Skip to 14:16 in the video to directly delve into financial system reform and China. 
China is the world’s largest producer, consumer, and importer of gold. But that’s not enough. The country is taking steps to become the dominant power in gold trading and lending as well—and it has different reasons to do so.
A year ago, Epoch Times first reported China’s ambition to take control of physical gold pricing. According to a Reuters report, we are getting closer to the official launch of a yuan-denominated physical price for gold.
“I think what the Chinese are trying to do is creating a real market that reflects supply and demand for physical gold,” said Simon Mikhailovich, managing director at Tocqueville Bullion Reserve last year.
“They are working on building an infrastructure in which the pricing mechanism of gold and silver and other commodities can be transferred from the West to the East,” said Willem Middelkoop, principal at the Commodity Discovery Fund and insider to communist party deliberations on gold.
If China launches this new pricing system, it would mark an important next step in China’s quest to dominate world gold markets. They already have a futures exchange with a new standard for 1 kilogram 0.999 purity gold bars. This rivals the New York Comex future exchange, which deals in 100-ounce contracts and where only 1 in 300 trades actually results in physical delivery according to Middelkoop.
The fix for physical would rival the London Bullion Market Association (LBMA), where a couple of banks set the price in secret twice every trading day and where rumors of price manipulation abound.
(Trading Economics)
But what are the benefits? China has official holdings of 1762 tons as of the end of 2015, but experts believe it effectively controls many more tons.
“So we know China is getting about 1600-1700 tons of gold a year. They’ve been doing this for about seven years so they have well in excess of 10,000 tons, maybe as much as 13,000 tons of gold that they’ve acquired in the last seven years. We don’t know how much of that is going to the government, how much of that is going to private consumption,” says James Rickards, author of “The New Case for Gold.“
According to him, China has now completed the lion’s share of its gold purchase program, which puts it on level terms with the United States and the Eurozone. If China controls the price for physical as well as for paper future contracts, it can control the real price of gold, which has been manipulated downward by the LBMA and the COMEX, not only according to experts like James Rickards and Willem Middelkoop, but also by a recent admission on the part of Deutsche Bank AG.
Here’s why some people speculate: The Chinese are going to launch the yuan as a global reserve currency backed by gold and run the dollar off the road. — James Rickards

Effectively China can come out and reveal the total amount of gold it holds as well as a higher price. This would be useful to increases its negotiating power with the West should there be another financial crisis and a reform of the financial system. By using gold, but also other levers like the Asian Infrastructure and Investment Bank (AIIB), China has influenced the United States to admit it to the International Monetary Fund’s (IMF) global reserve currency, the Special Drawing Rights (SDR).
“Here’s why some people speculate: The Chinese are going to launch the yuan as a global reserve currency backed by gold and run the dollar off the road. That’s possible but I don’t really see that as what they’re doing. What they are doing is hedging their position because they have about $2 trillion in U.S. dollar-denominated assets,” says Rickards.
He believes there will be a global solution and not a yuan-based solution for a new reserve currency. But even if this is not China’s goal, futures trading in yuan, as well as physical trading in yuan takes away demand for dollars and channels it to yuan. How much demand? This depends on the price of gold as much as on which trading partner can deliver the goods when push comes to shove.

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An introduction to lawyer, portfolio manager, government adviser, lecturer, and author James Rickards could easily be five pages long. Sifting through his CV, it’s easier to pick the things he doesn’t do rather than listing all the different jobs and responsibilities he holds and has held over the past decades. This is what is keeping him busy at this moment:
He is the chief global strategist at West Shore Funds, is a registered investment advisor, and he edits the financial newsletter Strategic intelligence. He advises the department of defense and also lectures at Johns Hopkins University among others. What he is best known for, however, are his two best-selling books about the global financial system, “Currency Wars” (2011, Portfolio Penguin) and “The Death of Money” (2014, Portfolio Penguin).
Both books have defined and predicted important trends in financial markets that the mainstream media and other commentators frequently overlook or pick up on years later.
Epoch Times spoke to Mr. Rickards about his new book “The New Case for Gold” (Portfolio Penguin, 2016), the coming reform of the financial system and China’s role as a source of global market volatility.
Read about why the Fed didn’t hike rates at its last meeting and why gold is the real money in part I of this exclusive interview with James Rickards. Skip to 14:16 in the video to directly delve into financial system reform and China.  
The powers will come together, they will reform the international monetary system.

Epoch Times: In your new book you quote the book of Revelations in the Bible, a quote about the new Jerusalem where the streets are paved with gold. But before we get to the new Jerusalem, there is some volatility according to the Book of Revelations. Where do you draw the parallels with our financial system at this moment?
James Rickards: I’ll leave the biblical interpretation to the scholars, I’m more of a financial analyst and a gold analyst. Clearly central banks have pulled out all the stops, they printed trillions of dollars, they’ve swapped trillions of dollars. They guaranteed the money market funds in 2008 and the guaranteed all the bank deposits. They did everything possible.
We might have avoided something worse that might have happened, like the Great Depression, but none of that policy has been reversed. The Fed’s balance sheet is still bloated. A lot of the swap-lines are still in place. They haven’t been able to normalize policy since 2008.
So what’s going to happen in the next crisis? And these crises come every seven to eight years. We go back to 1987, the stock market fell 22 percent in one day. Not a year, not a month but one day, 22 percent. By today’s Dow Jones Index that would be the equivalent of 4000 Dow points.
Now if the stock market fell 400 points I guarantee it would be on every evening business show, front page news, every website. Imagine if it fell 4000 points. That’s the equivalent of what happened in October of 1987. In 1994 we had the Mexican Peso crisis. Then we had a surprise interest rate hike, Orange county went bankrupt. In 1997/1998 we had the Asian financial crisis, the Long Term Capital Management (LTCM) crisis.
James Rickards with his book “The New Case for Gold” (James Rickards)
I was the general counsel for LTCM, and I negotiated that bail-out. I had a front row seat on that one. I know exactly how close global markets came to a complete collapse. We were within hours from shutting every exchange in the world. People forget about that but that’s exactly what happened.
In 2000 we had the dot.com crash, 2007 the mortgage crash, 2008 the Lehman and AIG panic. These things happen like clockwork. Every six, seven, eight, nine years. It’s been seven years almost eight years since the last one. How long do you think before another one comes? And yet they haven’t normalized policy, so what’s the Fed going to do the next time.
Are they going to print another $4 trillion? Legally they could, but they are at the outer limit of what they can do without destroying confidence. And confidence is the key to the whole thing.
Epoch Times: You talk about the concept of world money in your book, sponsored by the International Monetary Fund (IMF).
Mr. Rickards: So what you are going to see is world money. You are going to see the IMF print Special Drawing Rights (SDR). It’s a geeky name but it’s a kind of world money printed by the IMF. They’ll flood the world with trillions of SDRs. It might work because people don’t really understand what SDRs are. It might just blow by everybody.
At best it will be highly inflationary. At worst it won’t work because people will say, we’ve lost confidence in these other kinds of paper money and fiat money, why should we have any more confidence in that.  
And then you’ll see a gold buying panic and the dollar price of gold would skyrocket. It would be better if the leading financial and trading powers in the world sat down today in relatively calm times and did something like Bretton Woods and reform the international monetary system.
I think if they did, gold would play a role. I am not saying it would be a strict gold standard but I am saying gold would have some role. I don’t think that is going to happen. I think we are going to see a crisis first. Going back to your version of the Book of Revelations you have to have some rough times before you get to the good times.
The Chinese citizens love buying gold.

The powers will come together. They will reform the international monetary system, but they’ll do it in a state of collapse and panic rather than in a calm, orderly state.
In that world, people are going to go on their own gold standard. They’re not going to wait for the financial powers to create a gold standard, they’re going to have a gold standard of their own.

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China allowed the world to catch a breath on Friday. Chinese stocks rose 2 percent and the central bank fixed the currency a tad higher. Global stocks are more or less unchanged.
After a week of complete market chaos, this is a welcome break, but won’t change anything in the long-term says James Rickards, author of “Currency Wars” and “The Death of Money.”
“The Chinese are communists and they don’t know anything about capital markets. Putting communists in charge of capital markets is like giving a loaded gun to a three-year old,” he told Canadian broadcaster CBC.
He says their biggest mistake was to shock the world by devaluing their currency last August. “You never shock the system, you always let people know what’s coming,” he said. At that time, the move came as a complete surprise and shook the world’s belief in Chinese central planning.
(Macquarie)
Since then, the Chinese authorities have learnt their lesson-although a bit late-and are sending signals the currency has further to drop.
According to Reuters, the central bank stated on its website on Friday, Jan. 8.
“The central bank also said it would make the yuan more international, keep the currency basically stable, further improve the currency formation mechanism and deepen reforms of the foreign exchange management system and financial institutions.”
Translated, this means the yuan will depreciate further against the dollar. China has a restricted set of choices, according to the law of the impossible trinity:
1. Have an open capital account2. Have independent monetary policy3. Have a stable exchange rate
At any given time, only two are possible and Rickards says China will chose an independent monetary policy and an open capital account, similar to most developed markets. “They have to devalue the currency. They are not going to close the capital account, there is too much pressure from the International Monetary Fund. They are not going to give up independent monetary policy. They are not going to raise rates to stop the capital outflows, so they have to devalue the currency,” he said.
As for the transition to a consumer economy, Rickards thinks it will take longer than people expect.
“I am not so sure the demand is there. There are a lot of Chinese people, but their income distribution is widely skewed. They have a sort of middle class of 200 million people out of a population of 1.2 billion, but those people are practically eating bark of the trees, they are pretty poor,” he said.
“Those who do have some money, a lot of them sank the money into overvalued assets like real estate and stocks, so they are taking a beating. This transition to the consumer driven economy, we are talking something that will play out over 5 or 10 years, it is not going to rescue the situation today. China’s growth has hit an air pocket, it is going to go down a lot.”

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