Time For A Gold Standard in China? – Bloomberg Intelligence
Tuesday January 12, 2016 10:54
(Kitco News) - As global markets sit on the sidelines of what seems to be the China show, with its currency – the yuan – being the star of the show, analysts at Bloomberg Intelligence explore the possibility of a gold standard in the country.
Could this strategy help stabilize the country’s volatile currency?
Analysts at Bloomberg Intelligence said it may be worth exploring a “new style” of gold standard for China to adopt.
“While putting China on the same gold standard used by countries in the past is virtually impossible at today's price for the metal, that doesn't rule it out,” said Bloomberg’s global head of metals and mining research, Ken Hoffman, and global metals and mining analyst Eily Ong in a note Tuesday.
“China has two currencies, internal and external, and wouldn't have to initiate a gold standard at the market price. It could introduce a ‘gold-backed note,’ reducing the yuan oversupply while potentially stabilizing the currency by linking it to gold,” they suggested.
Markets were rattled last week when the yuan unexpectedly fell. Chinese officials pushed the currency lower in response to a selloff in the country’s equity market – the Shanghai Stock Exchange. As a result, global equities were vulnerable and gold prices moved higher on safe-haven appeal.
“Such a move might become more attractive if the yuan continues to struggle.”