Gold Vs Gold Case Study

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Yuan Vs Gold: Successor to Dollar as Global Reserve
Is China the next super power on earth? Will Yuan be the new global reserve? Recent ongoing developments say “YES”. Can Yuan survive as global reserve in long run?
China, since recent past have been accumulating the yellow metal and its gold reserves are estimated to be approximately 2710 tons till the end of 2013, the last official report by China in 2009 state the number as 1054 tons. China is planning to use gold as weapon in the currency war against US. US markets believed that gold will stay cheap for the coming years and turned up their investments towards equity market. With India, the second largest buyer of gold imposing tariffs on gold purchase, availability of gold also increased and China bought all the available gold in the market at the prevailing low rates. China also bought gold mines across the world and directed the gold to China bypassing London gold market. Thus huge demand of gold didn’t increase the gold prices and the five bullion banks decided the price of gold only on the basis of gold in global market, that which is not true indicator of actual supply and demand.
China and its Impact
China signed WTO agreement in 2001 and had a deeper integration with world economy and also participated in free trade with US. China took advantage of its low cost manufacturing conditions and established export oriented principles to encourage investments in China from outside. Additionally, Chinese Yuan that was meant to float against other currencies was devalued against dollar to increase the demand for exports. With increase in this demand, further in the long run Yuan gets stronger against dollar and to avoid this, People’s bank of China printed large amounts of Yua...

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...cked currency system in the current world is not sustainable in the long run for the reasons huge amount of currency in circulation is to be backed and an ounce of gold equals to thousands of units of currency. Credit cards and currency printing press are creating huge money in circulation that in any particular instant, value of gold in the reserves may not match its backed currency value. Every country is hardwired to print the currency at every stage to heathen up their economy. Even China prints money to devalue its currency and it do have public debt. China will face the same situation as US during Bretton woods system in the long run. Gold standards do not work over long periods of time but gold itself does. But China can establish its Yuan as global reserve currency for a few years till world completely shifts to Gold as currency, which is not so far to see.

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