Will China Play The ‘Gold Card’?
(See “Credit deflation and gold”.www.goldmoney.com/research/analysis.)
The thrust of the article is that China, at some point, will have to revalue gold in China; which means, in other words, that China will decide to devalue the Yuan against gold.
Since “mainstream economics” holds that gold is no longer important in world business, such a measure might be regarded as just an idiosyncrasy of Chinese thinking, and not politically significant, as would be a devaluation against the dollar, which is a no-no amongst the Central Bank community of the world.
However, as I understand the measure, it would be indeed world-shaking.
Here’s how I see it:
Currently, the price of an ounce of gold in Shanghai is roughly 6.20 Yuan x $1084 Dollars = 6,721 Yuan.
Now suppose that China decides to revalue gold in China to 9408 Yuan per ounce: a devaluation of the Yuan of 40%, from 6721 to 9408 Yuan.
What would have to happen?
Importers around the world would immediately purchase physical gold at $1,084 Dollars an ounce, and ship it to Shanghai, where they would sell it for 9408 Yuan, where the price was formerly 6,721 Yuan.
The Chinese economy operates in Yuan and prices there would not be affected – at least not immediately – by the devaluation of the Yuan against gold.
Importers of Chinese goods would then be able to purchase 40% more goods for the same amount of Dollars they were paying before the devaluation of the Yuan against gold. What importer of Chinese goods could resist the temptation to purchase goods now so much cheaper? China would then consolidate its position as a great manufacturing power. Its languishing economy would recuperate spectacularly.
…click on the above link to read the rest of the article…
