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Category: Bullion Bulletin

Bullion Bulletin: China’s subtle style

Who has the deepest pockets in today's world? China...maybe. Who has the biggest gold reserves? China...probably....

25 September 2022

Gary Mead

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Who has the deepest pockets in today’s world?


Who has the biggest gold reserves?


It’s an interesting correlation.

Officially, China is only the sixth-biggest holder of gold reserves, but few believe that. Since 2000, China has produced more than 6,000 tonnes of gold; much of this has gone into its official reserves as well as local jewellery fabrication. The People’s Bank of China holds and manages the country’s official reserves and very secretive it is too; the most recent statement in May this year put China’s gold reserves at 1,775 tonnes, which probably considerably under-estimates the true figure.

As for China’s deep pockets, there’s plenty of evidence. There’s the almost $1 trillion in infrastructure loans China has made in the past decade for its Belt and Road initiative – making it a bigger development financier than the World Bank. Countries as diverse as Belarus and Argentina, Sri Lanka and Venezuela have received easy-term loans, without any onerous prescriptions attached. Thousands of loans to some 165 low and middle income countries have been made.

A little-known entity, the ‘Sino-Russian Financial Alliance’, which unites 35 Russian and Chinese banks and insurance companies, has existed since 2015 to promote “a favourable mechanism for the efficient development of Sino-Russian economic and trade exchanges, promote the comprehensive development of Sino-Russian financial cooperation, and promote the local currency settlement of economic entities in China and Russia”.

China is focused on disseminating its ‘soft’ power. This subtle approach, aimed ultimately at dislodging Western political and economic hegemony, is working in tandem with Russia’s more directly confrontational style.

The Dollar symbolises that Western hegemony and it is the Dollar – despite its current strength against a basket of other currencies – which is firmly in the sights of members of the Shanghai Cooperation Organization (SCO), including Russia and China, which met this month. Iran, which recently joined the SCO, has called on the organization to introduce a new single currency for the bloc.

While Russia’s President Putin has explicitly turned his wrath on the West, China’s President Xi is more enigmatic. But both share the ambition of dislodging the (weaponized, as sanctions against Russia have demonstrated) Dollar from its international reserve status. Beijing wants to increase the use of the Yuan in China’s cross-border trade settlements and investment, reduce its dependence on the Dollar, minimize exchange risk and Dollar liquidity shortage, and maintain access to global markets during geopolitical crises.

While bigger Chinese banks immediately stopped processing transactions with Russian entities following the imposition of sanctions, small and medium scale banks in the Sino-Russian Financial Alliance could help Russian entities evade sanctions using alternative payment and settlement infrastructures such as the Cross-Border Interbank Payment System (CIPS) or cash.

China-Russian trade settlements using the Yuan rose from 3.1% in 2014 to 17.9% in 2021, an increase of 477%. This trend will only have increased since Russia invaded Ukraine.

What are the implications of all this for gold? The partners in the SCO are united by one thing – the yearning to replace the Dollar as the trade settlement currency. Yet confidence and trust in alternatives (the Yuan, the Ruble…) will remain low without credible and demonstrable evidence of some strong backing – such as gold. China is accumulating as much gold as possible.


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