Wikileaks: China is buying gold to weaken the US dollar’s role as reserve currency
According to Aljazeera, China is shifting its massive foreign holdings into gold and away from the US dollar, undermining the dollar’s role as the world’s reserve currency, according to a recently released WikiLeaks cable.
photo/ Steve Bidmead via pixabay
“They [the US and Europe] intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the US dollar or Euro,” stated the 2009 cable, quoting Chinese Radio International. “China’s increased gold reserves will thus act as a model and lead other countries towards reserving more gold.”
The cable is titled “China increases its gold reserves in order to kill two birds with one stone.”
All of this signals that China plans to eventually replace the US dollar as the world’s reserve currency.
Last week, European business officials announced that China plans to make its currency, the yuan, fully convertible for trading on international markets by 2015.
Zhou Xiaochuan, governor of China’s central bank, said the offshore market for the yuan is “developing faster than we had imagined,” but there is no definitive timetable for making the currency fully convertible.
Presently, the yuan cannot be easily converted into other currencies, because of government restrictions.
China’s gold holdings are small compared to other major economies.
It has 1,054 tonnes, the sixth-largest reserves in the world, according to data from the World Gold Council.
“The US is used to having the position of having the key reserve currency, but others are eager to replace it,” said Josh Aizenman, a professor of economics at the University of California and president of the International Economics and Finance Society.
As a reserve currency, the US dollar is the default for international transactions.
“China, until recently, was focusing on buying the US dollar through bonds,” Aizeman said. Since the economic crisis, the US dollar has dropped compared to other major currencies, particularly the Swiss franc, Canadian dollar and Brazilian real. This leaves China in a bind, analysts said.
