In Part 2, we discussed the control the U.S. has over Russia via the SWIFT dollar payment system. Russia does not want to be part of this system so the central bank unofficially acquires gold to side-step the dollar system. China is another strategic gold importer and producer for similar reasons. Chinese officials and citizens know the strategic importance of owning the metal for its hedging qualities. This wisdom and prudence will create tremendous wealth in the years to come. Like Russia, China is also a strategic financier of the United States in the form of treasuries. China holds roughly $1 trillion in dollars and financial obligations. Although, government reserves are heavily tied to the U.S., China is dropping U.S. obligations quickly to accommodate commodities for the Silk Road. Commodity accumulation and complete dollar liquidation will take some time as the buyers of treasuries are limited in these quantities. Not only are commodities essential in the development of infrastructure, but they are a real asset in comparison to an at will paper asset.
“There will be a crossover point, where the loss on these dollar reserves from a rising yuan/dollar exchange rate are less than the fall in the yuan cost of imported industrial materials.”-Alasdair Macleod
Asian central banks are taking notice of China’s dollar reserves in economic forums such as the Shanghai Cooperation Council and the Eurasian Economic Union. Institutions know that these reserves will lose value as China aims to settle trade outside of the dollar. As an example, Thailand a country in the Asian block, owns $66 billion of U.S. Treasuries. If they were to move just 10% of this into gold at current prices, that would equate to 164 tonnes. Sourcing this amount would be extremely difficult as supplies are decreasing monthly.
“Deficit spending is simply a scheme for the ‘hidden’ confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”-Alan Greenspan