As the march toward China’s prominence in the Gold as well as global market continues, a new FX exchange (Forex) has been opened in China. Those contracts will be traded in Chinese renminbi (RMB). This is a very big deal.
Some think it will create greater transparency in the markets because the gold will be priced in terms of an alternative currency, bypassing the US Dollar, which still holds the title of “Worlds Reserve Currency.” Because the dollar is the world’s reserve currency it means that if you are a government or corporation outside of the US and you are going outside of your borders to buy anything (oil, lumber, gold etc.) you have no alternative but to use the US dollar to pay for that transaction. This is why everyone has had to hold so many US dollars in their reserves, which has been a tremendous advantage for us. We were the ONLY country that could create, out of debt, the currency that we use to pay our own bills.
Over the last several years China has created many “Bi-lateral Trade Agreements” where they would go to a country and create an agreement whereby they would each use their own currency to settle purchases completely bypassing the US dollar. This is one of the reasons the Federal Reserve has been forced into Quantitative Easing, buying back our own debt since there are not enough buyers any more (due to the decreased need for dollars). It started at the end of 2002.
China creating a FX exchange also continues to reposition the RMB as a strong globally accepted currency so that the IMF (International Monetary Fund) can position it as part of the SDR, which is what China has been vying for. As a reminder, the SDR is now a fully convertible reserve currency created by the IMF. It is currently composed of the US Dollar, Euro Dollar, British Pound and Japanese Yen. This currency can be reweighted at any time. This is bad for the US dollar, which currently has the highest weighting in the SDR. The IMF has stated that they want to continue to reduce the US dollars weighting (it was reduced by 2.1% last January). This means that there is even less of a need to hold US dollars by global governments and central banks.
The new FX exchange broadens the market for Gold and Silver. The Chinese middle class has been steadily growing. Their culture is attuned to using gold to preserve wealth. China’s middle class is already larger than the entire population of the United States according to Wikinvest, and their government is encouraging the population to buy gold. Can you imagine what would happen to the physical gold market if only 20% of the Chinese middle class shifted into physical gold?
Why would the government want their population to own gold? To provide savings to restart the economy after they have destroyed the debt based renminbi. Remember, ultimately all fractional reserve currencies are valued against gold.
The Chinese population has been able to buy and own physical gold since the opening of the Shanghi Gold Exchange in 2002. With the new Pan Asian Gold Exchange, the Chinese peoples’ ability to own gold and silver has been expanded by enabling them to buy it online.
The paradigm surrounding gold is shifting. It began last June when traditional market pundits began to refer to gold as the alternative currency and the safe haven asset. That shift has recently picked up. This new exchange is additional strong support in that global shift toward gold as a currency, which is what it has been for over 5,000 years. Be a part of it, and you will be served well by gold.