The Chinese central bank sharply slowed down its gold purchases in May. Is this the start of a strategic turnaround? What about bitcoin?
Change of strategy?
While India has just repatriated 100 tonnes of gold from London, China has just sent a contrary signal. The Middle Kingdom seems to have stopped its gold purchases.
The latest figures show stagnation. Zero tonnes purchased in April after only two tonnes in May. This is to be compared with the 225 tonnes swallowed for the whole of 2023.
Normally, no country buys as much gold as China. This dynamic began in 2002, the year of the invasion of Iraq by the United States. That is to say just after Sadam Hussein decided to sell his oil in euros, and no longer in dollars. Hence France's opposition to the Iraq war, by the way. Another era…
This golden strategy was further strengthened in 2008, when the Fed released its printing press (Quantitative Easing). China now holds 2,264 tonnes of gold, compared to 400 tonnes in 2002.
Other countries that have significantly increased their gold reserves in recent years include Russia, India, Singapore, Poland and Turkey.
Many less imposing nations are also active behind the scenes. For example, the Czech Republic has been accumulating it continuously for 18 months. Its reserves now reach 40 tonnes.
With more than 8,000 tons, the United States has more than any other country. They are followed by Germany, Italy, France and Russia.
Why do central banks buy gold?
Because the West and the Sino-Russian tango are playing a dangerous game in Ukraine as well as in Palestine. The situation has strong overtones of the Cold War, if not worse.
Gold allows China to store gains from its large trade surpluses. It is a substitute for the dollar. Its dollar reserves (in treasury bonds) also fell by 50 billion in the first quarter.
That said, let us point out that gold only represents 5% ($170 billion) of its total foreign exchange reserves. This is less than the global average of 20%:
The freezing of Russian reserves (mainly euros) also encourages Beijing to diversify. And given the statements made by senior Chinese officials at the security conference in Singapore, it is unlikely that Beijing has changed its tune.
Furthermore, it is not uncommon for the Chinese central bank to stop communicating its gold purchases. His reserves are generally revealed in spurts, every five years. However, it is true that the PBOC has changed its way of doing things since 2022. The amount of its gold stocks has since been updated every month.
This is why the sharp slowdown in May is causing people to talk. The gold market immediately turned around when the news broke.
In search of a new reserve currency (Bitcoin…)
The wars in Donbas and Gaza are dividing the international community into rival camps: the West (G7) on one side and the BRICS alliance on the other. The Global South is trying to remain neutral, but Russia and China seem to be winning the battle for hearts.
Knowing that the Gordian knot of geopolitical tensions is in truth American monetary hegemony. Remember that the Second World War ended with the Bretton Woods agreements (gold/dollar standard). It is a safe bet that nothing will return to normal as long as the United States refuses to give up its exorbitant privilege.
The idea that the dollar will remain the supreme currency whatever happens, “lack of alternative”, has lead in the wing. As the Russian president declared this Friday at the St. Petersburg Economic Forum:
“In 2023, the ruble's share of payment for Russian exports has tripled and now reaches 39%. Together with foreign partners, we will increase the use of national currencies […]. We are working on setting up an independent payment system. A system sheltered from political pressure, abuse and external sanctions. »
Speaking of the payment system, the Saudi central bank joined the project this week mBridge (CBDC). The latter is developed by China under the auspices of the Bank for International Settlements (BIS).
Saudi Arabia will become a full participant in this project launched in 2021 by the central banks of China, Hong Kong, Thailand and the United Arab Emirates. This is one more step towards the end of the “petrodollar”…
The question that is now on everyone's lips is this. Why join a project headed by BIS, a bank controlled by the West?…
Finally, let us point out that until proven otherwise, the only international payment system absolutely immune to censorship (unlike the SWIFT network) is Bitcoin. The latter also has the immense advantage of also being a (reserve) currency, two-in-one.
Go to our article Thailand and China abandon the dollar for more information about mBridge.
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