Gold Rally Helping China Towards Less Reliance on the Dollar and U.S. Financial Dominance
China and its partner countries in BRICS* have long aspired to develop an alternative currency to the US dollar, as well as their own payment systems and other financial instruments that would reduce global dependence on the de facto reserve currency and the financial dominance of the United States. In this context, the three-year bull run in gold, confounding many sceptics and recently breaching the USD 4,000 per ounce mark (yet another record), is aiding China in its quest to diminish US influence across global financial markets.
*BRICS is an intergovernmental organisation formed as an acronym for Brazil, Russia, India, China and South Africa, established in 2009 (with South Africa joining in 2010). Membership has since expanded to include Egypt, Ethiopia, Indonesia, Iran, and the United Arab Emirates. Saudi Arabia has been offered full membership, though its government is still considering the proposal. Partner nations with potential for future membership include Belarus, Bolivia, Cuba, Kazakhstan, Malaysia, Nigeria, Thailand, Uganda, Uzbekistan, and Vietnam.
Experts suggest that Russia views BRICS as a means of countering Western sanctions, while China, through BRICS, is expanding its influence across Africa with ambitions of becoming the leading voice of the “Global South”. Analysts predict that over time, BRICS will evolve into both a geopolitical and economic powerhouse, posing a direct challenge to the G7 group of nations. Current data indicate that BRICS countries account for 44% of global crude oil production, with a combined economic output exceeding USD 28.5 trillion, equivalent to approximately 28% of the global economy.
The global spotlight remains firmly on gold, and China has been steadily accumulating reserves of the yellow metal for over a decade. Experts estimate that the nation’s gold stockpile is now the sixth largest in the world. The metal’s ascent to record highs is helping China pursue its geopolitical and economic objectives. Amid escalating global tensions, protectionist tariffs, and a widening rift between the United States and its traditional allies, Chinese policymakers are capitalising on the moment.
For the first time, the Chinese government has established an offshore vault for the Shanghai Gold Exchange in Hong Kong, enhancing its status as an international trading hub. China has also approached several countries with offers to store gold in its bonded warehouses. Experts suggest that such initiatives will encourage sovereign wealth funds and central banks to trade the stored gold, diverting business away from established centres such as the London Metal Exchange (LME).
Data shows that China is the world’s largest gold producer and is expanding its influence within segments of the financial system where it faces the least resistance. The yellow metal is playing a pivotal role in helping the government achieve several of its economic ambitions. Financial commentators note that controlling a larger share of the global bullion market could elevate China’s international standing, with gold reinforcing the wider use of the yuan. This could ultimately allow China to offer the world an alternative to US financial dominance, bringing it closer to realising its long-standing vision. China has even eased capital controls to enhance its weight in financial markets, while its resurgent technology sector continues to attract international investors.
However, despite its substantial gold holdings, China has yet to make significant progress in promoting the yuan as a dominant currency within the commodities markets. Although some cross-border contracts are denominated in the yuan, analysts note that for key commodities such as oil and copper, yuan contracts possess only a fraction of the liquidity seen in dollar-denominated benchmarks and remain far from displacing the US dollar in global trade, particularly among developing countries.
Nevertheless, China is renowned for its long-term strategic approach, and its efforts to cultivate stronger relationships with central banks play a key role in its plan to provide an alternative currency framework. In light of Western sanctions on Russia and other countries, China’s economic system may appeal as a network insulated from Western political interference. As part of its persuasion strategy, China is expected to highlight examples such as Venezuela’s gold, valued at around USD 1 billion, which has been frozen for years in the Bank of England.
Western nations and other developed economies would be unwise to underestimate China’s ambitions. Should Saudi Arabia decide to join BRICS, those ambitions would gain even greater momentum. Some analysts argue that President Trump’s policies are inadvertently facilitating China’s rise, with America’s massive debt burden and escalating tariff disputes straining relationships with traditional allies. Moreover, as global debt continues to climb and geopolitical tensions intensify, fuelled further by the now popular “debasement trade” (selling currencies and buying gold), China’s ambitions may well be realised sooner rather than later.
