http://www.zerohedge.com/news/2015-08-11/will-china-play-gold-card
Submitted by Hugo Salinas Price via Plata.com,
Alasdair Macleod has posted an article at www.goldmoney.com which I think is important.
The thrust of the article is that China, at
some point, will have to revalue gold in China; which means, in other
words, that China will decide to devalue the Yuan against gold.
Since "mainstream economics" holds that gold is no
longer important in world business, such a measure might be regarded as
just an idiosyncrasy of Chinese thinking, and not politically
significant, as would be a devaluation against the dollar, which is a
no-no amongst the Central Bank community of the world.
However, as I understand the measure, it would be indeed world-shaking.
Here's how I see it:
Currently, the price of an ounce of gold in Shanghai is roughly 6.20 Yuan x $1084 Dollars = 6,721 Yuan.Now suppose that China decides to revalue gold in China to 9408 Yuan per ounce: a devaluation of the Yuan of 40%, from 6721 to 9408 Yuan.
What would have to happen?
Importers around the world would immediately purchase physical gold
at $1,084 Dollars an ounce, and ship it to Shanghai, where they would
sell it for 9408 Yuan, where the price was formerly 6,721 Yuan.
The Chinese economy operates in Yuan and
prices there would not be affected - at least not immediately - by the
devaluation of the Yuan against gold.
Importers of Chinese goods would then be able to
purchase 40% more goods for the same amount of Dollars they were paying
before the devaluation of the Yuan against gold. What importer of
Chinese goods could resist the temptation to purchase goods now so much
cheaper? China would then consolidate its position as a great
manufacturing power. Its languishing economy would recuperate
spectacularly.
The purchase of physical gold would take off,
no longer the activity of detested "gold-bugs", but an activity linked
to making money, albeit fiat money. Inevitably, the price of
physical gold in Dollars would separate from the price of the "paper
gold" traded on Comex and go higher, leaving paper gold way behind in
price.
If the US were to provide the market with physical
gold in the quantities being purchased for trade with China, it might be
able to prevent the rise in the price of gold in Dollars; however, we
know that Comex has only one ounce of physical gold for every 124 owners
of paper gold, so that action would be impossible. China would be
sucking up the world's gold at a huge rate, if the price of gold in
Dollars were to remain where it is at present.
The only way that the US might counter
the Chinese move, would be to revalue gold in Dollars; which is to say,
the US would have to effect a corresponding devaluation of the Dollar
against gold, to nullify the effect of the Chinese devaluation of the
Yuan against gold.
At a Dollar price of gold of $1,517 Dollars per
ounce, the Chinese devaluation would be left without effect: the present
Yuan/Dollar exchange rate would then remain at 6.20 Yuan per Dollar:
9,408 Yuan/6.20 exchange rate = $1,517 Dollars per ounce.
This is the old policy of the 1930's,
commonly known as "beggar thy neighbor", where countries carried out
competitive devaluations against gold in order to preserve their
manufactures and continue exporting. The response of importing nations was to raise tariffs on imported goods. (Say good-bye to an integrated world economy.)
Will China decide to "beggar its neighbors", the US and Europe?
I think that the huge problem of keeping the Chinese economy on its
feet and avoiding the political instability which would rage through
China by not doing so - with a population in excess of 1.3 billion human
beings - will be so compelling that China will practically inevitably resort to raising the price of gold in China.
When might this happen?
The world economy is going from bad to worse by the
day. The Chinese may opt for this measure out of sheer desperation, and
it may be a reality soon. I have the sensation that things are falling
apart around the world at an increasing rate of speed. Perhaps China will move this Fall?
Devaluing the Dollar on the part of the US would upset the apple-cart of Dollar hegemony in the world.
But not to devalue would price US goods out of world markets, along
with European goods. "Damned if you do, damned if you don't."
Dollar devaluation would force a Euro devaluation and all Hell would break loose,
as all countries would belatedly realize the importance of having gold
reserves, and one country after another would devalue their currencies
against gold. Import tariffs and restrictions on imports would once
again prevail. The dream of "Globalization based on the fiat dollar"
would evaporate in the orgy of currency devaluations against gold.
The era of the Dollar as reserve currency of the world, would have ended.
When the dust shall have settled on this giant
crisis, the powers of this world will have recognized, once again, that
gold is money; what would remain would be the work of establishing the
gold standard de jure, by international accords, in order to abolish tariffs and import restrictions and renew the free international flow of goods.
However, another horrible scenario is possible:
the US, run by those who insist on maintaining the plan for world
domination through endless war, may decide to go to war with China and
with Russia, too, for good measure. Let us hope that reason prevails and that the Dollar loses its status as world reserve currency in a peaceful manner.
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