Back in 2001 China was allowed into the world trade organization. As far as I was concerned, this was inevitable. China had become the manufacturing arm of the world. They were growing in leaps and bounds, and we were sending trillions of dollars into their economy.
Back in 2001 China was allowed into the world trade organization. As far as I was concerned, this was inevitable. China had become the manufacturing arm of the world. They were growing in leaps and bounds, and we were sending trillions of dollars into their economy.
As all this growth was taking place, and China looked to be part of the big boy club, it was quite evident to me that “at some point” they didn’t just want to be the planets labor system. They wanted a seat at the upper echelons of high finance.
As time moved forward, this played out, as they petitioned to be part of the IMF’s “SDR” system. What’s that you ask? The SDR is an international reserve asset created by the IMF in 1969 to supplement its member countries’ official reserves. From 1969 to 2000, the SDR “basket” was three currencies. The US Dollar, the Japanese Yen, the Pound Sterling. Then the Euro, which was created in 1999 was added.
Well, in the years 2009,10,11,12 etc, I was on record many times saying that not only is China petitioning to be part of this reserve asset, they would gain acceptance. That happened in 2015. I got it right. The following is from the IMF itself:
The RMB’s inclusion is an important milestone in the integration of the Chinese economy into the global financial system. The IMF’s determination that the RMB is freely usable reflects China’s expanding role in global trade and the substantial increase in the international use and trading of the renminbi. It also recognizes the progress made in reforms to China’s monetary, foreign exchange, and financial systems and acknowledges the advances made in liberalizing, integrating, and improving the infrastructure of its financial markets. We expect that the inclusion of the RMB in the SDR basket will further support the already increasing use and trading of the RMB internationally.
In addition, while data disclosure is not a formal criterion for a currency’s inclusion in the SDR basket, issuers of reserve currencies generally meet high transparency standards. The Chinese authorities have recently taken welcome steps to increase data disclosure and enhance their commitment to multilateral data initiatives; for instance, reporting the currency composition of reserves to the IMF. Also, the Chinese authorities continue to work with the Bank for International Settlements on their reporting of the Chinese banking sector statistics. These developments will lead to increased acceptance of the RMB among official holders of foreign exchange reserves.
So, China got its entry into the big boy club. But there was something else brewing that was never really reported by the main stream press, nor on such outfits like CNBC. China was gobbling up gold like it was going out of style. How many times did I write something along the lines of – “The Chinese culture is thousands of years old and they’re not stupid people. If they’re buying tons of this yellow stuff, I think I need a bunch too.”
For years China bought tons and tons and tons of gold. For what? Looking back at their ambitions, it became clear to me. From the WTO in 2001, to being in the SDR at 2015, my guess was that the next step was a gold backed Yuan.
Why would they want that? Well think about it. They make “stuff” from refrigerators, to stoves, air conditioners to dishwasher, from nuts and bolts and steel rod, to everything under the sun. And when they ship it around the world, how do they get paid? Mostly by US dollars.
Well think about it like they do. They take human labor and they dig for materials, they build plants, they employ workers, they produce product. And after all of that, they’re paid in a currency DESIGNED by the Federal reserve to lose a minimum of 2% per year in value.
That’s right folks. When you hear that lunatic Jay Powell talking about trying to hit their inflation target they always say they want 2% per year. Now, ONLY a banker can make you think that devaluing your money by 2+% a year is a good thing! No, idiots, it’s not a good thing. NO inflation/devaluation is a good thing.A very good thing. But that’s not how the system is designed.
A dollar in your pocket buys what FOUR CENTS bought in 1915. If you’re a psychopathic demonic Federal reserve member, you tell people that this is a good thing. How they do that with a straight face is beyond my comprehension. It’s NOT a good thing. It leads to all sorts of issues like wage/price spirals and what have you.
Well I tend to think the Chinese know this. And it’s been my guess for a long time that it would be them, the Chinese that tried to bring some stability to their money, by backing it with a percentage of Gold.
But they’ve got a problem. They hold over a trillion in dollar reserves and trillions more in dollar-based assets. While they’d love to be out from under the weight of having the “US dollar” being the world’s reserve currency, they have to make their transferal to be as painless as possible.
On Friday, Zero hedge ran an article about this very topic. In fact this was the Headline:
Is China Preparing A Gold-Backed Yuan: Beijing Greenlights Purchases Of Billions In Bullion
Well I’ve been saying this since 2009, that yeah, China has been preparing the way for a gold backed currency for over 20 years. They’ve accumulated tonnages that we don’t even know about. Don’t forget, they aren’t the most forthright when it comes to reporting and most people familiar with them say that China doesn’t have just the 2000 or 3000 tonnes they say they have, they have more like 25 – 30K tons. And, they’re buying more.
However, as I’ve said, they can’t just pull the plug on the Dollar. The crash in their own country would be mammoth. So many of their infrastructure, and raw materials gathering companies, production companies, etc, have been enabled with dollar denominated loans that a sudden crash in the dollar would destabilize them for months into years.
So, this is going to take time. It’s already been 12 years since I first mentioned this concept of a gold backed Yuan, and it might take 12 more. The Chinese are patient folks, they think in terms of decades, not months.
If I had a point to all this, it is simply this. Many are in the belief that gold is dead and Bitcoin, Doge coin, Etherium and what ever else digital crypto madness is out there, is the future. Yet China HAS a central bank issued digital currency right this very moment. Yet they’re buying Gold by the billions. Why is that?
Gold is not dead. Watch the Chinese and copy them. Buy some, even if it’s just an ounce or two. It can’t be worthless ever. I can’t say that about US dollars. Just sayin….