Chinese steps to turn RMB into world reserve currency

It has been an open secret for quite some time that China intends to float the RMB (or Yuan) and, over time, turn it into a major international reserve currency, as a response, if nothing else, to its trading partners calling it a currency manipulator (as if the U.S., U.K., Japan and the EU, just to name a few, are not manipulating their currencies).

The road for the RMB to become a hard reserve currency will be long and full of obstacles. Not only does China need to make sure its export oriented economy will stay competitive when the RMB gets managed upwards and eventually becomes unpegged against the USD, it also needs to anticipate any counter-moves by the U.S. when it feels the hegemony of the USD as the world’s most important reserve currency is being challenged.

As a result, the Chinese plan to float its currency will involve many steps and take many years to unfold. Many of these steps will take place below the surface of public awareness and media headlines, to be interlaced with trial balloons, quasi-official statements and official announcements in an orchestrated manner. Nothing new or surprising here. It is like a chess game – whether played at an individual, organizational or national level, you make your real moves behind smoke and mirrors and don’t reveal your hand until it is absolutely necessary.

Whether this is one of China’s orchestrated moves remains to be seen. But if a recent op-ed in China’s official newspaper is any indication, the country has ratcheted up a notch in her criticism of the recent U.S. foreign policy, its dysfunctional governments and political theatrics in its federal budget battle, and the call for a new world order and reserve currency.

Per Xinhua, the official Chinese news agency (full article here):

Meanwhile, the U.S. government has gone to all lengths to appear before the world as the one that claims the moral high ground, yet covertly doing things that are as audacious as torturing prisoners of war, slaying civilians in drone attacks, and spying on world leaders.…..

Moreover, instead of honoring its duties as a responsible leading power, a self-serving Washington has abused its superpower status and introduced even more chaos into the world by shifting financial risks overseas, instigating regional tensions amid territorial disputes, and fighting unwarranted wars under the cover of outright lies.

As a result, the world is still crawling its way out of an economic disaster thanks to the voracious Wall Street elites, while bombings and killings have become virtually daily routines in Iraq years after Washington claimed it has liberated its people from tyrannical rule.

And how the U.S. political Gong Show is hurting the rest of the world….

Most recently, the cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising debt ceiling has again left many nations’ tremendous dollar assets in jeopardy and the international community highly agonized.

Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated, and a new world order should be put in place, according to which all nations, big or small, poor or rich, can have their key interests respected and protected on an equal footing.

That there is a need for a new, de-Americanized world order…

To that end, several corner stones should be laid to underpin a de-Americanized world.
For starters, all nations need to hew to the basic principles of the international law, including respect for sovereignty, and keeping hands off domestic affairs of others.

Furthermore, the authority of the United Nations in handling global hotspot issues has to be recognized. That means no one has the right to wage any form of military action against others without a UN mandate.
And a new financial system and the introduction of a new international reserve currency….

The developing and emerging market economies need to have more say in major international financial institutions including the World Bank and the International Monetary Fund, so that they could better reflect the transformations of the global economic and political landscape.

What may also be included as a key part of an effective reform is the introduction of a new international reserve currency that is to be created to replace the dominant U.S. dollar, so that the international community could permanently stay away from the spillover of the intensifying domestic political turmoil in the United States.

The Chinese are not saying what that new international reserve currency is and whether it will be backed by anything physical. Yet.

But…

In a totally unrelated event, records have indicated that since September 2011, China has imported 2,116 gross tons of gold from Hong Kong alone. In fact, the pace of gold imports into China seems to be accelerating since 2011 – it has imported 997 gross tons and is expected to import 1,500 gross tons (1,000 net tons) from Hong Kong in 2013. (full article)

How much is 1,500 tons, you might ask? Well, here’s some factoids to put the number into context.

  • Germany, the country with the world’s 2nd highest gold reserve, has 3,390 tons in total. China’s “official” gold holding in 2013 is 1,054 tons.
  • The entire world produces about 2,700 tons of gold annually.
  • China is the world’s largest gold producer with about 370 tons mined annually. All of its mined gold is consumed internally.

China gold imports

China gross and net gold imports in 2013. Source: Zero Hedge

 

China 2013 vs 2012 Hong Kong gold imports

 

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