China and Russia are Acquiring Gold, Dumping US Dollars

By Prof Michel Chossudovsky for Global Research

There is evidence that central banks in several regions of the World are building up their gold reserves. What is published are the official purchases.
A large part of these Central Bank purchases of gold bullion are not disclosed. They are undertaken through third party contracting companies, with utmost discretion. 
US dollar holdings and US dollar denominated debt instruments are in effect being traded in for gold, which in turn puts pressure on the US dollar.  
In turn, both China and Russia have boosted domestic production of gold, a large share of  which is being purchased by their central banks:

It has long been assumed that China is surreptitiously building up its gold reserves through buying local production. Russia is another major gold miner where the Central bank has been purchasing gold from another state entity, Gokhran, which is the marketing arm and central repository for the country’s mined gold production. Now it has been reported by Bloomberg that the Venezuelan Central Bank director, Jose Khan, has said that country will boost its gold reserves through purchasing more than half the gold produced from its rapidly growing domestic gold mining industry.
In Russia, for example, Gokhran sold some 30 tonnes of gold to the Central Bank in an internal accounting exercise late last year. In part, so it was said at the time, the direct sale was made rather than placing the metal on the open market and perhaps adversely affecting the gold price.
China is currently the world’s largest gold producer and last year it confirmed it had raised its own Central Bank gold holdings by more than 450 tones over the previous six years. Mineweb.com – The world’s premier mining and mining investment website Venezuela taking own gold production into Central Bank reserves – GOLD NEWS | Mineweb

The 450 tons figure corresponds to an increase in the gold reserves of the central bank from 600 tons in 2003 to 1054 tons in 2009. If we go by official statements, China’s gold reserves are increasing by approximately 10 percent per annum.

China has risen to now be the largest gold producing nation in the world at around 270 tonnes. The amount bought in by the government initially looks like 90 tonnes per annum or just under, 2 tonnes a week. Before 2003 the announcement by the Chinese central bank that gold reserves had been doubled to 600 tonnes, accounted for similar purchases before that date. Why so small an amount you may well ask? We think local and national issues clouded the central bank’s view as it was the government that bought the gold since 2003 and have now placed it on the central bank’s Balance Sheet. So we would conclude that the government has ensured central bank gold purchasing must continue. “How will Chinese Central Bank Gold Buying affect the Gold Price short & Long-Term?” by Julian Phillips. FSO Editorial 05/07/2009

Russia
Russia’s Central bank holdings are in excess of 20 million troy ounces (January 2010)

(click to enlarge)

Russia’s Central Bank reserves have increased markedly in recent years. The RCB reported in May 2010 purchasing 34.2 tons of gold in a single month. Russian Central Bank Gold Purchases Soar In May – China Too? | The Daily Gold
The diagram below shows a significant increase in monthly purchases by the the RCB since June 2009.


(click on chart to enlarge)

Central Banks in the Middle East are also building up their gold reserves, while reducing their dollar forex holding.
Gold reserves of GCC states is less than 5 percent:

Dubai International Financial Centre Authority economists released a report yesterday calling for local countries to build gold reserves, according to The National.
Despite a high interest in gold, GCC states maintain less than 5 percent of their total reserves in gold. Compared to the ECB, which holds 25 percent of reserves in gold, that leaves a lot of room for growth. http://www.businessinsider.com/gcc-boost-gold-holdings-2010-12#ixzz18FEqpTy3

GCC states should boost their foreign reserve holdings of gold to help shield their billions of dollars of assets from turbulence in global currency markets, say economists at the Dubai International Financial Centre Authority (DIFCA).
Diversifying more of their reserves from US dollars to the yellow metal would help to offer central banks in the region higher investment returns, said Dr Nasser Saidi, the chief economist of DIFCA, and Dr Fabio Scacciavillani, the director of macroeconomics and statistics at the authority.
“When you have a great deal of economic uncertainty, going into paper assets, whatever they may be – stocks, bonds, other types of equity – is not attractive,” said Dr Saidi. “That makes gold more attractive.”
Declines in the dollar during recent months have dented the value of GCC oil revenues, which are predominantly weighted in the greenback. GCC urged to boost gold reserves

According to a report in People`s Daily;

The latest rankings of gold reserves show that, as of mid-December, the United States remains the top country and the Chinese mainland is ranked sixth with 1,054 tons of reserves, the World Gold Council announced recently.
Russia climbed to eighth place because its gold reserves increased by 167.5 tons since December 2009. The top ten in 2010 remains the same compared to the rankings of the same period of last year. And Saudi Arabia squeezed to the top 20.
Developing countries and regions, including Saudi Arabia and South Africa, have become the main force driving the gold reserve increase. … .
The International Monetary Fund (IMF) and the European central bank are the major gold sellers, and the IMF’s gold reserves decreased by 158.6 tons. (China’s gold reserves rank 6th worldwide – People’s Daily Online

It should be understood that actual purchases of physical gold are not the only factor in explaining the movement of gold prices. The gold market is marked by organized speculation by large scale financial institutions.
The gold market is characterised by numerous paper instruments, gold index funds, gold certificates, OTC gold derivatives (including options, swaps and forwards), which play a strong role, particularly in short-term movement of gold prices. The recent increase and subsequent decline of gold prices are the result of manipulation by powerful financial actors.

Latin America, Russia, China, Iran and others prepare to dump dollar

Amazing news all over the Internet: Latin America is about to dump the dollar, and so are Iran and Russia, and even China and some Gulf Arab states (also read Robert Fisk's commentary about all this here).

Remember when Saddam did the same thing? He got himself invaded ASAP.

There are clear signs that the regime in Washington is preparing to fight in a few more regions of the world: Iran is surrounded by Imperial forces, Colombia has not become a de-facto staging post for Imperial strikes in Latin America, and the new AFRICOM paves the way for military interventions in Africa. Looks bad, for sure, but these are mostly hollow threats.

Israel in the USA will probably strike at Iran, but they will achieve little, if anything, with such an attack. In Latin America the best the Empire can do is assassinate Chavez and/or Morales, but that is unlikely to reverse the trends in the continent. In fact, such an assassination could backfire rather powerfully. Looks like even the overthrow of Zelaya in Honduras is, at best, a 50/50 right now and it might actually collapse with time.

Russia and China are both absolutely beyond Imperial reach by now. Russia, in particular, is extremely stable and solidly anti-Imperial in its polices and pro-American political forces have basically disappeared from the political map. I am not so sure about China, but I see no reasons to doubt the basic stability and power of the Chinese polity.

My sense therefore is that the USraelian Empire just does not have the means to prevent a gradual dumping of the Greenback by most of the economic key players out there. The main obstacle which everybody faces in dumping the dollar is, of course, the huge foreign exchange reserves most of these countries hold in dollars. A rapid devaluation of the dollar would have a very bad effect on such countries are China or Saudi Arabia. Others, such as Russia, Iran and Latin America will probably do much better.

Russia, in particular, was sanctioned for its victory against the Imperial proxy Georgia in 2008 by a large disinvestment campaign by the Western financial elites. Well, maybe that disinvestment will end up helping Russia in the long term.

Whatever the modalities of this will be, it appears rather clear that from now on the Greenback's future can only be one thing: a slow-motion crash.

The Saker

The Empire is Bankrupt - is anybody paying attention?

While the "big story" right now is the situation in Iran, check out this other "big story" which is not getting nearly as much attention:

The American Empire Is Bankrupt by Chris Hedges

De-Dollarization: Dismantling America’s Financial-Military Empire by Michael Hudson

(thanks to C. for bringing these two articles to my attention!)

Russia and China back currency study

Reuters reports:

Russia proposed on Thursday an IMF or G20 study on creating a new international reserve currency and China reiterated support for a broader discussion of the dollar's role that was missing at the London G20 summit.

Strengthened regional currencies would be a basis for the new unit, which could also be partially backed by gold, Russia said in a statement released on the sidelines of the summit.

Chinese President Hu Jintao said the international monetary system had to be improved.

"It is necessary to maintain the relative stability of the exchange rates of major reserve currencies and develop a more diverse and rational international monetary system," he told the summit.

China and Russia have floated in recent weeks ideas about reducing reliance on the U.S. dollar as the world's primary unit of foreign exchange, possibly by developing the Special Drawing Rights issued by the International Monetary Fund.

But the G20 Financial Summit has focussed firstly on promoting economic growth and repairing the financial system -- not on the longer-term task of overhauling the foundations of the global monetary system.

The idea, however, is gaining momentum since one underlying cause of the current crisis is seen to be heavy reliance on dollar-based assets as the only highly liquid instrument to invest in.

"The new global reserve currency has not been discussed at the summit. We only discussed it at several bilateral meetings," Russian President Dmitry Medvedev's chief economic aide Arkady Dvorkovich told a news briefing.

The Russian statement called developing the global currency system a very important issue for strategic, rather than tactical, solutions to the financial crisis.

It said that "we should return to this topic in the months immediately after the summit."

China's Hu did not call for an immediate discussion on a new reserve currency but urged the International Monetary Fund (IMF) to strengthen and improve its oversight of the macroeconomic policies of major reserve currency-issuing economies.

The reasons for promoting discussion are that currency markets are extremely unstable, new regional currencies are strengthening and the euro's launch showed how it could promote fiscal discipline.

According to the IMF, the dollar accounted for 64 percent of the world's foreign currency reserves, followed by the euro, at 26 percent, with sterling and the yen at 5 and 3 percent.

Russia said countries with major currencies "do not bear sufficient responsibility for macroeconomic policies."

"On this basis we conclude that it would be wise to support the creation of strong regional currencies and to use them as the basis for a new reserve currency. One could also consider partially backing this currency with gold," Russia said.

"It is not our goal to destroy existing institutions or to weaken the dollar, pound or euro. We are simply calling for a joint assessment of how the global currency system can most favourably be developed for the sake of the global economy."

Accordingly, Russia proposed that the IMF or a G20 working group prepare studies, for review by G20 finance ministers and central bankers, both on widening the list of currencies used as reserve currencies by taking coordinated measures to stimulate the development of major regional financial centres; and on creating a supranational reserve currency.

Putin Suggests Russia, China Ditch Dollar in Trade Deals

RIA Novosti reports that Russian Prime Minister Vladimir Putin proposed on Tuesday that Russia and China gradually switch over to national currency payments in bilateral trade, expected to total $50 billion in 2008.

"We should consider improving the payment system for bilateral trade, including by gradually adopting a broader use of national currencies," Putin told a bilateral economic forum.

He admitted the task would be tough, but said it was necessary amid the current problems with the dollar-based global economy.

Chinese Prime Minister Wen Jiabao described strengthening bilateral relations as "strategic."

"Mutual investment by Russia and China has already exceeded $2 billion, this is a very good index," Jiabao said.

He praised the success of numerous projects, including additional construction of China's Tianwan nuclear power plant and the opening of a joint pharmaceuticals center in Moscow.

A number of large Russian companies, including state-run oil producer Rosneft and aluminum champion RusAl, are seeking to develop investment projects in China, Jiabao said.

The Chinese premier said bilateral cooperation in the helicopter industry, mechanical engineering, the energy sector, timber production and innovation sector was also showing signs of progress.

"China is a staunch supporter of Russia's accession to the WTO, but is categorically against politicizing the issue," Jiabao said.

The Russian premier invited Chinese investors to join Russian timber projects.

"We welcome both domestic and foreign investment in Russia's timber sector," Putin said. "As one of the largest consumers of our products, China could be a source of such investment."

He also offered Beijing Russia's assistance in developing a large passenger plane on the basis of Russia's experience with its wide-bodied Il-96 aircraft.

Brazil, Argentina abandon US dollar (for bilateral trade)

Press TV reports:

Brazil and Argentina have launched a new payment system in their bilateral trade, doing away with the US dollar as a medium of exchange.

The two Latin American nations started the Payment System on Local Currency (SML) on Monday following a last month agreement inked by their presidents to use local currencies in a bid to end transaction in dollars.

On Thursday, Argentine Central Bank President Martin Redrado and his Brazilian counterpart Henrique de Campos Meirelles signed the enforcement of the agreement for the SML, under which exports and imports between the two countries will take place with the Brazilian real (BRL) and the Argentine peso (ARS).

The new monetary system mainly favors small and medium industries in both countries because it will save them bank charges when averting their local currencies to dollars.

According to the Central Bank of Argentina, the trade between the two major South American economies stands at about 25 billion US dollars per year.

Although the SML seeks to gradually eliminate the dollar from the bilateral trade, the currency will continue its presence in transactions between Brazil and Argentina, as their central banks will set the exchange rate for the real and the peso with respect to the dollar.

Brazilian authorities said that the SML deepens the integration between Brazil and Argentina and hope it will serve as an example to be adopted by other countries of the Mercosur, like Paraguay and Uruguay.

Iran fully converts its foreign currency reserves into non-dollar denominations

Press TV reports: Iran says a decision to convert its dollar-denominated foreign reserves to non-dollar reserves is critical and needs to be properly publicized.

Iran's government has had great achievements in various fields that must be publicized by the country's officials, Mujtaba Samereh-Hashemi, Iran's Senior Presidential Advisor, told reporters at the end of a cabinet minister's meeting.

One of the most important decisions made by the government was to convert its dollar-denominated foreign reserves to non-dollars, a move that prevented a decrease in the value of Iran's foreign reserves, Samereh-Hashemi added, considering the more than 20 percent depreciation of the dollar against major currencies.

Since last year, Iran's oil transactions have also been conducted in euro and yen, as the dollar has been completely replaced by these two major currencies.

Al-Jazeera at the deathbed of the Greenback

Iran completely dumps the dollar

Press TV reports: Iran abandons dollar in oil deals

Iran has completely stopped carrying out its oil deals in dollar following the OPEC proposal to trade crude in non-dollar currencies.

"The dollar is no longer a reliable currency, considering its devaluation and the loss suffered by oil exporters," said Iranian Oil Minister Gholam-Hossein Nozari.

"Iran proposed in the last OPEC (Organization of Petroleum Exporting Countries) summit that member states use a reliable currency in their oil transactions to prevent further losses," he said, adding that the organization will come to a decision on the issue in the Vienna meeting on February 2.

Meanwhile, the organization decided to keep oil output unchanged at the Abu Dhabi summit on December 5, arguing that there was enough oil in the market to meet winter fuel demand.

AFP reports:

Major crude producer Iran has completely stopped carrying out its oil transactions in dollars, Oil Minister Gholam Hossein Nozari said on Saturday, labelling the greenback an "unreliable" currency.

"At the moment, selling oil in dollars has been completely halted, in line with the policy of selling crude in non-dollar currencies," Nozari was quoted as saying by the ISNA news agency.

"The dollar is an unreliable currency, considering its devaluation and the oil exporters' losses," he added.

The world's fourth largest oil exporter, Iran has massively reduced its dependence on the dollar over the past year in the face of US pressures on its financial system and the fall in the dollar.

Nozari did not specify in which currencies Iran was now being paid. In the past, officials have said most oil income was in euros, with a significant percentage in yen.

Japan, which purchases 20 percent of Iran's crude oil, has recently agreed to pay for the crude oil in yen, officials have said. The UAE dirham has also been mooted as a possible payment currency.

Iran has in the past months been whittling down the proportion of dollars in its oil revenue income. Officials in October said that dollars accounted for only 15 percent of payments and predicted the amount would fall to zero.

However, the oil income is still being booked in dollars.

The United States has in recent months successfully encouraged major European and Asian banks to cut their dealings with Iran in a bid to make the Islamic republic give way on its controversial nuclear programme.

Washington has also blacklisted major Iranian banks for alleged support of terrorism and seeking nuclear weapons, charges denied by Tehran.

Iran has also reduced its dollar assets held in foreign banks and urged OPEC to take collective action to price oil in other currencies such as the euro, instead of the US currency which is used across the world at present.

The fall of the dollar, which has weakened considerably against the euro and other currencies in the past 12 months, has affected the revenues of OPEC members because most of them price and sell their oil exports in the US currency.

Iran is now selling 65% of its oil in euros

by Lew Rockwell

Iran is now selling 65% of its oil in euros, 20% in yen, and only 15% in dollars, and even that 15% it plans to switch to "more creditworthy currencies" such as the UAE dirham.

With the Bush administration threatening fullscale war against Iran almost every day, and taking any number of other warlike steps (sanctions, funding of terrorism, etc.), political reasons are enough to explain this pricing decision, but as an Iranian spokesman noted, there is also "the fluctuations of the dollar on the currency markets and the depreciation of its value since 2004."
-------
(Note: also see original article here)

By the way, the dollar has been tumbling for a long while already. Chek out this graph from the US Dollar Index USDX, a measurement of the strength of the Dollar against six other freely exchangeable currencies (for an explanation of the USDX check here):

(click on image to enlarge)

Fears of dollar collapse as Saudis take fright

By Ambrose Evans-Pritchard, International Business Editor, "The Telegraph"

Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East.

"This is a very dangerous situation for the dollar," said Hans Redeker, currency chief at BNP Paribas.

"Saudi Arabia has $800bn (£400bn) in their future generation fund, and the entire region has $3,500bn under management. They face an inflationary threat and do not want to import an interest rate policy set for the recessionary conditions in the United States," he said.

The Saudi central bank said today that it would take "appropriate measures" to halt huge capital inflows into the country, but analysts say this policy is unsustainable and will inevitably lead to the collapse of the dollar peg.

As a close ally of the US, Riyadh has so far tried to stick to the peg, but the link is now destabilising its own economy.

The Fed's dramatic half point cut to 4.75pc yesterday has already caused a plunge in the world dollar index to a fifteen year low, touching with weakest level ever against the mighty euro at just under $1.40.

There is now a growing danger that global investors will start to shun the US bond markets. The latest US government data on foreign holdings released this week show a collapse in purchases of US bonds from $97bn to just $19bn in July, with outright net sales of US Treasuries.

The danger is that this could now accelerate as the yield gap between the United States and the rest of the world narrows rapidly, leaving America starved of foreign capital flows needed to cover its current account deficit - expected to reach $850bn this year, or 6.5pc of GDP.

Mr Redeker said foreign investors have been gradually pulling out of the long-term US debt markets, leaving the dollar dependent on short-term funding. Foreigners have funded 25pc to 30pc of America's credit and short-term paper markets over the last two years.

"They were willing to provide the money when rates were paying nicely, but why bear the risk in these dramatically changed circumstances? We think that a fall in dollar to $1.50 against the euro is not out of the question at all by the first quarter of 2008," he said.

"This is nothing like the situation in 1998 when the crisis was in Asia, but the US was booming. This time the US itself is the problem," he said.

Mr Redeker said the biggest danger for the dollar is that falling US rates will at some point trigger a reversal yen "carry trade", causing massive flows from the US back to Japan.

Jim Rogers, the commodity king and former partner of George Soros, said the Federal Reserve was playing with fire by cutting rates so aggressively at a time when the dollar was already under pressure.

The risk is that flight from US bonds could push up the long-term yields that form the base price of credit for most mortgages, the driving the property market into even deeper crisis.

"If Ben Bernanke starts running those printing presses even faster than he's already doing, we are going to have a serious recession. The dollar's going to collapse, the bond market's going to collapse. There's going to be a lot of problems," he said.

The Federal Reserve, however, clearly calculates the risk of a sudden downturn is now so great that the it outweighs dangers of a dollar slide.

Former Fed chief Alan Greenspan said this week that house prices may fall by "double digits" as the subprime crisis bites harder, prompting households to cut back sharply on spending.

For Saudi Arabia, the dollar peg has clearly become a liability. Inflation has risen to 4pc and the M3 broad money supply is surging at 22pc.

The pressures are even worse in other parts of the Gulf. The United Arab Emirates now faces inflation of 9.3pc, a 20-year high. In Qatar it has reached 13pc.

Kuwait became the first of the oil sheikhdoms to break its dollar peg in May, a move that has begun to rein in rampant money supply growth.

China threatens 'nuclear option' of dollar sales

By Ambrose Evans-Pritchard

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress.

Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.

"Of course, China doesn't want any undesirable phenomenon in the global financial order," he added.

He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.

"China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.

"China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar," he told China Daily.

The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decicions being made in Beijing, Shanghai, or Tokyo".

She said foreign control over 44pc of the US national debt had left America acutely vulnerable.

Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session.

"The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles," he said.

A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.

The yuan has appreciated 9pc against the dollar over the last two years under a crawling peg but it has failed to halt the rise of China's trade surplus, which reached $26.9bn in June.

Henry Paulson, the US Tresury Secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation".

Mr Paulson is a China expert from his days as head of Goldman Sachs. He has opted for a softer form of diplomacy, but appeared to win few concession from Beijing on a unscheduled trip to China last week aimed at calming the waters.

(also check out the Telegraph Blog's discussion)

Iran wants oil pay in yen not dollars

Fri, 13 Jul 2007 21:39:03

The dollar has sharply plummeted against the yen this afternoon on reports Iran has asked Japan to stop paying for its oil in dollars.

The dollar was driven down against the Japanese yen this afternoon, hit by the news that Iran had asked Japan to pay for its oil purchases in the Japanese currency and not in dollars.

Iran has sent a letter to Japanese refiners, signed by Ali A Arshi, the general manager of crude marketing and exports for Iran's national Iranian Oil Company, according to a report by Bloomberg.

The letter asks for yen payments "for any/all of your forthcoming Iranian crude oil liftings."

The request is for all shipments "effective immediately".

Japan's oil payments to Iran rose 12 per cent last year to 1.24 trillion yen (£5 billion).

The yen dropped against the dollar initially coming down to below 120 from 122.40 but later recovered somewhat on strong consumer confidence data from the US.

Three big oil producing nations - Iran, Venezuela and Russia - have all been moving much of their foreign currency reserves from dollars to euros in recent months.

The latest move can only add to the long-term pressure on the dollar, already hit by worries about the US economy based on the crisis in the sub-prime mortgage market.

It was also under pressure against the euro and sterling as US retail sales for June showed their sharpest drop for two years. This was later countered by consumer sentiment data showing consumers had high confidence in July.

By mid session Wall Street was trading up on its record rise from yesterday with the Dow Jones index up 29 points at 13890.

Against the euro, the dollar was still close to all-time highs this afternoon at $1.378 and against sterling it was $2.033.