A global currency denominated in gold by China and Russia

China recently bought large amounts of gold on a monthly basis, fueling speculation of joint action with Russia to launch a new gold-backed currency in a move aimed at riding the US dollar as the world’s major reserve currency.

Speaking on the topic, Min Huaqiang, an economic researcher at the Heritage Foundation’s Center for Asian Studies, said: “The US dollar remains the safest, most convenient and most widely used currency in Asia and the world today… There is no other currency, backed by gold or otherwise”, comparable, and that is unlikely to change in the near future”, he told FOX Business.

Neither country has officially confirmed plans for such a currency, but earlier this year China began buying huge amounts of gold at the same time that Russia was forced to abandon the dollar due to sanctions in response to the invasion of Ukraine.

The war also led to the biggest discount to gold prices in years.

Some experts warn that these moves, along with the close relationship that developed between Moscow and Beijing as the rest of the world isolated Russia after the invasion, indicate the possibility of China trying to launch a new gold-backed currency.

The idea of ​​a joint Russian-Chinese currency has surfaced frequently over the past decade, especially after the Russian Central Bank opened its first foreign office in Beijing in 2017.

For two decades, a fellow at the Foundation for Defense of Democracies, Craig Singleton, noted that Chinese leaders have talked about reforming the global financial system and weakening the hegemony of the dollar.

“Two components of that strategy center around the development of the global commodity trading system based on the yuan and efforts by China, in partnership with Russia and other like-minded countries, to challenge the dominance of the dollar by creating a new reserve currency”, Singleton told Fox.

“In essence, Beijing and Moscow seek to build their own sphere of influence and currency unity within that sphere, in effect immunizing themselves from the threat of US sanctions,” he added.

The record amount of gold bought by China raised some eyebrows, as Swiss gold exports to China reached their highest level in 5 years, with Beijing in July alone receiving 80.1 tons of gold valued at about $4.6 billion – more than double the amount bought In June, it reached 32.5 tons, the second highest monthly figure since 2012.

International Financial Statistics from March 2022 indicated that China may hold the seventh largest gold reserves, with more arriving each month.

While he told Asia Markets trading expert, Francis Hunt, that using gold to support the currency would be the best way to build confidence in the said currency, and this currency may be digital in nature to give China more scrutiny of the activity of its citizens.

But Chiang downplayed the potential success of a new currency because of the “relatively small trade volume” that would limit its growth, and that the digital currency would be difficult to promote.

He noted that in August 2022, 43% of global payments were made in US dollars, followed by 34% in euros.

The Chinese yuan represented just 2% of all global payments, according to RMB Tracker.