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LAWRIE WILLIAMS: China forex reserves dip but gold reserves show value increase

As might be expected given the huge coronavirus impact on the nation’s exports, the latest data report from the Chinese central bank show that its foreign exchange reserves dipped quite sharply, but not by as much as many China watchers had been expecting.  Gold provided something of a saving grace here as the nation’s gold reserves increased in value, along with the rise in the dollar gold price, although the amount of gold in the reserves apparently remained unchanged yet again. 

Thus China’s total forex reserves at the end of February stood at $US3.107 trillion, down by $8.779 billion from the previous month’s figure.  But the value of the 1.936.5 tonnes of gold it holds in its reserves rose by a little over $1.6 billion over the period helping mitigate the overall fall.  According to a Reuters report, the consensus economic opinion had been for China’s forex reserves  to fall by as much as almost $15.5 billion in February due to fluctuations in global exchange rates, the prices of foreign bonds that China holds and the initial effects of the Ncov-19 virus incidence,

As we had commented previously, China had been reporting monthly gold volume increase levels until late last year after around two years of reporting zero increases.  It should be remembered that in the past China often went for several years claiming it wasn’t raising its gold reserves – and then announcing big increases which it had, apparently, been holding in other account(s) which it said it didn’t need to report to the IMF!  What we don’t know is whether the recent supposed hiatus in gold reserve increases represents a return to this prior policy, or if it is a genuine case of not adding to its gold reserve total.  We are inclined towards the former assumption given there is a history of Chinese government officials and academics suggesting that gold will play an important role in any global financial reset which may lie ahead.  Given the huge indebtedness of many Western countries, and of the U.S. in particular. Such a global currency reset seems inevitable at some stage. 

The U.S. dollar remains for now the world’s global reserve currency, but the current U.S. Administration’s economic weaponisation of its consequent control over world markets is causing other key players like China and Russia in particular to come up with alternatives.  These two nations would dearly love to see the U.S.’s global economic hold diminished, and with it what they see as the economic advantage as going hand-in-hand with the possession of the world’s principal reserve currency.  The impact of the Ncov-19 virus may well have put a delay in China’s likely dominant role in this process, but if the country has indeed seen the virus brought under control, as its official figures might suggest, the delay in the process may be a short one as the global virus spread affects other countries, the U.S. in particular which is currently seeing sharp rises in cases.

11 Mar 2020 | Categories: Gold, China

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