China has significantly increased its gold reserves in recent years. Currently, for example, the Asian communist giant is the sixth country with the largest stock of the precious metal in the world.
But what was behind this movement? The answer may lie in China’s complex relationship with the US dollar and growing speculation about a possible attempt by the communist country to annex Taiwan. Gold, historically considered a safe haven in times of crisis, appears to be Beijing’s bet to diversify its reserves and protect its economy against possible Western sanctions, similar to those imposed on Russia after its invasion of Ukraine.
Francisco Blanch, head of global commodities and derivatives research at Bank of America Securities, told the website Axios that many central banks are losing confidence in the global financial system. Blanch recalled that the decision by the European Union (EU) and the USA to freeze Russia’s foreign reserves caused other nations to rethink the assets they keep in reserve.
According to the World Gold Council, the People’s Bank of China (which is the country’s Central Bank) bought 27 tons of gold in the first three months of this year, bringing its reserves to a record 2,262 tons. March was the 17th consecutive month of growth in China’s gold reserves, according to the World Council.
Since November 2022, the year the war in Ukraine began, China’s gold reserves have increased by 314 tons, according to the World Gold Council. At this moment, the Chinese are one of the main responsible for the rise of the metal in the market, whose ounce is being traded at US$ 2.35 thousand.
Historically, China keeps a large portion of its international reserves in US dollars, mainly in the form of US Treasury bonds. However, Since 2021, the country has been reducing its holdings from around US$1.1 trillion to approximately US$775 billion in 2024. The diversification of Chinese reserves, which is currently counting on this significant increase in gold purchases, reflects the country’s attempt to reduce exposure to the dollar and other risks associated with foreign currency.
Dependence on the US dollar as the world’s reserve currency is a point of vulnerability for many countries, including China. The dollar is the dominant currency for international transactions and foreign exchange reserves, which gives the United States considerable economic influence. By diversifying its international reserves, China seeks to reduce this dependence and, consequently, the US’s power of influence over its economy.
Because it is considered a safe asset, China’s accumulation of gold not only strengthens its economic position, but also prepares it for adverse scenarios, which could involve conflicts.
The annexation of Taiwan has been a long-standing goal of Chinese dictator Xi Jinping. Several times over the past year, the leader of the communist regime defended the idea of integrating the island, which lives under a democratic government, into his territory. China says it wants to carry out this process through “peaceful” means, however, US officials have already warned that the communists aim to have sufficient military capabilities to invade Taiwan by 2027.
For experts, this accumulation of gold by China could be a clear sign that the country is preparing itself for this possible conflict involving the Taiwan annexation process.
“The incessant shopping and the massive amount [de ouro] are clear signs that this [a invasão de Taiwan] is a priority political project for Beijing’s leadership, given what they see as an imminent confrontation with the United States,” said Jonathan Eyal, associate director of the think tank British defense department Royal United Services Institute, at the The Telegraph.
Taiwan has defense guarantees from the USA, which is its largest arms supplier. A Chinese invasion would likely trigger a long-term conflict between the communists and the West. That is why, in addition to accumulating gold, China has also strived to become self-sufficient in the agricultural sector, which, for Eyal, is also a form of preparation adopted by the country for a conflict involving Taiwan.
Iain Duncan Smith, member of the United Kingdom Parliament for the Conservative Party, told The Telegraph that China’s accumulation of gold reserves can offer “room for maneuver” to the country in a conflict scenario, allowing them to deal with the difficulties arising from the possible withdrawal of investments by the West in the event of an invasion of Taiwan.
In addition to the Taiwan issue and the diversification of international reserves, another factor that may be behind this increase in gold reserves is China’s initiative to try to internationalize its own currency, the yuan. By increasing its reserves, the communist regime may be able to give the yuan more credibility as an alternative reserve currency. This could challenge the hegemony of the dollar and allow China to also exert greater global economic influence.
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