China bank may have ‘tripled bullion holdings’.

  

  The amount of gold holdings by PBOC is the very important validation of the monetary role of gold. Estimations in the market are as high as 5,000 t or even 30,000 t spreaded between different Chinese agencies. 

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Business Day:

China bank may have ‘tripled bullion holdings’.

CHINA’s push to challenge US dominance in global trade and finance may involve gold — a lot of gold.

While the metal is no longer used to back paper money, it remains a big chunk of central bank reserves in the US and Europe.

China became the world’s second-largest economy in 2010 and has stepped up efforts to make the yuan a viable competitor to the dollar. That has led to speculation the government has stockpiled gold as part of a plan to diversify $3.7-trillion in foreign-exchange reserves.

The People’s Bank of China may have tripled holdings of bullion since it last updated them in April 2009, to 3,510 metric tonnes, says Bloomberg Intelligence, based on trade data, domestic output and China Gold Association figures.

A stockpile that big would be second only to the 8,133.5 tonnes in the US.

"If you want to set yourself up as a reserve currency, you may want to have assets on your balance sheet other than other fiat currencies," TD Securities commodity strategy head Bart Melek says. Gold is "certainly viewed as a viable store of value for an up-and-coming global power".

China may be preparing to update its disclosed holdings because policy makers are pressing to add the yuan to the International Monetary Fund’s (IMF’s) currency basket, known as the Special Drawing Right (SDR), which includes the dollar, euro, yen and British pound. The tally may come before the IMF’s meetings on the SDR next month or in October, Nomura Holdings says in a report.

Gold played a central role in the international monetary system until the collapse of the Bretton Woods framework of fixed exchange rates in 1973, according to the IMF.

While the role of bullion has diminished since then, the fund still holds 2,814 tonnes and most central banks have some on their balance sheets.

Russia more than tripled its holdings since 2005.

China is the world’s largest gold producer and ranked behind only India among top consumers last year, but the amount of metal its central bank last reported holding in 2009 accounts for just 1% of foreign-exchange reserves, which have surged more than fivefold in a decade and are the biggest in the world. Most of that is in dollars.

The IMF estimates the dollar makes up 63% of world central bank holdings, while the euro accounts for 22%. Data from the Society for Worldwide Interbank Financial Telecommunication show the US currency was used for 43% of global payments in February.

While China is promoting the yuan internationally, Swift data show the currency was used for only 1.8% of international payments in February. Private investors — both Chinese and non-Chinese — can move their money in and out of the country only through approved programmes and in limited amounts, and changes in the currency’s value are only permitted in limited ranges.

Adding gold and other assets would ease China’s reliance on the dollar, says Nathan Chow, a Hong Kong-based economist at DBS Group Holdings.

It may bolster the view China has "a currency that’s well backed by a range of different assets," says Steven Dooley, a Melbourne-based currency strategist at Western Union Business Solutions for Asia-Pacific. "The most-liquid currencies tend to have a wide range of foreign-exchange reserves," he says.

With China disclosing so little about its hoard, finding out how much the central bank has in its vaults is of increasing interest to traders. Confirmation of bigger holdings would signal the importance of the metal as a reserve asset and boost market sentiment, Mr Melek says.

At a time when prices are languishing, the buying could give support, says Barclays director of commodities Suki Cooper.

Bloomberg"