edited and abridged synopsis of an article by Tyler Durden
In 2018, China launched a gold-backed, yuan-denominated oil futures contract. The contracts were priced in yuan but convertible to gold, raising the prospect that the rise of the petro-yuan could be a death blow for the dollar.
This month, the global share of US-dollar-denominated exchange reserves dropped to 59% in the fourth quarter. This matched the 25-year low of 1995.
And just last week, China became the first major economy to roll out a Central Bank Digital Currency, “cementing its trailblazer status in virtual currencies far ahead of other countries, after already recently experimenting with large-scale trials of actual payments by consumers, which was met with mixed results.”
Also last week, Peter Thiel warned that Bitcoin should be thought of as a Chinese financial weapon against the US; it threatens fiat money, but it especially threatens the US dollar.
All of which sets the stage for the recent dramatic headlines as Reuters reported that China has given domestic and international banks permission to import large amounts of gold into the country.
This is China’s return to the global bullion market. Since February 2020, it has on average imported gold worth around $600 million a month, or roughly 10 tonnes. In 2019, its imports ran at about $3.5 billion a month, or roughly 75 tonnes.
As Alasdair Macleod wrote last year, China can escape the fate of a dollar collapse by tying the yuan to gold. Of all the major economies, China’s is best placed to implement a sound money solution.
It is not in China’s geopolitical interest to introduce a gold standard that undermines or destroys the dollar. China will only do that once the dollar is in an inflationary collapse, and the risk of the yuan going down with it must be addressed.
Perhaps a reappraisal of the dollar’s prospects and the debt trap of rising interest rates being sprung on western governments will determine the timing. Perhaps the digitization of the yuan is the control China needs to enable this transition.