Since the Chinese current account surplus has been on a steady decline, the widely held opinion of the massive undervaluation of the yuan seems to become more susceptible to questioning as well. Therefore, a quick internationalization would make perfect sense from a Chinese point of view. Officials have also confirmed this hypothesis.
The Head of Research at the People’s Bank of China recommends investing in gold in order to protect and diversify China’s currency reserves. Zhang Jianhua said that “gold was the only safe haven for risk-averse investors, whereas other forms of investment from government bonds to property were losing value.” It was necessary for the Chinese government to further optimize the portfolio structure of its currency reserves. He advised buying gold on relative weakness.
Therefore, we expect the Chinese central bank to continue gradually accumulating gold, and we think that it might be planning a gold backing for the renminbi. If that were to happen, international acceptance would soar. The enormous amount of gold reserves in the United States (N.B. the US reserves were at 29,663 tons in 1953) along with military dominance were central reasons for the US dollar becoming the global reserve currency.
Source King World News
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