There should be no doubt of China’s long-term intentions to replace the US as the world’s global superpower. Part of that process is providing an alternative to the US dollar as the world’s reserve currency. Chinese policymakers have a long way to go in this regard but they are making progress. In 2015, China announced that the renminbi would no longer be managed against the USD but instead against a basket of currencies. The volatility of the renminbi has increased over the past three years, but something else interesting has happened more recently. Renminbi volatility versus gold has declined sharply. As Chinese policymakers look to de-dollarise, are they now managing the renminbi versus gold to provide international investors with a credible alternative to holding USD’s? This unfolding trend of low volatility in renminbi versus gold is worth paying attention to. If China is signaling that the renminbi is as good as gold, the investment implications will be significant.
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