Koos Jansen
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Koos Jansen
Posted on 1 May 2014 by

Internationalization Renminbi Requires Increase In Gold Reserves

I present another intriguing translation, this time from an article by Tan Weihuan “China Gold News” Chief Researcher on the internationalization of the renminbi. What I find interesting is that according to the author China or any other of the BRICS countries in the short term are not interested in a gold backed currency (I share his opinion). There is a difference between backing and supporting a currency with gold. Backing means a fixed price, for example one gram of gold is one yuan. For China a gold backed renminbi is completely unrealistic at this point because the renminbi is still in it’s infancy – capital controls need to be lifted, full convertibility needs to implemented, etc. Next to the fact that the Chinese would have too little influence over the exchange rate of a gold backed renminbi should it be in full effect any time soon, which is nor desirable.

However, China has a great interest to support the renminbi with gold, having an x amount of tonnes at the PBOC, to give their currency trust and credibility. This is needed for the renminbi to be accepted worldwide. The euro and the dollar wouldn’t be reserve currencies if they weren’t supported by thousands of tonnes of gold. It’s very clear the Chinese recognize the monetary value of gold and the purpose it serves in financial markets, but they take it one step at a time. For the years to come the schedule of the PBOC is to accumulate gold mainly for the internationalization of the renminbi (compete the US dollar) and to diversify and hedge their exorbitant US dollar reserves. At the same time the Chinese government is stimulating its people to hoard gold for wealth preservation.

Though I’m convinced gold will officially return into the global monetary system within five to ten years, as all fiat roads are a dead end, in what way remains to be seen. There are many types of gold standards and it also depends if the transition will be led top-down or bottom-up.

Translated by Soh Tiong Hum.

Internationalization Renminbi Requires Increase In Gold Reserves

Author: Tan Weihuan “China Gold News” Chief Researcher | Source: China Gold Network 2014/3/21.

To internationalize the renminbi increasing gold reserves is a very important condition because it can increase the world’s confidence in the RMB and expand its circulation.

When central bank governor Zhou Xiaochuan talked about the internationalization of the renminbi (RMB) recently, he pointed out: “Pace and timing of RMB internationalization will not be pre-arranged…making the internationalization of the RMB happen is a long process.” This reflects the country has considered the complexity and difficulty of internationalizing the RMB.

As we know, the US takes the initiative in global financial markets by imposing the US dollar on the whole world, and greatly benefits from this position. When the financial crisis came, the US escaped by printing money massively yet did not suffer inflation because the Dollar is the main reserve and trade currency in the world.

Although China holds nearly $4 trillion in foreign exchange reserves and more than a trillion dollars in US Treasury bonds at the moment, the RMB’s influence in the world is very small, not matching China’s position as the world’s second largest economy. RMB internationalization is a long process so we need to look at it historically. The RMB was not a hard currency in the past, wishing that it can quickly become an important currency to compete with the Dollar and the Euro is not practical. The euro was transformed from currencies such as the Deutsche Mark and French Franc so it already occupied a large market share. The RMB was developed from scratch so naturally needs sufficient time to build trust and a base for use. At the beginning of last century it took the US a long time to overtake the currency hegemony from Britain. At this moment the strength of China and that of United States is still far apart.To internationalize the RMB, increasing gold reserves is a very important condition because it can increase the world’s confidence in the RMB and expand its circulation.

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I do not think it is desirable as some people said, to establish a BRICs bank on a gold standard. That is because implementing a gold standard implies that our country has to combat the volatility of the international gold market; the RMB would fluctuate along with the price of gold. Historically, only the post-WWII US was able to peg its currency to gold because the US held 70 percent of the world’s central bank gold reserves, over 20,000 tons of gold and economic strength in pole position. But as other countries developed their economic strength after the war, the gold standard became a burden for the US. When gold price was high, other countries sent their gold to the US to exchange to dollars; when the gold price was low, they bought gold from the US. After a lot of money printing, the US lost its gold and eventually had to remove the gold-peg.

The essence of RMB internationalization is exporting the Yuan, that is to exchange paper currency for goods. Other countries wanting to hold the Renminbi must offer goods to exchange, whereas China is just paying money – which is like writing a promissory note. China aims to win market share predominantly from the US dollar, slowly but surely. Too quickly and the US will resist strongly; it needs to be done slowly and steadily like a boiling frog. Therefore Zhou Xiaochuan said this will be a long process.

Since China is going to benefit, we should also let other countries benefit (a win-win situation), unlike the US which is passing the buck; buying foreign assets when the dollar is strong and then buying back dollars when it is weak, thereby passing financial and economic crises to other countries.

In Gold We Trust

Koos Jansen
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  • Lulzasaur

    Ok, this article brings into light some questions I had earlier. If this is the long-term plan for China…then they have every incentive to eventually reveal their Gold reserves. Thanks Koos, this was immensely enlightening.

    • ChickenintheCorn

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      When chicken in the corn

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      When chicken in the corn

      Say the corn can’t grow

      Chicken in the corn

      And the corn can’t grow, mamma

      When chicken in the corn

      Say the corn can’t grow

      When chicken in the corn

      Say the corn can’t grow, mamma

      When chicken in the corn

      Say the corn can’t grow

      Don’t need to brag

      No need to boast

      I can rock you from a pillow

      To post to post

      When the music’s nice

      We play them twice

      While the girls are screaming out like mice

      My name is Brushy

      I’m the king of swing

      To rap your music

      And to let you sing

      It doesn’t really matter what the people wanna say

      I rap my music night and day

      Rock them night and day.

      And Luci hear me say!

      Chicken in the corn

      And the corn can’t grow, mamma

      When chicken in the corn

      Say the corn can’t grow

      When chicken in the corn

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    • Sven

      Yes eventually they must otherwise why do it?

      edit: But if they want to do this slowly, NOT announcing it for years and years and then coming out with, “We have 9,000 tonnes of gold”, would be like sinking the Lusitania. A sudden and unexpected (somewhat) act of war.

      • Jim

        Imagine that! Kinda like a Bush led approach.

      • Michael Yates

        I’ve thought that too. China seems very concerned with maintaining the western banking status quo, so why do that if they plan to blow it up? Some will say, “cause they want to accumulate gold first.”
        To which I would say, “what’s the point in accumulating gold if you’re going to blow up the financial system you plan to profit in?”

        As this writer suggests, China would prefer a gradual shift, but if they’re naive enoughto think the US will sit back and let it happen, even slowly, they have some surprises coming.
        If any country wants to be the foremost superpower, they shoulr expect to be required to own the foremost military to back up their position. Thinking you can become the most powerful nation strictly by trade is a mistake. The great civilizations of the past found this out when their military might waned, even while their trade was still strong. They were soon cut down by stronger nations, marauding bands, or atrophy of their colonies due to being too weak to protect them.

        China had best consider this lesson from history.

        • rick

          true history has showed that to take A1 position one has to have the largest military but in a world with nukes and M.A.D that a smaller might with the backing of friends like Russia might just be enough. Trade is king in a world when all u have to do is push a button to destroy the world .

  • ManAboutDallas

    “The euro and the dollar wouldn’t be reserve currencies if they weren’t supported by thousands of tonnes of gold. ”

    I won’t presume to speak for the Euro, but I’m astounded by this statement including the US$ in your otherwise-insightful article. The brutal reality is the US$ is supported by nothing but the Gun Barrel of the U.S. military and the gigantic con game of “The Emperor’s New Clothes” that is currently taking place.

    • http://roacheforque.blogspot.com Roacheforque

      I believe you are mistaking past for present tense. The dollar acheived reserve status when the US held 70% of global monetary physical gold, and the present state of affairs evolved from that point onward.

      • Sven

        Yes. Once established the chicanery started from there. Now the majority at large still believe we are on some kind of gold standard.

        There was a story told by Ron Paul that someone (a woman) on the Financial Ways and Means Committee asked him, “We ARE still on a gold standard aren’t we?”.

        A congresswoman! Unbelievable.

  • Joe

    The boiling frog saying is a myth. The frog will jump out before the water gets too hot!

  • http://roacheforque.blogspot.com Roacheforque

    It’s more about free market convertibility than confidence. Today gold is priced in dollar terms by an unlimited supply of paper gold, with all other currencies locked together by forex for relative value. In a free gold market, gold is valued by physical supply, and its demand is no longer predicated by it’s “commodity use function” in the self-referential dollar price-setting mechanism. The architects of the Euro have long since prepared for the coming freegold based system, and the geopolitical position they take today, despite all outward appearances, appears well aligned with the original plan.

    • atarangi

      Tyler Durden: On the heels of disappointing March data in China for Services and Manufacturing, China’s “official” manufacturing PMI saw its lowest ‘April’ print on record (typically a period of renaissance post-New Year data snafus) missing expectations for the first time in 2014 and just marginally above last month’s data (50.4, exp. 50.5, prev. 50.3) China is still in Schrodinger-land with “official’ data (biased towards larger SOEs) in very modest expansion and Markit (weighted towards smaller – more realistic – entities) in considerable contraction. That China disappointment follows earlier data which saw Aussie PMI collapsed over 3 points in April to its lowest in 9 months with the deterioration broad-based across the key sub-components. As Goldman notes, production is now at its weakest in a year, employment remains in contraction and, most worryingly, new orders printed their largest contraction in 13 months. This is the 6th month in a row of Aussie manufacturing contraction.

      Zero Hedge: During the night, the Chinese currency collapsed to an 18th low at 6.2659 before finishing the session at 6.2595. The big question is whether China will support the 2% POMC limit low proclaimed last month. If China defends its currency then this would put selling pressure on other currencies. Failure to do so will basically mean that economic conditions inside China is far worse than thought.

      Simon Black (Sovereign Man): It was a scene just like out of the Wild West. 18-year-old David Moreyra had stolen a purse. And an angry mob gathered in broad daylight in Rosario, Argentina to lynch him. It turns out that ‘mob justice’ is on the rise in Argentina, and Mr. Moreyra’s death was just one of more than a dozen recent instances. Hundreds of years ago during the Age of Enlightenment, liberty-minded philosophers argued that governments could only derive their authority to govern by receiving consent of the governed. And that the people would have to voluntarily surrender some of their freedoms to government in exchange for certain services (and protection of their other freedoms). This idea has become twisted and mutated over time. These days, the prevailing model is that [some] people pay taxes, and in exchange the government maintains a monopoly over a number of public services. Security is one obvious example since, for most people, the local police force maintains a monopoly over citizen security. Any high school economics student can tell you that most monopolies are terribly inefficient. Central bankers cannot conjure infinite quantities of currency out of thin air, nor can politicians borrow more money just to pay interest on what they’ve already borrowed, all without consequence. This is one of those consequences of when nations go broke—a complete breakdown of the social contract, giving rise to something so Medieval as lynch gangs and mob justice. Can it happen where you live? Maybe. No nation is immune to the social effects of economic decay (think Detroit, or even New Orleans after Hurricane Katrina…). When every shred of data suggests that major western economies are decaying rapidly under the weight of excessive debt and paper currency, it’s foolish to presume that ‘it can’t happen here’.

      • http://roacheforque.blogspot.com Roacheforque

        Irrelevant as a reply. More like spam.

  • InGoldWe

    This is DayStar (DS) with the Thursday Harvey Report.

    News and Commentary

    Mark O’Byrne: The U.S. Federal Reserve is to continue scaling back its monthly bond buying program due to the perception of stronger U.S. economic growth over the near term. This view contradicted the recent data slightly as yesterday also saw the release of first quarter U.S. GDP growth figures, which showed that the U.S. economy only grew at an annualised 0.1% over the 3 months from January to March. It remains to be seen if the Fed’s optimism is realistic. DS: As far as the Fed is concerned, the phrase, “Lying through their teeth”, comes to mind.

    Harvey: I forgot that today was a May day holiday for most of Europe and Asia. Since all the physical zones for gold and silver were closed, it is no wonder that we had our attack orchestrated by the criminal bankers as they did not happy to worry about any deliveries. Tomorrow will be a different story. Speaking of tomorrow, we will have the famous jobs report and you all know what that means. Expect massive volatility. I am noticing plenty of gold and silver leave the Comex these past few days. Is this the beginning of a run on the Comex bank? Dave Kranzler of IRD also notices this and he comments on this and other strange phenomena re the gold and silver markets. The GLD inventories lowers by 2.39 tonnes of gold despite the fact that gold remains in backwardation from one month to 3 months out. It is within a whisker of backwardation going out for one year. For the 18th day out of the last 19 trading days, GOFO rates are negative. Today, the 6th month stays slightly out of backwardation, thus making the one month, two month, 3 month GOFO all negative and in backwardation . The 6th and 12th month rate GOFO moved slightly closer to the negative, and still they are a whisker out of backwardation. All months moved slightly towards the negative. GLD: Today, we lost a huge 2.39 tonnes of gold inventory to close at 785.55 tonnes, and this followed in the footsteps of yesterday’s loss of 4.2 tonnes tonnes. SLV: Silver was unchanged and stands at 10,178.17 tonnes.

    GoldCore on the LBMA: Monthly statistics are released about one month after the reporting month. For March, the average trading volume of gold increased by 6.2% to 1.9m ounces. Since the gold price rose in March, the value of gold transactions also rose strongly, increasing by 9.1% to an average daily value of $25.3 billion, the highest since August 2013, while the average daily number of transfers was also 5% higher than in February. The same data for silver was a lot weaker due in part to weakness in the silver price in March. The average daily trading volume of silver fell by a significant 27.8% to 134 million ounces from an admittedly higher than normal February figure of 185.7 million ounces. This brought down the average daily value of transactions by 28.2% to $2.78 billion, while the average daily number of transfers dropped 14% to 779. In March, the average daily transfer size for gold was 4,000 ozs and for silver 172,179 ozs.

    Chris Powell (GATA): William S. Kaye says Russia and China have much more gold than they acknowledge officially.

    • Reasons2beCheerful

      Eric Sprott (Sprott Global Resource Investments): For all of 2013, demand from emerging markets, particularly China, was extremely strong, outstripping world mine supply by a fair amount. But this extreme tightness in the physical market was not reflected in gold prices. We have since then discussed many signs of manipulation in both the paper and physical gold markets (ETF flows, Indian intervention, LBMA fixings, to name a few). For the first two months this year China has imported about 204 tonnes of gold, up from about 143 tonnes last year. To put these numbers in perspective, for the full year 2013, total mine supply excluding China and Russia averaged 192 tonnes per month. Basically, China is currently vacuuming, on a monthly basis, all of the world’s mine production plus an additional 10 tonnes. But that is only China; anecdotal evidence from other countries suggests that demand remains strong in other Emerging Markets, where Central Banks keep adding to their gold reserves. Moreover, whereas last year’s ETFs contributed (unsustainably) to supply, this year has so far seen net inflows into gold bullion ETFs. Gold to Emerging Markets has been supplied by Western Central Banks for many years. Switzerland imports most of its gold from the US and the UK and exports most of it to China and Hong Kong. For example, in the first two months of 2014, the UK has exported over 233 tonnes of gold to Switzerland; this is more than half of the Chinese net imports over the same period (remember the UK doesn’t produce any gold). Similarly, the US, which has a monthly gold production of about 19 tonnes, has exported, in the month of January alone 56 tonnes, most of which went either to Switzerland or to Hong Kong directly. Western Central Banks, according to our analysis, have very little gold left.

      Koos Jansen (IGWT): Neither China or any other of the BRICS countries in the short term are not interested in a gold backed currency (I share his opinion). There is a difference between backing and supporting a currency with gold. Backing means a fixed price, for example one gram of gold is one yuan. For China a gold backed renminbi is completely unrealistic at this point because the renminbi is still in it’s infancy – capital controls need to be lifted, full convertibility needs to implemented, etc. Next to the fact that the Chinese would have too little influence over the exchange rate of a gold backed renminbi should it be in full effect any time soon, which is nor desirable. However, China has a great interest to support the renminbi with gold, having an x amount of tonnes at the PBOC, to give their currency trust and credibility. This is needed for the renminbi to be accepted worldwide. The euro and the dollar wouldn’t be reserve currencies if they weren’t supported by thousands of tonnes of gold. It’s very clear the Chinese recognize the monetary value of gold and the purpose it serves in financial markets, but they take it one step at a time. For the years to come the schedule of the PBOC is to accumulate gold mainly for the internationalization of the renminbi (compete the US dollar) and to diversify and hedge their exorbitant US dollar reserves. At the same time the Chinese government is stimulating its people to hoard gold for wealth preservation.

      Tyler Durden: First thing this morning, an unknown seller smashed all stops in one big sale, and took silver to its lowest price for 2014. There was no news, so one can’t even blame a rogue algo overreacting to some headline and taking momentum ignition strategies a little far. In short: this was a premeditated and deliberate selling of silver with one simple purpose: push and reprice silver lower. But this is nothing new: precious metal traders, especially those who are on the other side of the table of the BIS’Mikael Charoze or Benoit Gilson, and countless other commercial banks, are all too aware of this behavior and they take it for granted. No, the real surprise is that suddenly none other than the CME is getting worried that manipulation this blatant is finally chasing regular retail traders away who are tired of being fleeced on a daily basis, leaving central banks and a few “fixing” banks to trade only with each other, which is not acceptable – after all it is the muppets’ money that is fair game, not that of other cartel members. Deutsche Bank’s exit from the London precious metal fixes will leave just two banks running a century-old system that sets the global silver price. Perhaps it would be best to just have one gold and silver “price fixer” left, the Federal Reserve. That way at least some integrity to an otherwise broken and manipulated market will be restored. Until then, watch as trading volumes slowly but surely trickle down to zero as everyone finally realizes what we have been saying since 2009 – in a market so manipulated, so rigged, so artificial, a far better and enjoyable option for investors around the world is just to take their money to Las Vegas.

  • Tan Sau Fan

    Frankly speaking, as someone based in Hong Kong and in touch with these affairs on a regular basis, I consider this article to be complete rubbish.

    S. Tan (Stephen)

    • Ng Wei Wei

      i agree totally – completely misguided and not based on factual experience, just rumours

      • Alfred Higgins

        This website has gone badly downhill in recent weeks and both it and its attendant Comments are little more than cut & paste from other sources. There is little or no original insight or analysis and the author’s purported analysis of Chinese gold activitied has now been completely debunked by the recent WGC report

        • In Gold We Trust

          The “copy-paste” comments are created by spam bots that like to entangle the conversation.

        • Roacheforque

          If you believe the WGC report to be authentic and uncompromised, then I have some Fannie Mae securities which Standard has rated triple A for sale that are a steal …

        • In Gold We Trust

          While I wonder what’s your incentive to criticize me for not feeding you free articles that fit your exact needs, I can assure you the WGC has very little knowledge of the Chinese gold market (they even wrote this to me in an email)

          http://www.ingoldwetrust.ch/the-round-tripping-myth-and-why-it-doesnt-hurt-chinese-gold-demand

      • In Gold We Trust

        Please tell me why Tan Sau Fan and Ng Wei wei.

        • Michael Yates

          Koos, certainly you understand that your excellent work is not serving China’s best interests, supposing their interests are indeed to ultimately undermine the US$ with gold and/or Yuan. So don’t be surprised if you’re attacked by people who can’t substantiate their statements with facts.

      • Roacheforque

        What gret pearls of wisdm do you have to offer then? Or only criticism…

        • Michael Yates

          I didnt criticize the article or suggest it’s facts are flawed, you did. Therefore, you have to make your case, not me.
          Logic 101. Little over your head I guess.

          • Roacheforque

            Your comments say so much more about you than I EVER could. Have a wonderful day :)

      • Michael Yates

        You too. You’ve made a statement. So what? Where’s your proof? Back it up or be ignored.

    • Michael Yates

      Anyone can criticize, but without data to support their position it is merely empty rhetoric. You’ll have to do better than saying he’s wrong if you want anyone to care about your opinion.

    • Roacheforque

      How can the article be complete rubbish? It is a Chinese translation of a particular viewpoint which we can agree with or not. Most of what pases for “official statistics” in the West, including the recent jobs report …. now THAT qualifies as rubbish because it is masquerading as fact. That someone in China feels that gold reserves will give credibility and confidence to the issuing country’s currency is merely a point of view. I do not see it masquerading as official PBOC monetary policy, do you?? Or are you simply saying that gold reserves will in no way establish confidence in the currency of the holder.

    • Andrew Cooler Can

      calling something rubbish without proof is even more rubbish

    • tom thumb

      Prove your stature otherwise you got nothing,.

  • dan

    the dollar backed by gold…this writer has no credibility ..with a statement like that….a shill at best….imho

    • In Gold We Trust

      Who said the dollar is backed by gold?

    • Andrew Cooler Can

      ya right. The fed is making gold as they prints 85 billion $/month of QE.

    • tom thumb

      Hey fool can you read or does idiocy come natural to you?

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