China, owner of the world’s largest foreign exchange reserves, may increase gold holdings to diversify away from the U.S. dollar, a researcher said.
“There’s no reason why the Chinese central bank should hold a disproportionate amount of other countries’ reserve currencies such as the dollar,” David Marsh, chairman of the Official Monetary and Financial Institutions Forum, said today in an interview in Beijing. “It is likely that the Chinese authorities will carry on purchasing gold in modest amounts and they will do it in a way calculated not to disturb the market.”
China has the world’s largest foreign exchange reserves at $3.31 trillion as of December 2012, according to the State Administration of Foreign Exchange. Bullion capped a 12th annual advance in 2012 as central banks took steps to stimulate their economies, and rose to a record $1,921.15 an ounce in 2011.
“As China aspires to take the lead politically and economically, it is unlikely to be satisfied with storing its wealth simply in liabilities of other countries,” Marsh wrote in a report commissioned by the World Gold Council and published today. Spot gold was at $1,672.50 at 2:08 p.m. in Beijing.
The Chinese yuan, also known as renminbi, is expected to emerge gradually as a new reserve currency along with its growing use in trade and investment, according to the report.
“By the year 2020, the renminbi will be the third-biggest, or one of the three biggest, reserve currencies in the world,” Marsh said in the interview.
The nation boosted its gold reserves by 76 percent in 2009, when it overtook Switzerland to be the world’s fifth-biggest holding country with 1,054 metric tons, according to the International Monetary Fund.
China hasn’t revised that number since, while its foreign exchange reserves have expanded by 70 percent, leaving gold accounting for about 1.7 percent of the entire reserves, Bloomberg calculations based on IMF data show.
“There is constant speculation that they have added to the holdings but nobody knows,” Marsh said. “There may also be accounting treatments of gold from local production which might be held as kind of quasi-reserve without being fully part of the reserves that the authority has to communicate to the International Monetary Fund.”
Gold imports by China from Hong Kong almost doubled to 720,090.6 kilograms in the first 11 months from 392,564.4 kilograms a year earlier, Bloomberg calculations show. Net imports, excluding flows from China to Hong Kong, were 61,786.6 kilograms in November from 23,844 kilograms a month earlier. China doesn’t publish such data.