From China’s Galaxy Empire (John Keane & Baogang He, 2024) pp87-90
Chinese government efforts to back the RMB with holdings of gold are also well underway. Not enough is known about the steady acquisition of a metal designed to back the imperial currency and to protect its corporations possessive and citizens’ private wealth. There are estimates that whereas over 65 per cent of the foreign exchange reserves of the United States are backed by gold, barely 3 per cent of China’s foreign exchange holdings are supported by gold, but that figure is probably understated. China imports more gold – by way of Switzerland, Dubai, and Hong Kong, through the Shanghai Gold Exchange than any other polity. Since the year 2000, more than seven thousand tonnes of gold have also been mined in China. In 2007, China overtook South Africa as the world’s leading gold producer and has remained so until this day. During the past decade, some Is per cent of the world’s gold has been mined in China, over half of it by state-owned enterprises such as the China National Gold Group Corporation. The export of domestic mine production is not permitted. Chinese mining companies have meanwhile been buying gold mine assets abroad, throughout Africa, Asia, and South America.
The broad trends suggest that the empire’s actual gold reserves are probably much higher than those reported by official bodies such as the World Gold Council. The discrepancy between official and unofficial figures is politically understandable, since the Party-state clearly has no interest in openly declaring its actual holdings, public knowledge of which would probably cause an unwanted surge in both the RMB and the price of gold and lead to a devaluation of the Chinese government’s massive holdings of an estimated US$3.2 trillion foreign exchange reserves – US dollar holdings that are larger than Britain’s annual GDP and greater than any other government on the planet. As in other areas, the minimum aim of the gold strategy is to achieve financial parity with the United States. Later, if circumstances and luck permit, the galaxy empire might aim for global supremacy. Whether that development would be to its advantage or serve as its curse is for the future to decide.
Those who hold the gold make the rules, it’s said, which is why China is meanwhile moving to build and strengthen its currency swap arrangements. As the largest trader in the world, and a huge exporter— China is the biggest steel exporter, the leading merchandise exporter, and exporter of more than a third of global household goods— the galaxy empire naturally wants to eliminate the transaction costs associated with using the US dollar by developing bilateral trade settlement agreements in RMB and, more importantly, avoiding the o.0I per cent fee for using the Belgium-based, US-backed Worldwide Interbank Financial Telecommunications (SWIFT) when making cross-border payments. Given the huge sums of money involved in its cross-border transactions, China has every incentive to cut costs and retain profits from cross-border payments. That is why in 2015, backed by the People’s Bank of China, China launched its own Cross-Border Interbank Payment System (CIPS). Several large foreign banks are among its shareholders, including Standard Chartered, HSBC, the ANZ Banking Group, and BNP Paribas. Some 1,280 financial institutions located in 103 countries are already connected to CIPS, which processed (in 2021) a not insignificant 80 trillion yuan ($12.68 trillion). More than thirty African banks currently receive yuan funds in connection with the Belt and Road Initiative. For the moment, CIPS users still operate through the messaging systems of dollar-based SWIFT, but the new RMB-based system is a potential rival. As a clearing and settlement services system that already enables global banks to clear cross-border RMB transactions directly onshore, instead of using clearing banks in offshore RMB hubs, CIPS could in future operate more independently by strengthening its existing lines of communication with an expanded portfolio of financial organizations.
The historic significance of the galaxy empire’s efforts to secure its currency foundations is confirmed by its quickening role as the globe’s leading creditor. Just as the United States overtook the United Kingdom (in 1929) as the world’s largest creditor, so in creditor terms China has now overtaken the United States. In the fiscal year 2019-20, the World Bank’s commitments, disbursements, and gross issuances totaled just over US$77 billion. 2s Over a slightly longer period of seventeen months, between May 2019 and September 2020, the IMF approved US$165 billion in loans. By comparison, Chinese outward foreign direct investment for 2020 amounted to almost US$133 billion.126 With a reputation as a ‘muscular and commercially savvy lender’, 127 Chinese banks and their subsidiaries have so far lent about $I.5 trillion in direct loans and trade credits to more than ISO countries around the globe. This has turned China into the world’s largest official creditor- surpassing traditional lenders such as the World Bank, IMF, and OECD creditor governments combined. 128 The financial capital of the galaxy empire, Shanghai, now outranks Singapore, Tokyo, and Hong Kong in global league tables; according to the Global Financial Centres Index, New York remains the world’s highest-ranked financial centre, but Shanghai has been closing the gap (from nearly 200 points in 2007 to 22 in 2021) and now ranks just one point shy of second-placed London.
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