How does China's extravagance in buying gold ground the dollar?

The American network "CNBC" wrote: China's decades-long effort to globalize the yuan has gained a new speed with the gradual development of Hong Kong on the way to becoming a gold trading center based on the Chinese national currency. How will China's gold buying spree freeze the dollar? It first appeared in Safir Arjan.

According to Ambassador Arjan, Charles Chang, executive director and rating officer for large Chinese companies at the S&P Global Ratings credit rating agency, says that "with the increase in the volume of transactions, the volume of physical gold transactions, which are based on Renminbi (RMB) and are not dependent on the US dollar, will also increase."

The Chinese yuan, also known as the renminbi, plays a small role in international transactions in a financial system dominated by the US dollar. But analysts expect this situation to face major changes in the near future. The massive purchase of gold by Beijing and the launch of the Hong Kong trading platform are the latest steps in the expansion of the global use of the yuan.

Chang added: One of the challenges of renminbi globalization is that it is somewhat more difficult to find markets and places where the currency can be used. Especially with gold, if the buyer can convert the yuan they receive into gold, they will have more ways to spend this money.

As host to one of the world's largest exchanges, Hong Kong last month confirmed its efforts to develop a yuan-denominated gold market. Hong Kong, as a special administrative region of China, last year in an important move, connected its gold treasury to a treasury in Shanghai. This action enabled the physical delivery of gold to international institutions based in Hong Kong; Institutions in which transactions are done based on yuan.

According to Chang, Hong Kong plans to increase the capacity of the gold treasury connected to Shanghai from 150 tons to more than 2,000 tons in the next three years. He added that "this amount is almost equal to the entire gold reserves of China. If Hong Kong can fully implement this transaction, it will become one of the largest gold trading centers in the world."

The statistics of the World Gold Council for the second quarter of the year show that America still has the largest gold reserves in the world with more than 8100 tons of gold. China's gold reserves are more than 2,300 tons, which is about one-third of the US reserves.

Hao Zhou, head of the research unit and chief economist of "Gutai Junan International" Institute in Hong Kong, said about this: China's continued purchase of gold for 23 consecutive months strengthens the credibility of the country's efforts to globalize the renminbi. By gradually increasing gold reserves, Beijing is strengthening the long-term support of its financial system and reducing its reliance on dollar-denominated reserve assets. Although gold alone will not determine the yuan's global status, it will boost confidence in the currency and support broader efforts to expand its use in trade, investment and official reserves.

According to Xia Yingying, Head of Precious Metals and New Energy Research Group at Hangzhou-based Nanhua Futures, "gold hoarding by China and other central banks will help reduce the world's dependence on US Treasuries and dollar reserves." In the medium to long term, this trend will gradually weaken the exclusive position of the US dollar in the world's foreign exchange reserve system.

The increase in China's gold purchases comes as US Treasury Secretary Scott Bessant last Friday appointed Judy Shelton, a supporter of the return to the gold standard, as a senior adviser focusing on China issues.

The growth of Asia's economy and its transformation into the world's largest production hub originates from America's decision to abandon the gold standard that was established more than 50 years ago. The Central Banks and Monetary Policy Research Group known as "OMFIF" wrote in 2021: With the separation of the dollar from gold and the subsequent increase in oil prices, production in Western countries was not economically viable, and capital went to Asia to find cheap labor and lower overall costs.

The S&P/S&P report indicates that China, despite being the largest gold consumer and producer in the world, is only one of the developing economies that have increased their gold reserves since 2022. Data from the World Gold Council also shows that Poland has increased its gold reserves even more than China.

According to CNBC, this trend goes beyond financial transactions. As in the field of rare minerals, China's ambitions in the gold market also begin with Beijing's attempt to control part of the production of this metal.

China has bought large gold mines across Latin America, Africa and Asia, according to S&P Global Ratings.

According to Charles Chang of S&P credit rating agency, "China's gold plans and activities are comprehensive and long-term. These trends will continue for several years. "Markets often overlook the comprehensive nature of this strategy."