China has come a long way since the days of Richard Nixon’s and Henry Kissinger’s “Ping Pong Diplomacy.” Its economy has grown to be the world’s second largest economy, and its manufacturing base is home to consumer products used around the globe.
Now, China has broken into a nearly century-old financial club, the London Bullion Market Association, whose elite members set the twice daily “London fix” for gold. This inclusion can lead only to further recognition of the importance of gold in the international monetary system as China’s central bank continues to accumulate gold, albeit at a rate that is unknown but is believed to be high.
Bank of China Ltd. will join lenders such as western banking elites Goldman Sachs and Barclays, which run the system for pricing gold. The process dates back to 1919 and sets a benchmark for gold that is used around the world.
Speculation is that China wants its currency, the yuan, to compete with the dollar in the world’s Forex markets. Regardless of any secret China goal, the yuan, sometimes called the renminbi, is gaining acceptance.
An International Monetary Fund team is visiting China this month to discuss including the yuan in the IMF’s Special Drawing Rights basket of reserve currencies. The inclusion of the yuan in the SDR basket will enhance the yuan and will be another crack in the dollar’s armor.
To the chagrin of US officials, China’s gold holdings will lend credence to the yuan’s inclusion in the SDR basket.