Is the ‘new reserve currency’ that China is proposing also backed by gold?

Over the weekend a very interesting op-ed appeared out of the Xinhua news agency. Before we get going let’s just remind ourselves just who Xinhua is – from wiki:

The Xinhua News Agency (/ˈʃiːnhwɑː/;[1]) is the official press agency of the People’s Republic of China and the biggest center for collecting information and press conferences in China. It is the largest news agency in China, ahead of the China News Service. Xinhua is subordinate to the State Council and reports to the Communist Party of China’s Propaganda and Public Information Departments. Xinhua’s headquarters complex, the “pencil building”, is at No. 57 Xuanwumenxi Street, Beijing. Its website Xinhua.org or Xinhuanet.com is headquartered on the twentieth floor of the Dacheng Plaza in Xicheng District, Beijing.[2]

So basically anything appearing out of the Xinhua News Agency (especially on the ‘op-ed’ pages) can be safely taken to be approved (if not written) by the Chinese government itself. So just what appeared out of the Xinhua News Agency over the weekend? Just your regular op-ed calling for a ‘new reserve currency’ (oh, and that rather ominous phrase ‘a new world order’). From the Xinhua News Agency:

The first paragraph sets the tone, calling for the world to consider building a ‘de-Americanized world’:

BEIJING, Oct. 13 (Xinhua) — As U.S. politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to start considering building a de-Americanized world.

The US then gets accused of trying to build an empire after WW2 and meddling in the business of other countries:

Emerging from the bloodshed of the Second World War as the world’s most powerful nation, the United States has since then been trying to build a global empire by imposing a postwar world order, fueling recovery in Europe, and encouraging regime-change in nations that it deems hardly Washington-friendly.

With its seemingly unrivalled economic and military might, the United States has declared that it has vital national interests to protect in nearly every corner of the globe, and been habituated to meddling in the business of other countries and regions far away from its shores.

Pulling no punches, China then reminds the US that they have accepted the notion of torture, sprays the world with drone-bombs, and the icing on the cake, spy on just about everyone on the planet:

Meanwhile, the U.S. government has gone to all lengths to appear before the world as the one that claims the moral high ground, yet covertly doing things that are as audacious as torturing prisoners of war, slaying civilians in drone attacks, and spying on world leaders.

But rather than bring peace and prosperity to the world the US is accused of bringing ‘chaos’ to the world, as well as the odd ‘unwarranted’ war – all ‘under the cover of lies’ no less:

Under what is known as the Pax-Americana, we fail to see a world where the United States is helping to defuse violence and conflicts, reduce poor and displaced population, and bring about real, lasting peace.

Moreover, instead of honoring its duties as a responsible leading power, a self-serving Washington has abused its superpower status and introduced even more chaos into the world by shifting financial risks overseas, instigating regional tensions amid territorial disputes, and fighting unwarranted wars under the cover of outright lies.

As a result, the world is still crawling its way out of an economic disaster thanks to the voracious Wall Street elites, while bombings and killings have become virtually daily routines in Iraq years after Washington claimed it has liberated its people from tyrannical rule.

China then warns the US about not paying back the trillions upon trillions it has borrowed from the world – with China being the biggest ‘banker’ of America of course:

Most recently, the cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising debt ceiling has again left many nations’ tremendous dollar assets in jeopardy and the international community highly agonized.

Then China reverts to the seeming catch-all phrase that just about every leader of a country on the planet loves to use (Gordon Brown included) – the need for a ‘new world order’ – the fact that Hitler used to use the same verbiage never seems to put world leaders off from using that phrase for some reaseon:

Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated, and a new world order should be put in place, according to which all nations, big or small, poor or rich, can have their key interests respected and protected on an equal footing.

The article then turns its attention to what world reforms are needed in terms of global finance:

Apart from that, the world’s financial system also has to embrace some substantial reforms.

The developing and emerging market economies need to have more say in major international financial institutions including the World Bank and the International Monetary Fund, so that they could better reflect the transformations of the global economic and political landscape.

And this is where things start to get very interesting – China then calls for ‘a new world reserve currency’ to ‘replace the dollar’:

What may also be included as a key part of an effective reform is the introduction of a new international reserve currency that is to be created to replace the dominant U.S. dollar, so that the international community could permanently stay away from the spillover of the intensifying domestic political turmoil in the United States.

So do we have any idea about the sort of ‘new world reserve’ currency that China is thinking about trying to get the rest of the world to adopt? Back in July we wrote a piece title “Is China considering backing its currency with gold?”:

A very interesting article appeared yesterday in “Russia Beyond the Headlines” claiming that China is seriously considering backing the Yuan with gold.

First up, lets deal with just who “Russia Beyond the Headlines” are. Taken from the about section of their website….

….So effectively “Russia Beyond the Headlines” is an arm of the newspaper “Rossiyskaya Gazeta” which is “the Russian government’s paper of record”.

It’s probably worth bearing that in mind when you read the below. So what did the article titled “China reportedly planning to back the yuan with gold” say?

Recent media reports suggest that Beijing is considering backing the yuan with gold. This decision, if taken, will likely affect China’s economy and may trigger a new wave of the global economic crisis. For Russia, however, such a scenario may have its benefits.

According to media reports of early July, the People’s Bank of China is mulling the possibility of phasing out the dollar as the reference currency for the yuan exchange rate, and to start using gold as the reference point.

So a few months ago there was a news report out of the Russian government’s official newspaper saying that the PBOC was considering the possibility of backing their currency with gold and ditching the dollar.

Over the weekend we now learn that indeed China is now out-right calling for an end to the dollar – confirming the report from July. It isn’t much of a stretch to think that China is seriously considering a new reserve currency in some from backed by gold – it would certainly explain why the government of China have been buying ton upon ton of gold month-in month-out for the past five years.

Whilst their official holdings from wiki say they only have 1054 tonnes – this hasn’t been updated since 2009, and the ‘real’ number is probably much closer to 3000 tonnes today – making China the third biggest holder of gold on the planet – bear in mind that just a few short years ago China wasn’t even in the top-10.

So is the explanation of China’s gold buying spree the past few years that they fully intend to replace the dollar with a new gold-backed currency? We’ll have to wait a little longer to find that one out, but one thing we do know for sure after the weekend – the Chinese government is now openly calling for the end of the dollar’s world-reserve status – a massive story that once again you won’t hear anywhere in the lame-stream media in the West

The tricky thing about a currency “backed by gold” is that people have to believe that the issuer will actually hand over the gold in exchange for the currency. Does anybody think a communist government can be trusted to do that?

Thanks for posting.

As discussed the other day, China is probably importing 100 tonnes a month - and that's not including their internally mined Gold.

GoldSilver.com (Mike Maloney's group) have published the following graph. I don't know if their figures are accurate - the only obvious caveat is that this is Chinese Government reserves + Gold held by the Chinese people.

With that caveat in mind, here's the graph. It shows the likely Chinese reserves at about 7000 tonnes.

For perspective: this doesn't make China the largest holder of Gold. The people of India (by themselves, not their Government) are thought to have perhaps 10,000 tonnes: quite a lot of it on Temple roofs :0)

Although of course the Indian Government is scandalously trying any and all means to divest the Indians of their Gold, whereas China seems to be pragmatically moving away from the fiat system.

U.S. currency was once backed by gold and silver, and everyone got so comfortable with it, that FDR and Truman had no problem substituting it with fiat money. As long as all you hold is a piece of paper, the party holding the gold can change the terms at will. Think FDR.

Great choice to replace the U.S. as Number One. Wow. Red China's ruling party knows how to get things done. All the events since Mao's agrarian reformers saved China are contemporaneous events for me.

1947-1952 Land reform . . . resulted in approximately 1 million - 4.5 million deaths.

1950-1953 Campaign to Suppress Counterrevolutionaries . . . many were sentenced to forced labor or condemned to be executed. Between 700,000 and 2 million are estimated to have been killed in the campaign.

1955 Sufan movement . . . [estimated] 770,000 were killed in the campaign.

1958-1960 Great Leap Forward . . . led to the deaths of 36 - 45 million.

Exhausted from burying that many bodies without western-technology bulldozers -- and more savvy about "What happens in Red China stays in Red China" there's not much known about how many tens of millions more citizens were eliminated.

(I am not including the source. The last time I cited this source for data not considered PC the article was purged and a discussion raged about allowing information "like that" to be made public. But the source rhymes with graffiti.)

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