Does China Plan To Back The Yuan With Gold And Make It The Primary Global Reserve Currency?

What in the world is China up to?  Why are the Chinese hoarding so much gold?  Does China plan to back the yuan with gold and turn it into a global reserve currency?  Could it be possible that China actually intends for the yuan to eventually replace the U.S. dollar as the primary reserve currency of the planet?  Most people in the western world assume that China just wants a “seat at the table” and is content to let the United States run the show.  But that isn’t the case at all.  The truth is that China doesn’t just want to compete with the United States.  Rather, China actually plans to replace the United States as the dominant economic power on the planet.  In fact, China already accounts for more global trade than the United States does.  So what would happen one day if China announced that it was backing the yuan with gold and that it would no longer be using the U.S. dollar in international trade?  It would cause a financial shift so cataclysmic that it is hard to even imagine.

It won’t happen next week or next month, but eventually we could see China back the yuan with gold.
When that happens, it is going to be a complete and utter financial disaster for the United States.


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From The Economic Collapse Blog

Most of those that write about the “death of the U.S. dollar” usually fail to point out that China is holding a lot of the cards as far as the fate of the dollar is concerned.  China owns about a trillion dollars of our debt, China is the second largest economy on the planet, and nobody uses the dollar in international trade more than China does except for the United States.  Up until now, China has had to use the U.S. dollar in international trade because there has not been an attractive alternative.  But a gold-backed yuan would change all of that very rapidly.

And without a doubt, the Chinese government has already been very busy promoting the use of the yuan in international trade.  In a recent note, John McCormick of RBS Group stated the following…

Financial crises in the US and Europe mean the world needs a new, more stable global reserve currency, and trade in RMB is growing rapidly. In the FX market, for example, our figures show that volumes are now worth around USD 5-6 billion daily – double what they were a year ago.

A number of factors suggest that the Chinese authorities want to make RMB internationalisation happen by 2015.

For China, having a global reserve currency is not just about economics.  It is also about power.

McCormick ended his recent note this way…

China’s new leadership faces a number of problems. The country’s economy is slowing and, although we would expect the rate of GDP growth to pick up a little, it is unlikely to be a steep rebound.

But promoting RMB as a global reserve currency, with all the economic benefits that will bring in addition to exerting more political influence on the global stage, clearly remains high on their agenda.

Similar sentiments were echoed in a recent article in the Wall Street Journal

Beijing is undertaking a long, gradual campaign to establish the yuan as a more market-oriented, international currency. China’s State Council, or cabinet, said in a statement this month that the country would draft a plan to allow the yuan to become fully convertible. Meanwhile, the People’s Bank of China is guiding the currency higher and set the median point of its permitted daily trading band last week at the strongest level ever.

We don’t hear much about these sorts of things in the western media, but the convertibility of the Chinese yuan is a very big deal.  Up until recently, the yuan was only directly convertible into dollars and yen.  But now that is rapidly changing.  So far this year, the Chinese government has entered into currency convertibility agreements with Australia and New Zealand.

So instead of having to change yuan into U.S. dollars to trade with Australia and New Zealand, now China can cut U.S. dollars completely out of the process.

But right now there is nothing that really gives the Chinese yuan a significant competitive edge over the U.S. dollar.  If Chinese authorities truly want the yuan to end up replacing the U.S. dollar as the primary reserve currency of the planet, they need to do something that will make the rest of the world want to use it.

And they could do that by backing the yuan with gold.  In fact, there are persistent rumors that China has been busily preparing for that.

For example, the Economic Policy Journal recently pointed out that Dr. Pippa Malmgren, the President and founder of Principalis Asset Management who once worked in the White House as an adviser to President Bush, is claiming that China has plans to turn the yuan into “a hard, gold-backed currency” that will have a distinct competitive edge over the rapidly depreciating paper currencies that the rest of the globe is currently using…

The most interesting piece of the puzzle is that the Chinese have emerged as the biggest buyers of gold, mainly off-market. They want the yuan to emerge as a hard, gold-backed currency in a world where everyone else has chosen to inflate and devalue.

The recent bilateral currency deals with Australia, France, Russia and Singapore, and many others, reflect this desire to displace the USD as the world’s reserve currency.

It may be an interesting and long race between the Chinese reaching for convertibility and the Western central banks straining credibility.

Other analysts are also fully convinced that the goal of the Chinese is a gold-backed yuan.  The following is what money manager Stephen Leeb told King World News recently

Countries have been battling each other in order to cheapen their currencies. The problem with a cheaper currency is that commodities cost more. So China has decided to opt for a higher currency.

The move in the yuan overnight was one of the most significant upticks I have seen. Like I said, the yuan moved to an all-time high. The yuan has advanced roughly 5% against the US dollar in just nine months. China also imported over 200 tons of gold for the most recent month. That is an extraordinary number. At that rate that’s over 2,400 tons of gold per year on an annualized basis.

This simply speeds up the point at which China will be the largest gold holder in the world. China saw gold come down and they didn’t just buy on the dip, instead they bought as much as the market would give them. And, again, you see the yuan going up so that is making the price of gold even cheaper for the Chinese.

It’s only a matter of time before the Chinese back the yuan with gold. This will push the yuan front and center as a key element in terms of being part of the world’s reserve currency basket. China gets the message. They are doing whatever it takes to establish their dominance in the world, particularly in the commodity arena. Their currency is flying and they are importing as much gold as they possibly can.

And without a doubt, China has been hoarding massive amounts of gold.  Everyone agrees on that.  But what nobody knows is exactly how much gold China currently has stockpiled, because China is not telling anybody.

One recent estimate put China’s gold reserves at more than 7,000 tons of gold, but it could potentially be far higher than that.  When China does finally tell the rest of us how much gold they have, they will probably be just a move or two away from checkmate.

What we do know is that China is importing absolutely enormous amounts of gold right now even though China is also the number one gold producer on the planet.

According to Reuters, more than 223 tons of gold was imported into China from Hong Kong in March.  That smashed the previous record of 114 tons in December.

Overall, Chinese imports of gold from Hong Kong tripled in 2012, and the final number for 2013 is going to absolutely smash what we saw in 2012.

Obviously something is happening.

China is massively hoarding gold at the same time that it is trying to substantially raise the international influence of the yuan.

It doesn’t take a genius to see where all of this is headed.

If China does decide to back the yuan with gold and no longer use the U.S. dollar in international trade, it will have devastating effects on the U.S. economy.  Demand for the U.S. dollar and U.S. debt would drop like a rock, and prices on the things that we buy every day would soar.  At that point you could forget about cheap gasoline or cheap Chinese imports.  Our entire way of life depends on the U.S. dollar being the primary reserve currency of the world and being able to import things very inexpensively.  If the rest of the world (led by China) starts to reject the U.S. dollar, it would result in a massive tsunami of currency coming back to our shores and a very painful adjustment in our standard of living.  Today, most U.S. currency is actually used outside of the United States.  If someday that changes and we are no longer able to export our inflation that is going to mean big trouble for us.

So keep an eye on China, and look out for any news about the yuan.

It won’t happen next week or next month, but eventually we could see China back the yuan with gold.

When that happens, it is going to be a complete and utter financial disaster for the United States.

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  1. Yeah, we’ve seen this story numerous times.  Someone still needs to explain to me how this is going to work since the US has over three times more gold than China.  And please, do a little research before coming at me with conspiracy theories.

    • You may be a bit behind on your reading. China has not declared their holding in years, and only via the HongKong connection alone we know that boatloads are entering the country. And, they are considered largest producer.
      At the same time, USA manages to net export huge amounts of gold. While they are an iny tiny producer nowadays. 
      The solution is clear and not even disputed : gold is leased out to bullion banks, since the 80′s or before most likely, and the bullion banks have sold it on the market or re-hypothecated the heck out of it.
      USA’s gold is there, if you only audit one vault at a time, the one they allow you to audit. You know, the NYC one across the street from JPM who have the larest vault in the world, reportedly interconnected several levels below the street.

      It’s mathematically impossible for the USA to have more gold than China still. Or, the US is lying about their gold export numbers, overstating them. And why on earth would they do that?

    • By the way, using the world “conspiracy theory” on opposing hypotheses is getting old. Actually, it’s become a big red flag for in facts talking out of one’s neck, or outright lying. It’s a favorite word for the 2 guys you’re allowed to vote for, to talk about YOU.

      Over time, reality usually turns out to be much darker than most “conspiracy theorist” could ever come up with. Name any CT, and see what become known 20-30 years later, via declassification.

    • All of these articles are 90% wrong even when they are right.  I seriously doubt we’ll see a 100% backed gold currency but perhaps a BRICS currency where 10% is backed with precious metals.  The FIAT banks of the world just couldn’t live without the ability to create money out of thin air. 
      The other possibility is China keeps their internal FIAT currency and just develops an external currency for internal trades which is backed by gold.  Probably $2 to $4 Trillion in gold would be enough to launch this currency for the BRICS.  However, the U.S. could easily counter and do the same thing and perhaps that is what happens.  We end up with international trade settlements by a partially gold backed currency.  But doubt this will happen anytime soon. 

    • I agree that China is the largest producer in gold.  I believe the US is still the 3rd highest producer in gold.  Can you point me to where the US is saying what their export numbers are?  Thanks.

    • By the way, I was being generous using the term “conspiracy theories”.  After reading some of the posts on here the past few months I was going to go with “whackadoodles”. 

    • @Stack, your ignorance on things concerning gold and silver is appalling. And insulting people who know better doesn’t help your cause.
      My only advice to you is go read blogs like Zero Hedge for 2 or 3 years and then come here and chat. Until then, nothing will make sense to you.

    • @Bay …too general.  Which of my statements here is wrong and prove it to me.  I know, nothing worse than a stacker with common sense.  I am aware of the audience that this site is primarily geared towards.  Most of these posts I don’t bother commenting and just move along.  But I don’t think I am asking for much here.  Prove to me that it is my ignorance that is appalling.

    • Where do you think China has been getting all the gold? Vaults here are likely close to empty

    • how i long for the good ol days of usenet, when a real peach like BO0 could be plonked to the killfile.  
      pStack, i’ve tried to find export numbers and have found my way to the general census site but cannot find any data on gold exports.

    • mikey ….I tried finding something for the year 2012.  All I could find was that they were a net 103 tonnes export vs inport in gold for the first quarter of 2012.  That’s not much of a number when you’re talking US gold at over 8,000 tonnes.

    • I may be a lot of things Mikey but I’m not a mindless idiot devoid of critical thinking skills. You sure talk like an authority around here but all I see is you using MSM articles and unreliable gov’t sources to give us the truth on gold and silver issues. I’m wondering, if you’re so connected and an expert in this field how come you don’t have the accurate US gold export numbers? I already know why you can’t provide that info but please, tell us all about it. I’m all ears.

    • Stack, could you share where you found that?  the governments websites often seem like a maze to me.

    • i think you answered your own question, and you must have missed about the ten other times this month where i have asked anyone with information on the cash gold markets to share.  not comex price or gld price or lma, not silver eagle price or maple price or constitutional price, but real data on what a ton of bulk silver sells for.  
      if i were really as connected as you claim i say i am i would have that information too!

    • longing again for the edit button, gold/ silver cash mkts

    • @Stacksmack3000
      The US used to hold over 8100 oz in the past but since then most have rumored to have been leased out or sold and the gold at Ft Knox are mostly custodial gold. That is why when Germany asked for the 150 metric tons of gold back, they have to wait 7 years to get them back. To add insult to injury the Germans were not even allowed to audit THEIR own gold.

  2. They running out of stuff to remind us of. At least we have Sinclair’s Blow Pony’s prediction today to look forward to.

  3. Well, I would personally be shocked if China at some point didn’t declare they had 3-5000 tonnes of gold.
    That being the case, I goddamn hope they do back their currency with gold, same with russia. And start issuing silver coins for currency too. It certainly might help gold beat 1400 convincingly and silver to get a couple of closes above 22.50.

  4. My 2 cents worth:
    Paper currency will always be in use, and also electronic currency such as ATM cards, Debit/Credit cards, and EFT electronic fund transfers. The reasons are simple – it is easier to carry around and use for everyday transactions. Especially when it is a bog amount, such as those involving business related transactions.
    However, GOLD and SILVER are Stores Of Value. The meaning is simple. These precious metals represent the Reference Point for Value/Money. And MONEY is the Medium Of Exchange. All Fiat Currency (on paper or electronic form) will then be denominated in Units Per Ounce of GOLD/SILVER. For example: USD1500/oz/Au, USD25/oz/Ag. What the actual denomination (or conversion rate) will depend on many factors (such as currency supply, etc.).
    For Trade Purposes, which is what the world needs (for buying and selling of goods), the new Trade Unit can be denominated as Trade Oz of Gold, which will also be set for a value of Ounces of Silver per Ounce of Gold. All trade can use the G-Oz and then settled in local currency. This means – No More world reserve currency.
    When this will happen is the question! Will this happen? My personal thoughts are that this is a simple way for many countries to use/implement to replace the US$ as reserve currency.

    • @Genuis8
      You stated the standard ‘New Austrian’ hogwash of … “GOLD and SILVER are Stores Of Value. The meaning is simple. These precious metals represent the Reference Point for Value/Money”, without FIRST establishing HOW those metals ACHIEVE any BASIS for ‘valuation’.
      That can ONLY be objectively derived from supply-demand equilibration within the global goods-matrix In other words, by relative abundance or paucity of circulation DIRECTLY matched against those parameters surrounding OTHER things. In substituting credit notes into circulation, an IMMEDIATE effect is to dis-associate money from that ‘free market’ equilibration, causing irrational SUBJECTIVE ‘pricing’ because the ‘divisor’ (so to speak) is made non-quantifiable. That effect automatically translates over to the metals AS WELL. as this phenomenon ripples throughout the entire matrix, pretense of ‘values’ for EVERYTHING becomes a cacophony of sheer guesses! So, to merely presume that silver and gold will miraculously remain ‘references of value’ is delusional.
      Now, I don’t mean ANY of this to be derogatory toward you. I’m trying to be instructional. You CAN’T take for granted ANYTHING from ‘experts’. Thinking things through in as fully holistic a framework as you’re able, is the ONLY way we can ALL avoid getting hoodwinked YET AGAIN!

  5. Jeez, what ELSE could it be?  They own a significant portion of the USA already.  Why not utilize their currency and have it as the reserve currency of the planet?  Makes perfect sense to me (and anyone else that’s paying attention).

  6. “Financial crises in the US and Europe mean the world needs a new, more stable global reserve currency, and trade in RMB is growing rapidly. In the FX market, for example, our figures show that volumes are now worth around USD 5-6 billion daily – double what they were a year ago…. A number of factors suggest that the Chinese authorities want to make RMB internationalisation happen by 2015.”

    So, the f*** WHAT Mr. McCormack? I’d EXPECT an RBS banking shill to spread this sub-liminal mind-control garbage, presumptively establishing false premises for ‘discussion’, but what’s the author of this blog doing PANDERING to it?

    How was the English Pound  (the REAL silver one! An actual Troy pound  originally!) destroyed? It was squandered by successive governments and finally made a paper stamp … backed with gold … until one day it wasn’t anymore!

    How was the American Dollar (the REAL silver one!) destroyed? It was squandered by successive governments and finally made a paper stamp … backed with gold … until one day it wasn’t anymore!

    Now, what DIVINE BLESSING will prevent the same damned thing from happening with the yuan? HUH? China came to the verge of existential implosion in 1450 for this EXACT SAME REASON. Apparently, Commie brainwash has made THEM blithering idiots TOO, if they’re actually going to run THAT gamut again!

    NO MORE STINKING PAPER! … Paper Rots, Coin Does Not.

  7. China doesn’t want a strong currency anytime soon, they are a export economy, maybe in 10-20 years they will use their gold, until then they accumulate.
    The China currecy is already -50% undervalued, they don’t even need gold for a stronger currency today.

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