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I make no apology for returning
to the subject of China, its role in the Shanghai Cooperation Organisation, and gold. Gold is now a strategic metal for
present and future SCO governments, which between them have over 40% of the
world’s population; and now that the price of gold is re-establishing
its rising trend, understanding its future role as a replacement for the US
dollar is increasingly urgent, because gold is wealth and this wealth is
being transferred from west to east.
The SCO is an economic bloc consisting
of China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. Between
them they produce about 26% of the world’s gold, none of which leaves
the SCO. Other nations accepted as future members are India, Iran, Pakistan, Mongolia and as soon as NATO leaves, Afghanistan. Belarus
and Sri Lanka are on the waiting list. It is no less than the economic
unification of most of Asia, with a combined population of three billion. All
their central banks are buying gold, and the gold imported by the citizens of
just two of them (India and China) accounts for all but 400-500 tonnes of the rest of the world’s mine production
– and some of that (particularly in Africa) is now also controlled by China.
One of the SCO’s economic
objectives is to do away with the dollar for cross-border trade between
members. Any doubts we may have on the matter have now been dispelled as a
result of the US Government’s monetary sanctions on Iran.
Iran is important, because it
supplies crude oil to China and India, and the Americans have banned all
countries from buying Iranian oil on pain of sanctions. The consequence has
been to force Iran to settle some of her trade in gold, giving SCO members
both a de facto remonetisation of gold, and a solid
reason to want higher prices for it in US dollar terms, so that it buys more.
This creates a dilemma for the
US. If she escalates her attacks on Iran, she threatens the interests of
China, India and other SCO members. At this stage it is too early to judge
the political reactions of the SCO members to this threat, but there are
broadly two possibilities: either military or economic.
It is too early for China to
fight a currency war. She is developing her internal market, and in time the
SCO will provide her with the most powerful captive market since the British
Empire. However, she still depends on declining markets in the West for much
of her economic activity. However, the reason she has accumulated gold and
encourages her citizens to do so as well is ultimately to transfer wealth
from the West.
The Iranian situation is already
undermining the position of the dollar as the international currency in the
context of pan-Asian settlements, because oil is simply more important.
Attempts over the years by western central banks to bluff us out of gold
ownership have given China and its SCO affiliates a tremendous
wealth-transfer windfall, as we may be about to discover. That’s what
the geo-politics of gold is actually about, and it is a pity our leaders seem
to be blind and deaf to it.
Oginally published at Goldmoney
here
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