China to increase gold reserve to match GDP

(People's Daily Online)
Updated: 2016-03-16 14:26
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"With the RMB continuing to internationalize at an increasing rate, positioning it to become a global currency, China should further increase gold reserves to match its GDP," said Song Xin, general manager of China National Gold Group Corporation.

"Gold reserves should become the cornerstone of RMB internationalization, which means fixing the yuan to gold more closely," Song commented in an online interview during the Two Sessions meetings.

Song explained that, since late last year when China joined the SDR basket of currencies, it has been continuously adding to its gold reserves. At the end of February 2016, China's gold holdings had amounted to 1,788 tons. But that amount is only about one-fifth of what the United States, the world¡¯s largest economy, possesses.

"This gap is still very significant, so we must further increase our gold reserves to match the GDP," said Song.

Before the collapse of the Bretton Woods system in the 1970s, currencies were pegged to gold. But given that they no longer are, why should we continue to increase the gold reserve?

Responding to this question, Song said that it is related to the global governance system.

"When the global economy was smaller, the gold standard had clear advantages. But with the expansion of the world economy and the collapse of the Bretton Woods system, the dollar was no longer pegged to gold. So the U.S. began to say gold was not important anymore. However, during the financial crisis, the U.S. did not decrease its gold reserve; on the contrary, the gold reserve was actually increased in order to strengthen people's confidence in the dollar," Song said.

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