China’s Central Bank Increase Gold Holdings as it anticipates the possibility of being excluded from the global U.S. dollar payments system.
The Central Bank of China for the past five months has been increasing its gold reserves whiles decreasing its holdings of U.S bonds.
However, expects from mega industries believes that this move by China is in preparation of the future sanctions that they may face.
According to data recently released by China’s State Administration of Foreign Exchange and reported by financial news outlet Caixin, in the three years between September 2019 and October 2022, China’s gold reserves remained unchanged.
Starting in late 2022, however, China began bulking up its gold reserves. Between November 2022 and March of this year, China accumulated 3.86 million ounces (about 120 tons) of gold.
Moreover, from the end of February to the end of March, the country’s gold reserves increased by 580,000 ounces (18 tons) to reach 66.5 million ounces (2,078 tons).
Fear of Sanctions – China’s Central Bank Increase Gold Holdings
According to China scholar and finance author Sun Xiaoji, the Chinese central bank is actively increasing its gold holdings as it anticipates the possibility of being excluded from the global U.S. dollar payments system.
China fears U.S. sanctions that would restrict it from Western financial networks and the dollar, as happened to Russia after Vladimir Putin’s invasion of Ukraine, Sun said on his YouTube program on April 9.
China’s Ministry of Finance convened an emergency meeting on April 22 of last year to discuss the potential impact of international sanctions on the country’s overseas assets, the Financial Times reported. The meeting was prompted by concerns that in the event of a military attack on Taiwan, China could face similar sanctions to those imposed on Russia. It included officials from China’s central bank and finance ministry and executives from local and international banks, the report said.
As U.S.–China relations continue to deteriorate, the Chinese central bank has been buying gold at a rapid pace, with the total reported amount now exceeding 2,000 tons, making it the sixth-largest gold reserve in the world, Sun said.
“Domestically, the Chinese Communist Party (CCP) advertises that it is ‘proactively challenging the United States and de-dollarizing,’ but the real reason is that it knows it will be sanctioned by the United States sooner or later. Therefore it is looking for an alternative to the U.S. dollar, and the only alternative is gold,” Sun explained.
According to calculations by Federal Reserve economists Carol Bertaut and Ruth Judson, reported by Reuters in February, Chinese communist authorities dramatically decreased their holdings of U.S. Treasuries, by $173.85 billion in 2022. This represents the second-largest annual reduction in U.S. bond holdings, following their $189 billion reduction in 2016.
A Chinese ‘Counter-Attack’
Chinese media has claimed that the active reduction of U.S. debt holdings is the Chinese authorities’ counter-attack against the U.S. dollar, because of U.S. sanctions and restrictive measures against Huawei and SMIC, among others. An April 11 article on Chinese news portal Netease says the strategy is a way to “effectively fight back” and adds “there is no room for discussion.