Gold reserves support Chinese yuan stability

Beijing, July 20 (IANS) The rise of gold as part of China’s international reserves and the central bank recently publishing yuan-denominated external debts are conducive to a stable yuan, analysts said on Monday.

Official data showed the country’s gold reserves hit 1,658 tonnes at the end of June, jumping nearly 60 percent compared to the figure at the end of April 2009, Xinhua news agency reported.

Although countries have long abandoned the gold standard as the basis of monetary systems, gold reserve volume remains an important factor in market assessment of a country’s currency value due to its price stability, the analysts said.

The central bank said the gold reserve increase was in line with the nation’s needs to keep adjusting the structure of its international reserves assets in order to ensure the assets’ security, liquidity, and value increase.

“China’s increasing gold reserves will strengthen yuan holders’ confidence, which will help stabilise the exchange rate and facilitate the internationalisation of the yuan,” said Xu Mingqi, a researcher with the Shanghai Academy of Social Sciences.

“A more important role of gold reserves lies in risk prevention. It helps boost confidence in a country’s currency, and reflect the country’s economic and financial strength,” said Ding Zhijie, a professor at the University of International Business and Economics.

China is the world’s largest gold producer and a major gold consumer.

The updated figure also revealed China surpassing Russia to become the fifth largest holder of gold reserves around the world, besides the US, Germany, Italy and France.

Gold reserves account for a small part of China’s foreign exchange reserves, which hit $3.69 trillion as of the end of June.

The central bank said it would flexibly adjust its gold holdings according to its reserves and investment needs in the future.

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