China appears to be chipping away at dollar dominance.
While there is no indication that the dollar is in imminent danger of toppling from its perch as the global reserve currency, more central banks are warming up to the yuan.
While the Federal Reserve talks about tightening monetary policy, the Chinese central bank is heading in the opposite direction. This could boost gold demand in that country even further.
Earlier this month, the People’s Bank of China announced a 0.5% cut in financial institutions’ required reserve ratio (RRR). According to the World Gold Council, this move will inject about $1.2 trillion yuan into the Chinese economy.
Last summer, the Chinese government launched a pilot program for a digital version of the yuan. The virtual currency ups the ante in the war on cash and creates the potential for the government to track and even control consumer spending.
Last week, the digital yuan got a boost when China’s biggest online retailer announced it has developed the first virtual platform to accept the Chinese digital currency.
The Chinese government has launched a pilot program for a digital version of the yuan. The virtual currency ups the ante in the war on cash and creates the potential for the government to track and even control consumer spending. It also raises some concern that the Chinese could threaten dollar-dominance.
The percentage of US dollars held as currency reserves globally dropped to the lowest level in nearly six years in the second quarter of 2019 according to the latest IMF data. Meanwhile, Chinese yuan made up the biggest percentage of reserves ever.
The dollar’s shrinking share of global reserves comes as countries like Russia and China move toward de-dollarization in an effort to undermine the ability of the US to weaponize the dollar as a foreign policy tool. The global gold rush on the part of central banks is part of this movement.
Several currencies have been strong against the dollar over the last couple of days, but as Peter Schiff said in his podcast, the biggest gainer wasn’t a currency at all. It was real money – gold.
Gold hit six-year highs on Monday and set records in a number of currencies. It continued to move upward on Tuesday. Overnight, the yellow metal pushed briefly above $1,500.
Investment guru Jim Rogers recently told RT that the dollar is just a few short years away from losing its global dominance.
In the next few years, the American dollar is going to lose its position as the world’s reserve currency and the world’s medium of exchange.”
Late last month, China finally launched its much anticipated yuan-denominated oil futures contract. Many analysts think this is yet another sign that the mighty dollar’s world dominance is coming to an end.
Turkey went on a gold-buying spree in 2017 and that trend continued in the first two months of 2018. Turkish President Recep Tayyip Erdoğan likes gold and it’s pretty clear the president has been pushing Turkey’s central bank to buy gold and reduce foreign currency reserves in an effort to move away from dependence on the dollar and euro.
On April 16, Erdoğan got a little more overt in his apparent quest to dethrone the dollar, suggesting international loans should be made in gold instead of greenbacks in order to prevent exchange rate pressure on economies.
China wants to dethrone the dollar and it could take a step in that direction before the end of the year.
According to numerous reports, China is prepared to launch a yuan-denominated oil futures contract before Christmas. Last week, the Shanghai International Energy Exchange successfully completed a fifth round of yuan-backed oil futures testing. According to a report by RT, the organization has met all the listing requirements and is set for an official launch.
