Mission & Name
US Foreign Policy (Dr. El-Najjar's Articles)
A Copper Standard' for the world's
currency system? China Buying Copper
By Ambrose Evans-Pritchard
Telegraph, April 21, 2009
Hard money enthusiasts have long watched for signs that China is
switching its foreign reserves from US Treasury bonds into gold bullion.
They may have been eyeing the wrong metal.
China's State Reserves
Bureau (SRB) has instead been buying copper and other industrial metals over
recent months on a scale that appears to go beyond the usual rebuilding of
stocks for commercial reasons.
Nobu Su, head of Taiwan's TMT group,
which ships commodities to China, said Beijing is trying to extricate itself
from dollar dependency as fast as it can.
"China has woken up. The
West is a black hole with all this money being printed. The Chinese are
buying raw materials because it is a much better way to use their $1.9
trillion of reserves. They get ten times the impact, and can cover their
infrastructure for 50 years."
"The next industrial revolution is
going to be led by hybrid cars, and that needs copper. You can see the
subtle way that China is moving into 30 or 40 countries with resources," he
The SRB has also been accumulating aluminum, zinc, nickel, and
rarer metals such as titanium, indium (thin-film technology), rhodium
(catalytic converters) and praseodymium (glass).
While it makes sense
for China to take advantage of last year's commodity crash to restock
cheaply, there is clearly more behind the move. "They are definitely buying
metals to diversify out of US Treasuries and dollar holdings," said Jim
Lennon, head of commodities at Macquarie Bank.
John Reade, metals
chief at UBS, said Beijing may have a made strategic decision to stockpile
metal as an alternative to foreign bonds. "We're very surprised by Chinese
demand. They are buying much more copper than they will need this year. If
this is strategic, there may be no effective limit on the purchases as
China's pockets are deep."
Zhou Xiaochuan, the central bank governor,
piqued the interest of metal buffs last month by calling for a world
currency modelled on the "Bancor", floated by John Maynard Keynes at Bretton
Woods in 1944.
The Bancor was to be anchored on 30 commodities - a
broader base than the Gold Standard, which had caused so much grief in the
1930s. Mr. Zhou said such a currency would prevent the sort of
"credit-based" excess that has brought the global finance to its knees.
If his thoughts reflect Communist Party thinking, it would explain the
bizarre moves in commodity markets over recent weeks. Copper prices have
surged 49pc this year to $4,925 a tonne despite estimates by the CRU copper
group that world demand will fall 15pc to 20pc this year as construction
Analysts say "short covering" by funds betting on price falls
has played a role. But the jump is largely due to Chinese imports, which
reached a record 329,000 tonnes in February, and a further 375,000 tonnes in
March. Chinese industrial demand cannot explain this. China has been badly
hit by global recession. Its exports - almost half GDP - fell 17pc in March.
While Beijing's fiscal stimulus package and credit expansion has helped
lift demand, China faces a property downturn of its own. One government
adviser warned this week that house prices could fall 50pc.
is clear: Beijing suspects that the US Federal Reserve is engineering a
covert default on America's debt by printing money. Premier Wen Jiabao
issued a blunt warning last month that China was tiring of US bonds. "We
have lent a huge amount of money to the US, so of course we are concerned
about the safety of our assets," he said.
The beauty of recycling
China's surplus into metals instead of US bonds is that it kills so many
birds with one stone: it stops the yuan rising, without provoking complaints
of currency manipulation by Washington; metals are easily stored in
warehouses, unlike oil; the holdings are likely to rise in value over time
since the earth's crust is gradually depleting its accessible ores. Above
all, such a policy safeguards China's industrial revolution, while the West
may one day face a supply crisis.
Beijing may yet buy gold as well,
although it has not done so yet. The gold share of reserves has fallen to
1pc, far below the historic norm in Asia. But if a metal-based currency ever
emerges to end the reign of fiat paper, it is just as likely to be a "Copper
Standard" as a "Gold Standard".
China Copper move may
secure Cu supply but jeopardise US recovery
A recent article by
Ambrose Evans-Prichard seems VERY significant (ie A 'Copper Standard' for
the world's currency system?)
It suggests that China is rapidly
running down its $US foreign exchange holdings to buy huge quantities of
strategic inputs to its production system. This is just confirming
information that was already out there - see
If correct this means one of two things.
Firstly it may mean that
China expects, and is moving to try to ensure, that the global financial
crisis will result in a general breakdown in the global market economy.
China may be ensuring access to the resources needed to manufacture (say)
hybrid cars as Evan's Prichard suggested - but, if a run on US Treasuries
US government from funding its stimulus / bank rescue
packages and budget deficits which was already a risk, then there is going
to be no real market demand for whatever China intends to manufacture
because there will be no economic recovery elsewhere for years.
Secondly it may mean that China has made a huge blunder which will be
written up in history books as one of the causes of the coming Great
Depression - because its commercial desire for profit has caused it to
ignore macroeconomic policy imperatives.
In either event it is likely
that the whole economic and geopolitical game is going to be changed.