Source: dody about 7 hours ago

China has consistently been considered a currency and manipulator by several administrations in the United States. While this may be true, what China has been doing recently can hardly be called simple manipulation of the currency. China has been attempting to dedollarize as quickly and quietly as possible. Part of this dedollarization has been to get into agreements with other countries to exchange the yuan with that country’s currency. This effectively removes the United States dollar from any transactions by bypassing the swift system. The latest agreement has been with the Bank of Israel, which is the Israeli central bank. The Israeli central bank has agreed to keep Chinese yuan as a part of its currency holdings in reserve for the first time ever. At the same time the Bank of Israel is planning to reduce its holdings of European Union euros and the United States dollar.

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The US dollar will go from representing approximately 66.5% of the Israeli Central bank’s reserve holdings to just 61%. The euro will go from 30% to 20% of the bank’s reserve currency holdings. The pound will double to about 5% of the Bank of Israel’s reserve currency holdings. The Japanese yen will represent about 5% of the bank’s holdings. The Australian dollar will represent 3.5% of the bank’s holdings and the Canadian dollar will represent 3.5% of the bank’s holdings. The Chinese yuan will round it out with 2% of the bank’s holdings.

Bank of Israel Deputy Governor Andrew Abir said the decision to change the makeup of the bank’s currency holdings is part of a change in its “whole investment guidelines and philosophy.” “We need to look at the need to earn a return on the reserves that will cover the costs of the liability,” Abir said.

A recent International Monetary Fund survey found that U.S. dollars being held in foreign exchange reserves around the world had fallen to its lowest percentage since 1995. The pound yuan and euro have benefited from this shift in global reserve holdings. China has pushed for the yuan to play a bigger role in global reserve currencies. Limited convertibility and tight management by Chinese authorities has slowed this progress. In spite of all of this, the yuan has garnered greater attention around the world recently. Saudi Arabia began talks about selling its oil to China in yuan this March. This was a major shift, previously Saudi Arabia relied exclusively upon the United States dollar. This historic exclusivity was the key role to ensuring the United States dollar’s value as a reserve currency.

“The oil market, and by extension the entire global commodities market, is the insurance policy of the status of the dollar as reserve currency,” economist Gal Luft, co-director of the Washington-based Institute for the Analysis of Global Security told the Wall Street Journal. “If that block is taken out of the wall, the wall will begin to collapse.”

However, these are not the only measures that China has taken economically that could damage the United States dollar. China has been buying gold and is the 6th largest owner of gold in the world. According to official statistics the United States is the largest holder of gold. Followed shortly by Germany, Italy, France, and in 6th place is China.

There is some evidence that China may have more gold than it is declaring. Since 2007 China has been the main producer of gold when it overtook South Africa. It has remained the largest producer ever since producing over 15% of the gold mined in the world. It has mined roughly 6830 tons ever since 2000. More than half of Chinese gold production is state owned with the China National Gold Group Corporation owning 20%. China keeps all the gold in its minds because the export of domestically mined production is not allowed. Knowing that they have already mined 6830 tons of which zero could be exported, the official figure of 1948 tons looks very suspicious. This amount added to the official figures would eclipse the amount of gold the United States has in reserves.

However this isn’t the only way that China has been getting gold. Chinese mining companies have been buying assets abroad. They have purchased assets in Africa, South America, and Asia. Their international production has exceeded their domestic production by 15 tons in 2020. This is not all however, besides being the biggest producer China is also the largest importer of gold. Undeclared gold imports via Switzerland and Dubai to Hong Kong alone are over 6700 tons since 2000. If you add that to the gold production you have a figure well over 13,500 tons.

“Chinese Central Bank gold holdings have apparently been entirely unchanged since mid-2019 at 1,948 tons,” Ross Norman tells me. “But few of us believe that. Put an additional zero on the end (19,480 tons) and I should not be surprised if that is not much closer to their official holdings”.

If China were to declare its true holdings this would cause an unwanted surge in the yuan and gold prices. This would devalue its 3.2 trillion United States dollars in foreign exchange reserves. Also, declaring so much gold would be a direct challenge to America’s supremacy. China isn’t quite ready yet to take that on. For now they believe they must not shine too brightly. If China had decided to weaponize its money, all it would have to do is to give an accurate accounting of its gold reserves.