2012-08-22
Bankers hold gold ingots in Hong Kong. (Photo/Xinhua)
Gold accounts for only 1.5% of the People's Bank of China's foreign reserves of US$3.6 trillion, a proportion lower than that of most western countries.
This phenomenon is also seen in Japan, with gold accounting for less than 2.7% of Japan's foreign reserves, estimated at US$1.5 trillion. However, Japan faces greater challenges in its attempts to cut its dependence on the dollar, as it has to deal with pressure from Washington and the prospect of a rising yen.
The low proportion of gold in the foreign reserves of China, Japan, Taiwan and Asian countries in general results from a lack of appreciation of the gold standard as a monetary system.
European countries including Germany, France and Britain, which have a thorough knowledge of the gold standard, insist on maintaining a specific level of gold in their foreign reserves.
China should now rapidly increase its gold reserves, without pushing up prices of the precious metal excessively. It could pursue this goal by mining gold in the country on a larger scale, buying gold from overseas and launching US dollar-denominated gold passbooks.
With regard to the last measure, China could adopt the Taiwanese model of allowing the use of the US gold passbook as a non-resident account to hedge against inflation or currency fluctuation, which is sure to help the central bank increase its gold reserves while reducing its US dollar holdings.
Source: China should increase gold reserves to internationalize RMB
