China’s banks use gold as legal currency

A political economist says that China’s economic importance is growing strong and steady that the ailing US and EU economies will exchange their gold reserves for Beijing’s financial bailouts.

G-20 leaders are facing growing pressure at home over the economic woes of their countries, where protests are being held in some nations on a daily basis.

There are fears that more delays in resolving the eurozone debt crisis could push not only Europe but much of the rest of the developed world back into recession.

Analysts say that the recent hike in the price of gold will add fuel to the flames caused by concerns over the United States’ economic outlook, rising inflation, worries over the euro zone debt crisis, and the lowest-ever interest rates in the US.

Meanwhile, the International Monetary Fund expects China’s economy to expand by 9 percent in 2012, while an increase in domestic product should account for a full quarter of total global growth.

Press TV has conducted an exclusive interview with Dan Collins from thechinamoneyreport.com to further discuss the issue.

The following is a transcript of the interview.

Press TV: The big news coming from China in the past few weeks is that investment demand for gold and silver is up. Give us the numbers.

Collins: Yeah, real big news, Max. Shanghai Gold Exchange reported last week, starting with silver, silver demand’s up 750 percent for silver forward contracts. The major buyers here are the large commercial banks of China.

First of all, I’ll talk a little bit about silver. They’re following the gold pattern here in China which is average Chinese citizens here now can buy silver in their bank account. So, you don’t need to keep cash in your bank, you can go online and move your cash into silver or you can move it into gold. And that’s really what’s driving the increase in gold and silver prices here.

They started the gold trade in the major commercial banks about three years ago. Silver started last year in August, 2010. But what was really shocking is the numbers that have come out. I mentioned the year over year increases.

But if we look at just one Chinese bank, the ICBC, Industrial and Commercial Bank of China, first half of this year they sold over 300 tons of silver. 300 tons is roughly about 10 million ounces. So, this year they’ll do roughly 20 million ounces of silver which is roughly 2 percent of all the silver mined in one year.

So, we look at the Chinese banking system just starting these new products in China, this year they could take nine or ten percent of all the silver mined in the world. And these products are just getting started. Two, three, four years from now, the Chinese banks could be selling 20, 30, 40 percent of all the silver mined globally. And that’s really why we’re seeing huge increases in silver.

Press TV: I got to tell you, Dan, these are blockbuster numbers. And the banks are effectively allowing Chinese people to have bank accounts that are based in precious metals.

I know Eric Sprott in Canada is trying to introduce a new banking facility that would give people in Canada a similar option to have their reserves or savings held in bullion. But, apparently, the Chinese are beating Eric Sprott to the punch. That’s what it sounds like.

Effectively, it’s becoming a bi-metal reserve currency in China, is that right?

Collins: Absolutely. It’s a really innovative product and you wonder why Western banks — that are tough to make money – haven’t thought of this earlier?

Gold trading has been very successful in China. The penetration, though, in China has been very small. Probably, I would say, less than 5 percent of the people keep gold or silver in accounts. But it’s growing rapidly every year in the hundreds of percentile, the new people coming in, opening gold accounts and silver accounts.

Press TV: Right. And in the case of silver, as you mentioned, two percent of the silver coming out of the mines are going into the savings accounts. That’s a very big number. Plus you’ve got increased demand for silver in solar energy. You’ve got it in electronics, of course. And there’s only about a billion ounces of silver above ground. Unlike gold, of course, silver is used industrially.

So, there’s not very much silver out there. The price on silver, of course, with that kind of demand would have to rocket over the many hundreds of dollars per ounce level that we’re looking for over the next few years.

Now, I see that you were reporting that a family of fund managers has been sentenced to death after defrauding investors of a billion dollars. Dan Collins, tell us more about this. I like the sound of this.

Collins: I knew you would, Max. I knew you would.

Basically, Hangzhou, a city here from about two hours away from where I’m at, a very Madoff-type scenario – a typical ponzi scheme – they paid off the old investors with the new money. Long story short, they lost about one billion US dollars, defrauded around 15,000 investors. But it only consisted of a father and two sons, at this fund.

The only difference between these guys and [Bernie] Madoff is that they were quickly all sentenced to death.

Press TV: I like that, it has a nice finality to it. Of course, in the history of jurisprudence, this would be called a “deterrent”. If you commit a crime, there would be some kind of penalty. And I’ve often argued that there should be capital punishment for crimes against capital. So, the Chinese have decided that, yes, capital punishment is a good idea for crimes against capital when people commit frauds at this level.

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