China's central bank sees golden opportunity in Trump's attacks on the Fed
Amassing gold expected to support internationalisation of the renminbi.
Leading Chinese economists expect China’s central bank to continue stacking up record quantities of gold bullion, as part of efforts to preserve the value of its reserves as well as advance the internationalisation of the renminbi.
They point to the uncertainty created by the Trump administration - in particular “attacks on the independence of the US Fed” in addition to the acrimony sown globally by indiscriminate tariffs, as creating a golden opportunity for shoring up the status of the renminbi abroad.
China wants other nations to stow gold with it
The Chinese central bank is currently spearheading a strategic plan to elevate itself as a custodian of the sovereign gold reserves of other nations.
Bloomberg reports that it’s seeking to persuade other central banks to stow their bullion within China’s borders, by capitalising upon the appeal of the Shanghai Gold Exchange (SGE) and its panoply of advanced infrastructure.
The reserves would be kept within custodian warehouses associated with the International Board of the SGE, which was launched in 2024 as part of efforts to grant greater foreign access to the Chinese gold market.
Sources told Bloomberg that at least one Southeast Asian monetary authority has expressed openness to the proposal from China’s central bank.
Since its founding in 2002, SGE has developed into the world’s largest physical gold exchange by trading volume. SGE’s own data indicates that it processed around 54,000 tons of gold in 2023, accounting for approximately 75% of global gold trading volume.
China’s gold reserves rise to record high
Reports of China’s ambitions to become a custodian for the gold of foreign central banks arrive just as its own holdings of bullion rise to record levels.
Data from the Chinese central bank indicates that its gold reserves stood at 74.02 million ounces at the end of August, as compared to 73.96 million ounces at the end of July. August marks the tenth consecutive month that the Chinese central bank has increased its gold reserves.
The data release arrived just as global bullion prices surged to record highs, with spot prices for gold breaching the US$3600 threshold on 6 September. The rise in gold helped support a 0.91% increase in China’s foreign reserves in August to over US$3.3 trillion, following a dip in July.
Central bank set to swap dollar for gold
Domestic analysts say concern over the value of China’s foreign reserves is one of the chief motivations for the central bank’s decision to step up its accumulation of bullion.
Beijing’s top policymakers are reportedly concerned that the value of China’s dollar-denominated assets will take a hit as a result stateside political uncertainty - in particular Trump’s undermining of the independence of the US Federal Reserve, and the possibility that he’ll resort to coercive measures to unstopper loose monetary policy.
Wang Qing (王青), chief macro-analyst at Golden Credit Rating, said to state-owned media that expectations of further rate cuts from the Fed were on the rise in China, after the US government expanded “the intensity of its attacks on the Fed’s independence.” (“央行连续10个月增持黄金”).
Wang says this is the foundation for international gold prices rising to historic heights, and a key driver of the Chinese central bank’s ongoing accumulation of bullion.
“China’s central bank has recently continued to increase gold holdings…the main reason is that since the new [US] administration has taken office, there have been major economic and political changes globally.
“International gold prices could readily rise and stay high for a long period. This means that the need to increase gold holdings is increasingly necessary for foreign reserves in structural terms.
“From the perspective of structural optimisation of foreign reserves, it will be necessary in future to continue to expand gold reserves and appropriately reduce US debt holdings.”
Wang Qing points out that gold as a share of China’s official reserve assets remains low by global standards. As of the end of August, gold accounted for only 7.3% of China’s official reserves, as compared to a global average of around 15%.
Gold can brighten the renminbi’s lustre
Chinese economists believe that further rate cuts from the Fed will give Beijing an outstanding opportunity to drive internationalisation of the renminbi at the greenback’s expense.
At its sixth meeting for 2025 in September, the Fed announced that it would reduce the federal funds rate (FFR) by 25 basis points to the 4.00% - 4.25% range, marking the first cut of the year. Two further cuts of a quarter-point each are expected before the end of 2025.
In the wake of the Fed’s decision, Sun Lijian (孙立坚), chair of the Financial Research Centre at Fudan University, opined that the uncertainty created by political conflict between President Trump and the US Fed was having an adverse impact on the status of the dollar.
According to Sun, this development plays into the hands of the Chinese central bank, given its ambitions to drive greater overseas usage of the renminbi.
“At present, the challenges that the US dollar is creating for the stability of the global financial system are increasing,” Sun wrote in an opinion piece for 21st Century Business Herald (”美联储降息之后，人民币国际化如何突围？丨孙立坚专栏”).
“In objective terms, this is creating an opportunity for the internationalisation of the renminbi.”
Wang Qing believes that in addition to preserving the value of its reserves, China’s steady accumulation of gold can help to drive renminbi internationalisation, just as doubts over the Fed’s integrity threaten to weaken the US dollar.
He highlights the imperishable prestige of gold as a sure means of boosting the renminbi’s standing, given the precious metal’s historic status as backing for the world’s most widely adopted currencies.
“Gold is a widely accepted medium of payment globally, and the central bank’s continued accumulation of gold can strengthen trust in [China’s] sovereign money.
“This will create favourable conditions for the steady internationalisation of the renminibi.”