Could gold, the world’s longest running currency, be used to create a new order in global currencies? The Chinese central bank is said to be considering backing its yuan with the yellow metal. This move, says Ken Hoffman, Global Head of Metals and Mining Research for Bloomberg Intelligence, would be a ‘game changer.’ Why would China consider such a move? Hoffman explains that Chinese policy makers are already trying to establish the yuan as a reserve currency, and backing it with gold would help attract foreign capital inflows. China is expected to receive approval from its central bank for a yuan-denominated gold fix, with a potential for an announcement as early as next week. Hoffman explains that a gold standard would not necessarily create a big constraint to the Chinese central bank, as many believe. ‘It could be at any price they fix. There’s a lot of things that they can do to make this work,’ he says. Hoffman estimates that to create an exchange rate of one ounce of gold for every $64,000, the country would need about 10,000 metric tons of the metal. ‘That’s nine times the national official holdings and about 6 percent of all the bullion ever mined globally,’ Hoffman says.
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