Monday, March 21, 2011

Central Bank Uses Gold To Get Out Of U.S. Dollar

This central bank resides in a country that's often been at odds with the United States recently. Although the associated economy gains a lot of revenue from sales of stuff that American consumers gotta have, it's showing an increasing reluctance to hold greenbacks in its reserves. Slowly but definitely, it's shifting more of its reserves into gold. Rather than out of the desire to make its currency a hard one, this shift has been the result of domestic political pressure to ease the country out of the U.S. economic orbit.

No, this country is not the People's Republic of China. It's Iran. As a report by the Financial Times explains:
Iran has bought large amounts of gold in the international market, according to a senior Bank of England official, in a sign of how growing political pressure has driven Tehran to reduce its exposure to the US dollar.

Andrew Bailey, head of banking at the Bank of England, told an American official that the central bank had observed “significant moves by Iran to purchase gold”, according to a US diplomatic cable obtained by WikiLeaks and seen by the Financial Times.

Mr Bailey said the gold buying “was an attempt by Iran to protect its reserves from risk of seizure”.

Market observers believe Tehran has been one of the biggest buyers of bullion over the past decade after China, Russia and India, and is among the 20 largest holders of gold reserves.
Other Middle Eastern countries like Jordan are following suit, although to a lesser degree.

As for mainland China, the PRC government would rather act on the assumption that it and the U.S. are solid trade partners undergoing some squabbles right now.

But, they are double decking by officially encouraging private citizens to buy and hold gold. It's a neat trick: leaving the gold accumulation to private hands so as to deter international controversy about official purchases. Doing so also means ordinary citizens are shouldering the risk of a bear market in the metal.

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