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2020-06-26 d
A Golden Opportunity

A Collapsing Dollar And China's Monetary Strategy

This article describes how China can escape the fate of a dollar collapse by tying the yuan to gold. There is little doubt she has access to sufficient gold. Currently, her interest is to preserve the dollar, not destroy it, because it is the principal means of Chinese foreign interests being secured .

Furthermore, a return to sound money requires China to reverse its interventionism under Xi, returning to Deng Xiaoping’s original vision. Sound money can only last if the relationship between the state and the wider economy is properly addressed.

Of all the major economies, China’s is best placed to implement a sound money solution. At the moment it seems unlikely the necessary reforms will be forthcoming; but a general collapse of the global fiat currency regime presents the opportunity for reassessment and change.

Introduction

In last week’s Insight I examined the position of the US dollar, given the Fed’s current monetary policies, and concluded that the Fed’s dollar is likely to become valueless by the end of this year. The consequences for other major currencies — the euro, yen and pound — are that they are likely to fall with the dollar. This is because they adopt the same monetary policies, the same macroeconomic fallacies, and through the Bank for International Settlements, G7 and G20 meetings agree to continue to be bound by common policies. While the intention is for all to survive by working together, instead it ensures that they all sink together.

The maverick nations are Russia and China. Russia is obviously working towards protecting her currency with gold — there is no controversy there. China’s position is more complex. Her leadership relies on the inflation of bank credit through state-owned banks to finance her infrastructure plans as well as in financing the massive uplift her non-financial private-sector economy has enjoyed since 1980. Yet, she has made aggressive moves to ensure her population owns physical gold and has invested in mine production, making her the largest national producer by far, while ensuring virtually no gold leaves the Chinese mainland.

Having more or less gained control over the world’s physical market, China is the greatest hoarder of gold on the planet. She appears to understand the importance of gold to monetary stability while at the same time playing the West’s neo-Keynesian games. (read more)

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