FT: China tightens gold import quotas to curb dollar outflow
China has curbed gold imports in the wake of government attempts to clamp down on capital leaving the country, according to traders and bankers.Now is the time to panic if you're a Chinese with lots of money tied up in yuan because the Chinese government is signaling two things with this move. One, all exits will be shut. If you don't escape now, you run the risk of paying a high price to get out because gold premiums will start rising if demand outstrips supply. Two, it signals the yuan is in serious trouble. Gold imported by the banks sits in bank vaults and is effectively a national resource because the government controls the banks. If China decides it wants your gold or your dollars, it can force you to sell.
Some banks with licences have recently had difficulty obtaining approval to import gold, they said — a move tied to China’s attempts to stop a weakening renminbi by tightening outflows of dollars, the banks added.
...Quotas for importing gold have been cut during quarterly assessments this year. Banks also have dollar quotas, some of which must be used when buying gold.
This reminds me of 2013 post from Liu Junluo: Gold going to $500; Chinese yuan will collapse; China will nationalize dollar deposits
If you adjust the timing of his call, just about everything he warns of (except for the massive drop in gold) has taken place by 2016:
From 2010 onwards, when the Dollar Index was 74, China's central bank made the strategic decision that the dollar would devalue over the long-term. Therefore, China's central bank began selling dollars and buying the euro, the yen and commodity currencies to diversify China's foreign exchange reserves.The stock market crash came 2 years later, after a massive bubble formed, but the long-term strategic error of diversifying away from the dollar, particularly into highly volatile and inversely correlated assets such as commodities, was ongoing for years.
However, beginning in 2013 , China's central bank suddenly found the U.S. economy has been gradually recovering. The euro zone economy has continued into a disastrous predicament. Meanwhile, the Bank of Japan launched a policy of devaluation of the yen.
Between July and October, the Chinese central bank will manufacture China's disastrous stock market crash. The hidden past strategic errors of judgment will now come to light, exposing China's bad debts.
From 2010 onwards, China's central bank took 3 trillion in foreign reserves and converted 2 trillion into non-US currencies, this is the root of the future Chinese economic disaster. roots. In all of human history, there is no central bank that committed such a stupid, catastrophic mistake.
The real farce is that China's central bank in the coming months will reverse its past dumping of dollars; it will turn into a frenzy of dollar buying. Including a rapid nationalization of domestic U.S. dollar savings.
China sold dollars in a rising market and long-term, it may even come out ahead. But China also sold dollars amid a depression, a period of dollar deflation. Now is the final stage: is the depression set to end, or does the U.S. dollar have another 20 percent to go before it tops? If the latter, the move to limit gold imports tells us China is unprepared.