Gold 'Good Choice' for Yuan Internationalization

Source:

China's trading in gold investment products boosts the internationalization of the yuan.

China's trading in yuan-denominated gold investment products boosts the internationalization of the currency, and the country should development more of them, an official from the central bank said.

"A currency's international status depends on its being accepted in trade and settlement and having certain international commodities denominated in that currency helps China's goal to internationalize the yuan," said Wang Zhenying, deputy director-general of the Department of Financial Market Management at the People's Bank of China Shanghai office.

Gold consumption in China may double within the next 10 years, boosting prices as supplies fail to keep pace with booming demand from investors and the jewelry industry, the World Gold Council said in March. The yuan's limited use outside China may hamper the currency's ability to replace the U.S. dollar in trade deals, some exporters have said.

China's gold output reached 314 metric tons in 2009, ranking as the No. 1 in the world for the third year. The internationalization of the yuan remains a long-term goal as China's economy is not yet strong enough to support a world currency, former People's Bank of China Deputy Governor Wu Xiaoling said in March.

"We have more than 30 trillion yuan worth of savings in deposits and the lack of investment products have contributed to Chinese investors going into mungbeans and garlic lately," the central bank's Wang said. "We can develop more gold products to attract investor demand."

Full internationalization of the yuan will take 15-20 years, Dai Xianglong, chairman of China's National Council for Social Security Fund, said last month. This doesn't mean the currency will displace the dollar, which will remain dominant in the global currency system, he said.

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