Recently, China has minced no words in making its discomfort clear with respect to the US dollar. That it was diversifying its huge cache of dollar denominated forex reserves into other asset classes was also being speculated. Recently though, it let the cat slip out of the bag. And quite a big one at that! China's forex managing agency revealed that it has nearly doubled its gold reserves to 1,054 tonnes, up from 600 tonnes in 2003, making it the fifth largest holder of the precious metal. The disclosure is likely to have quite a few implications. Foremost among them could be a renewed surge in the price of the yellow metal, which has already quadrupled during the last one decade. There is no reason why it cannot inch even higher and scale new peaks.
Secondly, it might force a flight from the dollar by other central banks as well, who could well be spooked by the fact that if the largest supporter of the US dollar is stealthily moving out of it, significant depreciation in the greenback could only be a matter of time. If it does indeed happen, no one is going to suffer more than China itself as it still has majority of its forex reserves invested in the US dollar. Thus, caught in a Catch-22 situation, slow and steady accumulation of non-dollar assets is the only way out for the dragon nation. Otherwise it risks getting swallowed by the same beast it helped create
Secondly, it might force a flight from the dollar by other central banks as well, who could well be spooked by the fact that if the largest supporter of the US dollar is stealthily moving out of it, significant depreciation in the greenback could only be a matter of time. If it does indeed happen, no one is going to suffer more than China itself as it still has majority of its forex reserves invested in the US dollar. Thus, caught in a Catch-22 situation, slow and steady accumulation of non-dollar assets is the only way out for the dragon nation. Otherwise it risks getting swallowed by the same beast it helped create
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