As China surpasses Japan to become the world’s second richest nation –What? Did you think you live better in any of the other 50 countries of Europe?–, it moves closer to the gold standard. According to Reuters, “As the world’s top producer, importer and consumer of gold, China has baulked at having to depend on a dollar price in international transactions, and believes its market weight should entitle it to set the price of gold.”
Of course, it is the lovely dream of any libertarian to have the US-dollar displaced and to recover the gold standard, but there is a major problem here: the true amount of gold owned by the Chinese Communist Party is basically unknown. It is a well-guarded secret safely kept by the SAFE, the State Administration for Foreign Exchange. Now, given China’s secrecy, if they can lie about the amount of gold they have by giving lower estimations, they can also lie and tell everybody they possess more gold than they actually have. Basically, in the remotely possible case where the yuan becomes fully convertible and China’s market can set the price of gold, the Chinese government can easily manipulate the economy by, so to speak, “printing” fake gold as they wish. Likewise, what happens when you pretend to have a big amount of gold to affect prices, but you hold in secret an even bigger amount of gold? The consequences may not be as lovely dreamy as Xi Jinping’s Chinese Dream, but let’s not forget that Xi’s only dream is to avoid becoming the Chinese Gorbachev until his term ends: this is even clearer as China moves away from liberalization by increasing information control, censorship, and illegal detentions, a reversed reflection of Gorbachev’s perestroika and glasnost.