Central banks have been increasing their holdings...

Editor's note: ...in gold bringing about the obvious with gold being seen as a reserve asset. This could be a detriment to the US dollar no longer being viewed as a "safe haven." China's central bank (PBOC) has been consistently increasing its gold reserves for an extended period. This is a clear signal of diversification away from traditional reserve assets, primarily US dollars. China, along with other BRICS nations, have openly expressed a desire to reduce dependence on the US dollar for international trade and finance. Gold is seen as a neutral, tangible asset that can support alternative payment systems. If this continues and accelerates, this could gradually reduce the US dollar's global dominance, leading to a more "multipolar" global monetary system. There is substantial evidence and data indicating large tonnages of gold moving from Western sources to China and Hong Kong. This trend has been particularly pronounced in recent years with Hong Kong serving as a major conduit for gold entering mainland China. In April 2025, China's total gold imports via Hong Kong nearly tripled month-on-month, reaching 58.61 metric tons. The question is why does the UK (specifically London, a major gold trading center) make itself a major source of gold for China? The PBoC has been reported to covertly buy gold in the London Bullion Market. If this is the case why does London allow this to take place covertly?
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China's Gold-Backed Yuan: A Game Changer in Global Finance

By Albert Harmon | June 27, 2025

China has announced a significant development regarding its currency, the yuan, which is now backed by gold through new trading contracts and storage facilities in Hong Kong. This move is expected to enhance the yuan's internationalization and challenge the dominance of the US dollar in global trade.

In a surprising announcement, China has revealed that it is backing its currency, the yuan, with gold. This development, which many in the West may not fully grasp, has significant implications for global finance and trade. The announcement was made by the Shanghai Gold Exchange, which introduced new gold trading contracts and established designated gold storage facilities in Hong Kong.

The Announcement

On June 26, 2025, the Shanghai Gold Exchange announced the listing of new gold trading contracts accessible in Hong Kong, along with the establishment of designated warehouses for gold storage. This move is aimed at enhancing the openness of China's gold market to international participants, countering long-standing accusations of a closed market.

Key Features of the New Contracts

• Physical Delivery: Members and customers can conduct physical delivery transactions at the designated warehouses in Hong Kong, adhering to the delivery guidelines set by the Shanghai Gold Exchange.

• Exemptions on Fees: Until December 2025, storage fees, entry fees, and exit fees for international members using these warehouses will be waived, making it more attractive for foreign investors.

Implications of a Gold-Backed Yuan

The introduction of gold-backed contracts signifies that the yuan is now a redeemable currency, allowing holders to exchange surplus yuan for gold. This development is crucial for international trade, as it provides an alternative for countries that may prefer holding gold over yuan.

Internationalization of the Yuan

China's move to back the yuan with gold is expected to facilitate its internationalization. As countries accumulate surplus yuan from trade with China, they can now convert these into gold, enhancing the appeal of the yuan as a reserve currency. This shift could lead to a decrease in demand for the US dollar, particularly as more nations seek to bypass the dollar in bilateral trade agreements.

The Shift in Global Trade Dynamics

Recent statistics indicate that over 52% of China's cross-border settlements are now conducted in yuan, surpassing the dollar's share of 43%. This trend reflects a growing preference for the yuan in international trade, driven by China's strategic partnerships with various nations.

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