China Holds 2,366 Tons Of Gold As Yuan Ambitions Grow

China no longer settles for gold alone, but is building the infrastructure of a new monetary order. After 22 consecutive months of acquiring the yellow metal, Beijing would be consolidating the bridges between gold and yuan, while its exposure to U.S. Treasury bonds is declining. We are therefore witnessing the beginnings of a “Yuan-gold” standard likely to reduce dependence on the dollar.

China Strengthens the Role of Gold in Its Monetary Strategy

China has just accumulated gold for 22 consecutive months. For July, the People’s Bank of China (PBoC) announced the addition of 20 tons of gold to its official reserves. Such regular accumulation brings total holdings to nearly 2366 tons, or 8% of China’s official reserves. This statistic ranks Beijing as the sixth-largest gold holder in the world, behind the United States, Germany, Italy, France, and Russia.

Hong Kong is said to have implemented a government-backed gold clearing system linked to Shanghai. This is the first component of an international vault network intended to allow settlements in yuan against gold.

This development is linked to the upcoming Chinese presidency of the BRICS and Xi Jinping’s announcement of a third “golden decade”. Such reading boils down to a single phrase :

They built the vaults, bought the gold, and gave its name to the decade.

Beijing has thus announced the internationalization of the yuan for trade and global settlements. The BRICS Pay payment infrastructure, associated in its narrative with China, Russia, and India, constitutes an alternative to SWIFT and the dollar-dominated system, backed by gold. These various elements fuel the thesis of China adopting a new gold standard.

This thesis is based on several interconnected developments :

• China’s accumulation of gold for 22 consecutive months ;
• A gold clearing system in Hong Kong connected to Shanghai ;
• A proposed international network of vaults allowing settlements in yuan against physical metal ;
• Increased internationalization of the yuan in trade and settlements ;
• The BRICS Pay, presented as an alternative to the dollar-dominated system.

The Decline in U.S. Holdings Fuels the Dollar Debate

China has sold $70 billion in U.S. Treasury bonds. This is the largest sale since the 2008 financial crisis. Currently, gold has surpassed U.S. Treasuries as a global reserve asset. So this is not an isolated movement. It could contribute to a transformation likely to have, in the long run, repercussions on U.S. bond yields.

The interpretation of Chinese holdings in the United States is, however, debated. U.S. statistics attribute securities to the country in which their custodian is located. Indeed, $618 billion of Treasuries officially held by China, nearly $450 to $500 billion attributed to Belgium and the Netherlands, and about $460 billion to the Cayman Islands, according to official information.

The Hypothesis of a Yuan Linked to Gold Remains Highly Contested

The claim that China would officially shift to a new gold standard is inaccurate for many observers. They therefore dispute such a conclusion. They question the idea that BRICS Pay would be backed by gold and recall that the internationalization of the yuan is an old Chinese ambition. Currently, the yuan represents 2% of global reserves, compared to nearly 60% for the dollar.

Beijing would not necessarily have interest in provoking a total dedollarization. A collapse of the greenback would reduce the value of American assets held by China, while a strong appreciation of the yuan would weigh on Chinese exports.

The strategy could therefore be more about reducing exposure to the U.S. financial system than a complete break with it. Between diversification of reserves, seeking financial autonomy, and a true yuan-gold standard, a decisive step remains to be taken.