China shifts from dollars to gold to stave off risks

By Xie Jun and Wang Yi Source:Global Times Published: 2019/3/12 21:50:28

Shifts away from US-dollar assets to stave off risks

Consumers choose gold jewelry in a store in Taiyuan, North China's Shanxi Province. File photo: VCG

Central banks around the world, including the People's Bank of China (PBC), have increased gold purchases in recent months to replace US dollar-denominated assets, a strategy that a Chinese analyst said Tuesday is due to the US diving creditability as a result of the "hegemon-like behavior" that's on the rise in the US.

The PBC, the central bank, bought $179 million worth of gold in February, the fifth month in which China increased its holdings of gold in terms of value, according to the State Administration of Foreign Exchange. 

As of the end of February, China's official reserve gold assets stood at $79.498 billion in value, compared with $79.319 billion as of the end of January. 

China is just one of the countries that has been buying more gold. According to the World Gold Council, global demand reached 4,345.1 tons in 2018, up 4 percent on a yearly basis. The increase was partly driven by a multi-decade high in central bank buying, the report showed. 

In 2018, the world's central banks added 651.5 tons of gold to official reserves, up 74 percent on a yearly basis and the second-highest yearly total on record, said the report. 

Experts said that uncertainties in the bilateral relationship between China and the US, particularly the ongoing trade dispute, are pushing China to reduce its holdings of US dollars and increase holdings of other financial assets such as gold. 

"Since the start of the China-US trade dispute, China has realized that there are risks in holding the US dollar, and it is taking action to increase holdings of other financial assets such as gold to replace its US dollar-denominated assets to guard against those risks," Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, told the Global Times on Tuesday. 

According to Zhou, as the relationship between China and the US is tense, it's possible that China's US dollar-denominated assets might be frozen by the US government at some point, which would deal a blow to China's foreign exchange reserves. 

Figures released by the US Treasury showed that the Chinese mainland held $1.1235 trillion worth of US Treasury bonds as of December 31, 2018, compared with $1.1849 trillion a year earlier.

Dong Dengxin, director of the Finance and Securities Institute at Wuhan University, said that the creditworthiness of the US has been decreasing because of its hegemon-like behavior, which has prompted many countries to decrease reliance upon US dollar assets. 

"A common view has formed across the world that the decline in US creditworthiness, resulting from the 'America First' policy, the transition in US trade policy, and 'flip-flopping' of the US president, is hurting the global economy and destabilizing the global financial system." 

"Therefore, many countries feel unsafe, and they are choosing to reduce dollar asset allocation to protect themselves from potential risks," Dong told the Global Times on Tuesday.

The US Treasury figures showed that countries like Japan, India and Germany all decreased holdings of US debts in 2018. 
Newspaper headline: China steps up gold purchases


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