China Buys 20 Tons of Gold, Raising Its Reserves to 2366 Tons

China is no longer content with just gold; it is building the infrastructure for a new monetary order. After 22 consecutive months of acquiring the yellow metal, Beijing is consolidating the bridges between gold and the yuan, while its exposure to U.S. Treasury bonds is declining. We are thus witnessing the beginnings of a "Yuan-Gold" standard that could reduce dependence on the dollar.

In Brief

• China strengthens its gold reserves after 22 consecutive months of accumulation.
• Beijing is developing gold and yuan-related infrastructures, particularly between Hong Kong and Shanghai.
• The internationalization of the yuan and BRICS Pay fuels the debate on an alternative to the dollar-dominated system.
• China is reducing its exposure to U.S. Treasury bonds amid a diversification of its reserves.
• The hypothesis of a yuan-gold standard remains contested, while the dollar retains a dominant place in global reserves.

China Strengthens the Role of Gold in Its Monetary Strategy

China has just accumulated gold for 22 consecutive months. For July, the People's Bank of China (PBoC) announced the addition of 20 tons of gold to its official reserves. Such regular accumulation brings total holdings to nearly 2366 tons, accounting for 8% of China's official reserves. This statistic places Beijing sixth in the world among gold holders, behind the United States, Germany, Italy, France, and Russia.

Hong Kong is said to have set up a government-backed gold compensation system linked to Shanghai. This is the first component of an international network of vaults intended to allow settlements in yuan against gold.

This evolution is tied to China's upcoming presidency of the BRICS and Xi Jinping's announcement of a third "golden decade". Such a reading can be summed up in one formula:

They built the vaults, bought the gold, and named the decade.

Beijing has thus announced the internationalization of the yuan for global trade and settlements. The BRICS Pay payment infrastructure, associated in its narrative with China, Russia, and India, constitutes an alternative to SWIFT and the dollar-dominated system, with a backing of gold. These various elements fuel the thesis of the adoption of a new gold standard by China.

This thesis is based on several interconnected developments:

• China's accumulation of gold for 22 consecutive months;
• A gold compensation system in Hong Kong connected to Shanghai;
• A project for an international network of vaults allowing settlements in yuan against physical metal;
• Increased internationalization of the yuan in trade and settlements;
• BRICS Pay, presented as an alternative to the dollar-dominated system.

The Decline of U.S. Holdings Fuels the Debate on the Dollar

China has sold 70 billion dollars in U.S. Treasury bonds. This is the largest sale since the 2008 financial crisis. Currently, gold has surpassed U.S. Treasuries as a global reserve asset. Thus, this is not an isolated movement. It would participate in a transformation likely to have, in the long term, repercussions on U.S. bond yields.

However, the reading of Chinese holdings in the United States is debated. Thus, U.S. statistics attribute the securities to the country where their custodian is located. Indeed, 618 billion dollars in Treasuries are officially held by China, nearly 450 to 500 billion dollars attributed to Belgium and the Netherlands, and about 460 billion dollars to the Cayman Islands, according to official information.

The Hypothesis of a Yuan Linked to Gold Remains Hotly Contested

The assertion that China would officially switch to a new gold standard would be inaccurate for many observers. They contest such a conclusion. They question the idea that BRICS Pay would be backed by gold and remind that the internationalization of the yuan is an old Chinese ambition. Currently, the yuan represents 2% of global reserves, compared to nearly 60% for the dollar.

Beijing may not necessarily have an interest in provoking total dedollarization. A collapse of the greenback would reduce the value of U.S. assets held by China, while a strong appreciation of the yuan would weigh on Chinese exports.

The strategy could thus be more about reducing exposure to the U.S. financial system than a complete break with it. Between diversification of reserves, pursuit of financial autonomy, and a true yuan-gold standard, a decisive step remains to be taken.