Is China's Central Bank Gold-Buying Spree A Precursor for War? Part I of II

Is China's Central Bank Gold-Buying Spree A Precursor for War? Part I of II

Money Is Gold, And Nothing Else

Since 2009, China has more than doubled its gold reserves. In April 2009, the Central Bank of the People's Republic of China reported gold holdings of 1,054 tons. Today it reports a total gold reserve of 2,264 tons as its consecutive 17-month gold-buying streak on the international market continues. With China having been historically hesitant to reveal information about its gold reserves, the Central Bank's reporting of its official figures is a relatively recent and likely intentional development.

Indeed, Bloomberg Intelligence reported in April 2015 that China may have tripled its reported 2009 gold holdings to 3,510 tons "based on trade data, domestic output, and China Gold Association figures." Likewise, some analysts believe that China's true gold holdings might be as high as 30,000 tons. The chair of the State-Owned Assets Supervision and Administration Commission of the State Council, Ji Xiaonan, was also quoted in 2009 saying that "China's gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years."

There are a few reasons behind China's Central Bank stockpiling gold and being less than forthright about its holdings. The first, a long-established state aim, is that China is intent on eroding United States dollar hegemony through the promotion of the yuan's use in international transactions. As J.P. Morgan once said, "Money is gold, and nothing else." Inspiring global confidence in the yuan relies upon the gold behind it, and China's State Administration of Foreign Exchange (SAFE) has realized that some disclosure of the Central Bank's gold holdings is necessary.

All Warfare Is Based On Deception

The second reason is, as Chinese general and philosopher, Sun Tzu, said in The Art of War, "All Warfare Is Based On Deception." In economic and kinetic warfare both, deception has long been a tactic deployed by warring parties. China's evasion of reporting its actual gold holdings is such a tactic. While realizing it must report some official figures as it aims to supplant the US dollar with the yuan, it also is watching and learning as sanctions are imposed on countries like Russia for their illegal wars of aggression.

When cut off from an international financial market dominated by the US dollar, a sanctioned country such as Russia must rely on its gold reserves to sustain its war efforts alongside its other domestic and international financial obligations. So China sees some advantage in withholding the actual amounts of its gold holdings; particularly as it edges toward invading and annexing Taiwan by force - another long-established state aim - which would result in US and other Western sanctions against China.

Herein lies the third reason behind China's gold purchasing efforts and the state secrecy surrounding its gold holdings. In wartime, particularly in wars perpetrated in violation of international law like the Russian annexation of Crimea in 2013 and the full-scale invasion of Ukraine in 2022, the resulting international sanctions can force an invader state to rely on its gold reserves. China thus has some motivation to amass significant amounts of gold beyond what it has officially disclosed.

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