Implications of China SDR decision

Posted | 10/08/2015 / Views | 3252
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Everyone was surprised last week by the IMF’s announcement that they were not yet ready to include the yuan in its SDR (standard drawing right) global currency this year as was widely expected.  China have gone to great lengths of late to internationalise the Renminbi/yuan, had ‘played nice’ by announcing only 600 tonne of gold more in its reserves, and only gradually reducing its US Treasuries holdings for some time.  Speculation is hence rife now as to how China, a very proud culture who would not take such humiliation lightly, will respond.  One need only look at their financial ‘artillery’ to get a sense of the implications.  They hold the world’s largest (or near equal to Japan) amount of US Treasuries, around $1.3 trillion.  They’re also most likely the world’s largest gold holder as well.  At a time when the US Fed is wanting to very gradually raise US rates to prove everything is fine and to slow, not pop, the asset bubbles they’ve created – just imagine the effects of China dumping US Treasuries onto the market.  For this market to absorb that many UST’s it would see their price crash, yield’s rocket and markets around the world implode….or… QE4 announced to buy them up.  Either scenario would be incredibly bullish for gold.  Now who holds the most of that again???