China and Russia are working on a new gold-backed currency to try and dethrone the dollar as the world's primary reserve currency.
Earlier this year, China started to buy vast quantities of gold at around the same time Russia was forced off the dollar as part of sanctions put in place due to their invasion of Ukraine.
Neither Russia nor China has officially confirmed plans for such a currency but the record amount of gold that China has acquired raised some eyebrows.
Swiss exports to China hit a five-year high, with Beijing receiving more than 80 tons of gold ($4.6 billion) in July after buying 32.5 tons in June.
International Financial Statistics of March 2022 showed that China may have the seventh-most gold stores with more coming on a monthly basis.
Experts warn that these moves along with the strong relationship between Russia and China will likely cause China to launch a new currency with gold backing it.
The idea of the joint Russo-Sino currency has surfaced over the past decade and picked up when Russia opened its Central Bank in Beijing in 2017.
What Do Experts Think?
Senior Fellow at the Foundation of Defense of Democracies, Craig Singleton noted that Chinese leaders have been speaking about reforming the global financial system and weakening the dollar’s dominance for about two decades now.
“Two components in that strategy center around the development of a Yuan-based global commodities trading system and efforts by China, in partnership with Russia and other like-minded countries, to challenge dollar dominance by creating a new reserve currency,” Singleton told Fox News.
He added that Moscow and Beijing are seeking to build their own sphere of influence and a new currency within that sphere, in effect to make themselves immune to the threat of US sanctions.
Trading expert Francis Hunt told Asia Markets that using gold to back the currency would be the best way to build confidence in the currency which may or may not be digital. This is given that China is very much interested in monitoring its citizens’ activities.
Can the New Currency Dethrone the Dollar?
However, Min-Hua Chiang, a researcher, and economist at Heritage Foundation’s Asian Studies Center told Fox that it is highly unlikely that another currency will dominate the dollar even in the near future.
“The USD remains the safest, most convenient, and most widely used currency in Asia and in the world today,” said Chiang. “No other currency (backed by gold or otherwise) is comparable and that is unlikely to change in the near future.
Chiang further downplayed the potential success of a new currency due to the “relatively small trade volume” that can limit its growth. Moreover, a digital currency would be difficult to promote.
“Even if both countries use a new currency for bilateral trade transactions, the relatively small trade volume between will limit the impact on the US dollar,” Chiang argued.
He added that a multinational currency such as a Euro requires some level of political and economic coordination and integration which does not exist in Asia today.
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