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Gold and the Yuan in the News
TND Guest Contributor: Paul-Martin Foss |
China announced plans on Friday to launch a new yuan-denominated gold fix. As the world’s largest producer and second-largest consumer of gold, this could be the beginning of something big. The new gold fix is also poised to revolve around a new 1kg gold contract, as opposed to the 400 troy ounce (~12.5kg) contract that currently dominates the London gold market. While this new benchmark likely won’t supplant the London fix in the short term, thecontroversy over the setting of the London fix and similar price benchmarks might draw a little more attention to China. And while London has historically been the primary trading center for gold, as well as a top location for gold storage, certainly China’s status as the world’s top gold producer will mean an increasing amount of the gold trade will move east.
This new gold fix is just one more step towards the full internationalization of the yuan. Remember that one of the reasons for the dollar’s run as the world’s reserve currency has been because of its use in international trade. The dollar price of gold is a common benchmark worldwide, and purchases of oil are almost exclusively made with dollars. A yuan-denominated gold price fix should result in an increased demand for yuan on the part of gold-buyers. Chalk this up as yet another step in the yuan’s quest to rival the dollar as an international reserve currency. It will be interesting too to see if this new price fix nudges the Chinese government further in the direction of eventually backing the yuan with gold.
News from India over the weekend announced a plan on the part of the Indian governmentto introduce new gold-denominated savings accounts, along with a gold-backed sovereign bond. The aim of the scheme is allegedly to monetize India’s private gold stocks, estimated at 20,000 tonnes, or about 11.5% of all the gold ever mined in the world. It will remain to be seen how successful the government’s scheme is, or whether Indians will remain distrustful of the government, which undoubtedly would love to add some of this gold to its meager 557 tonnes of official reserves. While this still places India in 11th place in the world in terms of official gold holdings, it is still well behind the official figures of Russia, China, Japan, and the United States. Adding to its official gold holdings is undoubtedly an aim of Indian government officials.
Watch this China-India axis in the future. These two countries are the world’s largest consumers of gold and China is the largest producer. Russia’s official gold holdings are sixth in the world, China’s are seventh (although rumored to be higher than officially reported), and India is eleventh. Combine the three and they would be in third place, just ahead of the IMF and behind Germany and the US. Could all of this interest in gold be part of a move on the part of the BRICS countries to start a gold-backed currency system aligned against the dollar and euro? This is definitely a trend that bears watching.
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About Paul-Martin Foss:
Paul-Martin Foss is the founder, President, and Executive Director of the Carl Menger Center for the Study of Money and Banking, an Arlington, VA-based think tank dedicated to educating the American people on the importance of sound money and sound banking.
Prior to founding the Menger Center, Mr. Foss worked in the U.S. House of Representatives for seven years, including six years as Congressman Ron Paul’s legislative assistant for monetary policy and financial services, and one year as Deputy Legislative Director for Congressman Thomas Massie.
As Congressman Paul’s legislative assistant, he assisted the Congressman in his duties as Chairman of the Subcommittee on Domestic Monetary Policy by helping to develop hearing topics, agendas, and briefing Congressmen and their staffs on monetary policy topics. Mr. Foss also was responsible for the management of Dr. Paul’s monetary policy and financial services legislation, including the “Audit the Fed” and “End the Fed” bills, and was co-editor of Ron Paul’s Monetary Policy Anthology, a multi-thousand page compilation of hearing transcripts, lecture transcripts, and other documents related to Dr. Paul’s chairmanship.
Mr. Foss received his Bachelor’s degree from The University of the South (Sewanee), and Master’s degrees from the London School of Economics and Georgetown University’s Edmund A. Walsh School of Foreign Service.
This article appeared on the Carl Menger Center for the Study of Money and Banking and is reprinted with permission, “Creative Commons 4.0.”
Source: http://thenewsdoctors.com/gold-and-the-yuan-in-the-news/
