A "war" without the smoke of gunpowder is about to begin.

After half a year, the central bank has increased its gold holdings again. Currently, the central bank's gold reserves have reached 2,068 tons! The market value exceeds 200 billion US dollars!

Why does the central bank buy gold?

In fact, not only the People's Bank of China, but also the central banks of major countries in the world are increasing their holdings of gold!

The reason behind this is also very clear, that is, it is out of distrust of the credit of paper currency, to be precise, distrust of the US dollar.

This distrust is reflected in two aspects.

First, the world has suffered from the dollar hegemony for a long time.

The US dollar is the world currency, but the US monetary policy only looks at its domestic economic situation and ignores the life and death of other countries.

When the economy is bad, the Federal Reserve cuts interest rates to stimulate it; when the economy overheats and inflation rises, the Federal Reserve raises interest rates to cool it down.

Every round of aggressive interest rate hikes by the dollar almost invariably leads to the outflow of funds from some emerging countries back to the U.S., causing these economies to be overstrained.

Why?

Because emerging economies need to develop, they often rely on local governments to incur debt and attract foreign investment.

Once the U.S. raises interest rates, foreign capital will chase high returns and withdraw back to the U.S., draining liquidity from these emerging economies, leading to a sharp drop in asset prices, and local governments will face bankruptcy risks due to debt issues.

Then, when inflation in the United States calms down, the U.S. will start cutting interest rates again, and Wall Street funds will again take cheap dollars to harvest cheap assets in these over-inflated economies, a strategy that has proven successful time and again.

This is the power of the dollar's tidal waves. For example, during the Latin American crisis in the 1990s, Argentina still hasn't recovered, and likewise with the Asian financial crisis in 1997, among others.

The reason why our country has not implemented the free flow of capital is precisely this.

It can be said that the whole world has had enough of being dominated by the dollar's hegemony.

Gold, while it cannot replace the dollar's position in cross-border settlement in the short term, can at least serve as an alternative.

Second, the U.S. debt crisis.

Currently, the U.S. debt balance has exceeded $36 trillion, while the annual GDP of the U.S. is only $27 trillion.

When will the U.S. government be able to repay these debts and recover these IOUs? Don't hold your breath!

In fact, as the low-interest debts from the quantitative easing period in 2020 gradually mature, the proportion of high-interest debts continues to rise.

In the future, it is uncertain whether the U.S. government will even be able to pay interest on time, let alone expect it to repay the principal.

Previously, when Yellen visited China several times, she publicly criticized China's overcapacity, but her true intention was to persuade China, as a major creditor, to continue buying U.S. debt, rolling the snowball. Otherwise, the U.S. debt may not continue and could explode at any time.

This point is not only known to China; the whole world understands it clearly.

Therefore, in recent years, central banks around the world have been increasing their gold holdings, including Japan, a close ally of the U.S.

Because everyone is worried that one day the dollar will be collectively sold off, causing its exchange rate to plummet and significantly devaluing their foreign exchange reserves.

Therefore, increasing gold, which is both safe and naturally possesses monetary attributes, as a risk hedge is a very wise choice.

Some may ask, since the dollar is so 'unruly', why can't we use the Renminbi for settlement in international trade?

The idea is good; the internationalization of the Renminbi is also the direction we are striving for.

But the reality is harsh.

In the international payment system, the dollar remains far ahead, consistently accounting for over 40% or even 50%.

Whether doing business between countries or traveling to many cities abroad, the dollar is the hard currency.

In comparison, the Renminbi only accounts for a little over 4% of international payments, and it is still far from the dollar, euro, and pound.

The United States is the world's largest consumer, as well as the leading technological and military power, and the status of the dollar cannot be shaken in the short term.

What China can currently do is to adapt to the changing situation, form alliances, and attract countries that can be drawn in, gradually accumulating advantages.

For example, the U.S. likes to act as a justice enforcer, imposing sanctions at will; recently, it has severely sanctioned Russia, and we just happened to 'take advantage of the situation'.

Now, the share of the Renminbi in the Russian foreign exchange market has reached 99.6%, effectively 'taking over'.

In short, when central banks buy gold, there are hidden shadows of currency wars behind it.

It is a small step in our strategy for the internationalization of the Renminbi, and it is also a risk hedge against the dollar's credit crisis.

In the future, with Trump officially entering the White House early next year and the cryptocurrencies he supports coming into play, this smoke-free 'war' will become even more bewildering.