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China is in a delicate position. They're fighting trade war from weaker position. Their diversification to gold makes sense. They probably know that they don't

China is in a delicate position. They're fighting trade war from weaker position. Their diversification to gold makes sense. They probably know that they don't have the power to "sink" the dollar. If they need the dollar in the future, they can still sell their gold and purchase US treasury again. I think they are testing out strategies. Gold is an alternative. The US and its European allies still control most of the gold reserve. Western countries have an upper hand if currency war moves to gold. Some Asian countries are voicing support for gold backed currency. But they together don't have substantial gold reserve. I think China is waiting for a break of European countries to gold. That would be a real opening for them in this battle. There's also bitcoin. China doesn't like it because the system is decentralized and supply is limited. They can't easily take control of the market. But the US also face similar issues. That would make an unpredictable battle field. For now, it seems China is treading slowly with gold.

dageshi 7y ago
The only thing that really matters is the relative percentages of what currency is used in international trade. If you need to buy stuff from outside your country and they want to be paid in USD then you need USD to pay them. The RMB isn't really that useful outside of China, I don't honestly see gold being the substitute because there just isn't enough of it, any gold backed currency would end up deflationary and people would hoarde it for the sake of hoarding it.
- dnprock 7y ago
  Gold backed currency doesn't have to be 1-1 with gold. You can use fractional reserve to issue more currencies. Or you issue bond to borrow. Given you keep your promise to pay debt and allow people to redeem currency using gold. People will trust you as long as you keep your promise and have enough gold reserve. I personally think having the ability to hoard gold is good. I can decide that for myself. It's easier to understand than the voodoo economics of money printing. It's the fallback to keep accountability.
  - dageshi 7y ago
    This was all done already, it got replaced with our existing system, nobody with the power to go back to the gold standard will do so because it takes power away from themselves...
    - dnprock 7y ago
      It makes sense if you don't have the power to print USD. In this context, it makes sense for China. Gold backed systems have existed for thousands of years until 1970s. I wouldn't count it out after a few decades.
  - wrong_variable 7y ago
    Gold would be extremely deflationary. It is what made the great depression worse. If the Fed didn't "print money" as QE1, QE2, QE3 then you would have 25% unemployment in the US alone. Having half of society unemployed just so that you can "hoard gold" would lead that half of society taking up guns to take it away from you. Be careful what you wish for.
    - dnprock 7y ago
      The problem with QE is you will have QEn. Everyone will do QE on their economies. We don't have any accountability. During the 2008 crisis, we were told this is the right thing to do. And we keep doing it. We're not at the stage where half of the society is unemployed and hoarding gold. We're at the stage where everyone is doing QE on their economies. Having full employment for the sake of full employment is dumb. That's the same as communism.
      - dageshi 7y ago
        The goldbugs all said the fed and its helicopter money would have lead to hyperinflation at this point. Well every major central bank in the world did QE and it didn't happen, inflation barely cracked 5% if I recall? And quickly retreated from there.

dageshi 7y ago

The only thing that really matters is the relative percentages of what currency is used in international trade. If you need to buy stuff from outside your country and they want to be paid in USD then you need USD to pay them. The RMB isn't really that useful outside of China, I don't honestly see gold being the substitute because there just isn't enough of it, any gold backed currency would end up deflationary and people would hoarde it for the sake of hoarding it.

dnprock 7y ago
Gold backed currency doesn't have to be 1-1 with gold. You can use fractional reserve to issue more currencies. Or you issue bond to borrow. Given you keep your promise to pay debt and allow people to redeem currency using gold. People will trust you as long as you keep your promise and have enough gold reserve. I personally think having the ability to hoard gold is good. I can decide that for myself. It's easier to understand than the voodoo economics of money printing. It's the fallback to keep accountability.
- dageshi 7y ago
  This was all done already, it got replaced with our existing system, nobody with the power to go back to the gold standard will do so because it takes power away from themselves...
  - dnprock 7y ago
    It makes sense if you don't have the power to print USD. In this context, it makes sense for China. Gold backed systems have existed for thousands of years until 1970s. I wouldn't count it out after a few decades.
- wrong_variable 7y ago
  Gold would be extremely deflationary. It is what made the great depression worse. If the Fed didn't "print money" as QE1, QE2, QE3 then you would have 25% unemployment in the US alone. Having half of society unemployed just so that you can "hoard gold" would lead that half of society taking up guns to take it away from you. Be careful what you wish for.
  - dnprock 7y ago
    The problem with QE is you will have QEn. Everyone will do QE on their economies. We don't have any accountability. During the 2008 crisis, we were told this is the right thing to do. And we keep doing it. We're not at the stage where half of the society is unemployed and hoarding gold. We're at the stage where everyone is doing QE on their economies. Having full employment for the sake of full employment is dumb. That's the same as communism.
    - dageshi 7y ago
      The goldbugs all said the fed and its helicopter money would have lead to hyperinflation at this point. Well every major central bank in the world did QE and it didn't happen, inflation barely cracked 5% if I recall? And quickly retreated from there.