Interview With James Rickards: China Planning to Displace Dollar

The author of the best-selling book 'Currency Wars' and the forthcoming 'The Death of Money' talks about how China uses gold and the IMF to remove the dollar as reserve currency
February 18, 2014 Updated: December 31, 2015

Epoch Times: Mr. Rickards, in our last interview (Part 1, Part 2), we talked about gold and why it should rally. You also said the Chinese are behind buying a lot of physical …
James Rickards: I met with the largest gold refinery in the world, the head of precious metals operations. He’s recently expanded his own capacity; they put a whole new area in their factory and it’s highly automated. And he’s working triple shifts, he is working 24 hours a day to produce gold.

He is producing 20 tons a week and half of that is going to China. So that’s 10 tons a week, which is about 500 tons a year. And that’s just one refinery, not counting all the others, that’s a lot of gold.

He said the Chinese want more, but he won’t supply it because he has regular customers. He supplies Rolex watches and other high net-worth individuals and institutions; these are all long standing customers. He can’t refuse to fill their orders.

He said: “I’m making all the gold I can, working 24 hours a day, sending as much gold as I possibly can to China, 500 tons a year and the Chinese still want more.”

Epoch Times: How can supply keep up?
Mr. Rickards: So where is the gold coming from? It’s coming from mining output, scrap, and 400 ounce bars. The Chinese are basically turning their back on the London gold market and creating a new standard. So the old standard was the 99 percent pure gold 400 ounce bar, the new standard is a 99.99 percent pure gold one kilogram bar.

So what the refineries are doing is they are taking 99 percent 400 ounce bars, and they are refining them to 99.99 percent kilo bars because that’s the only thing China wants.

You are taking 400 ounce bars, which weigh about 25 pounds or 10 kilos, and turning them into one kilo. Chinese like one kilo because there is a lot of consumer demand for that, and it’s a lot better for smuggling. There is a lot of capital flight coming out of China.

The Shanghai Gold Exchange is in the process of replacing London as the center of gold trading in the world, and I have already mentioned a couple of aspects of that [in my earlier interviews].

One is a lot of floating supply is moving there; two the Chinese have changed the standard from 400 ounce bars to one kilo bars, and they are facilitating the trading and building of very large vaults in Shanghai and they’ve got their own refineries. So taking all these trends together, it’s very clear that the center of gold trading is moving from London to Shanghai.

Epoch Times: What about the Chinese purchase of the JPMorgan gold vault in New York?
Mr. Rickards: I don’t put much stock in buying the JPMorgan vault, that was a real estate transaction. They’ve bought the whole Chase Manhattan skyscraper. There happens to be a vault in the basement. I can’t imagine they spend upward of a billion dollars on a building so they can get a vault. I am sure it was a real estate deal, and they wanted the building, but yeah, there is a vault.

Also, if you are Chinese, why would you want your gold in New York, you would want your gold in Shanghai. But what is going on in Shanghai is very significant. Suffice to say that China is the coming world gold power. In terms of the world monetary system, Shanghai is becoming the center of world gold trading as opposed to London and putting these two things together, you have to ask yourself why?

Epoch Times: Why?
Mr. Rickards: I think they see something most people don’t. The international monetary system based on paper currencies is fragile and likely to collapse, and when the system needs to be reformed, the people with the largest voice at the table will be the people with the most gold.

Epoch Times: Right, but even including this frantic buying, the Chinese have a lower percentage of their money supply reserved in gold than the United States.
Mr. Rickards: I agree with that, which tells me they will keep buying. I think they have acquired three or four thousand tons secretly, but I don’t think they are done.