Russia and China may be preparing a new gold-backed currency, but an expert says the US dollar is the “safest” currency today
China and Russia may be working on a new gold-backed currency with the goal of dethroning the dollar as the world’s primary reserve currency, but such a currency would likely fall short of that goal.
“The USD remains the safest, most convenient and the most widely used currency in Asia and around the world today,” Min-Hua Chiang, a research fellow and economist at the Heritage Foundation’s Center for Asian Studies, told FOX Business. “No other currency (backed by gold or otherwise) is comparable, and that is unlikely to change in the near future.”
Neither country has officially confirmed plans for such a currency, but China earlier this year began buying huge amounts of gold just as 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 on gold price in years.
Some experts warn that these moves, along with the closer relationship that has developed between Moscow and Beijing as the rest of the world isolated Russia after the invasion, point to the likelihood that China will try to launch a new currency with gold to back it up.
The idea of a common Russian-Sino currency has periodically resurfaced over the past decade, particularly after the Russian Central Bank opened its first foreign office in Beijing in 2017.
Craig Singleton, senior fellow at the Foundation for Defense of Democracies, noted that Chinese leaders have been talking for two decades about reform the global financial system and the weakening of the dominance of the dollar.
“Two components of this strategy revolve around the development of a yuan-based global commodity trading system and China’s efforts, in partnership with Russia and other like-minded countries, to challenge dollar dominance by creating a new reserve currency,” Singleton told Fox News Digital.
“In essence, Beijing and Moscow are seeking to build their own sphere of influence and a monetary unit within that sphere, thereby protecting themselves from the threat of US sanctions,” he added.
But the record amount of gold bought by China has raised some eyebrows, although the trend remains under the radar of the mainstream media: Swiss gold exports to China hit a five-year high, with Beijing receiving in July just 80.1 tonnes of gold worth around $4.6 billion – more than double the 32.5 tonnes bought in June and the second highest monthly total since 2012, according to Reuters.
International financial statistics for March 2022 indicated that China may have the seventh largest number of gold shops, with more to come every month.
Francis Hunt, a trading expert, told Asia Markets that using gold to back the currency would be the best way to build confidence in said currency, and this currency can be digital in the wild to give China greater control over the activity of its citizens.
But Chiang downplayed the potential success of a new currency because of the “relatively low trade volume” that would limit its growth, and that a digital currency would prove difficult to promote.
“Even if the two countries use a new currency for bilateral trade transactions, the relatively low trade volume between them will limit the impact on the US dollar,” Chiang argued, noting that a multinational currency, such as the euro, requires “a level of politics and economic coordination and integration that is not present in Asia today.”
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“The appeal will be limited,” Chiang said. “Consider that in August 2022, 43% of global payments were made in USD, followed by 34% in euros. The RMB only accounted for 2% of total global payments according to RMB Tracker.
“The RMB is gaining ground, but it is still miles behind the dollar and the euro,” she concluded, adding that “foreigners’ confidence in the economic prospects of China and Russia (or its absence) is a key limitation” to any potential common currency. .