The Chinese Gold Standard
Rumors Surround China Setting New Gold Standard
Although there are rumors that China is setting the government up for a gold standard, experts say the rumors are false. According to Jim Rickards, author of the bestselling books, “Current Wars: The Making of the Next Global Crisis,” the rumors surrounding the possibility of a Chinese gold standard are unsubstantiated and overblown. China used to be on a gold standard and spent nearly 20 years trying to get away from it.
How does this affect you exactly? If China were to go on a gold standard, many more countries would more than likely follow suit due to the ever-increasing appreciation of China’s currency. However, there are several reasons why gold serves as a great monetary investment tool for the individual, but not for a central government or bank.
- A gold standard makes business cycles, such as inflation and deflations, much more extreme and difficult to manage for businesses and central banks. Since the central banks in China would be unable to fight the cycles head on and could cripple the economy, other countries would likely not want China to be on a gold standard.
- The Chinese Yuan could become too expensive for China to export to the west since Western currency is depreciating in value. It might strengthen the value of China’s currency, but it would make trading next to impossible due to its high value.
- China doesn’t hold the pricing power on gold. The United States and other Western nations set the power of gold. If China went with a gold standard, Western nations could purposely or accidentally cripple any backing of Chinese currency if their own economies were in crisis.
We believe it’s important to not only understand the value of gold, but how it affects the international populace. Gold’s value in undeniable.
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