A Shanghai branch of the People's Bank of China has decided to allow a gold jewelry shop to buy and exchange gold, making it China's first business permitted to freely exchange gold on an experimental business.
Gold traders say that gold has always been controlled by the state. The purchase and distribution of gold has been managed solely by the People's Bank of China. Now that Shanghai's Lao Fengxiang Gift Co., Ltd., a-hundred-year-old jewelry shop, has been permitted to buy and exchange gold on an experimental basis, Chinese who wish to sell their gold jewelry for cash can go to Lao Fengxiang instead of the People's Bank of China.
Gold and silver have been used as currency for thousands of years. After World War II, the Bretton Woods conference established a fixed foreign currency exchange system at one ounce of gold against US$35. Every country pegged their currency to the US dollar and used it as the basis for their exchange rate. But this gold standard was eventually challenged. In 1974, an economic crisis and inflation hit the United States and other major capitalist countries. The economist Milton Friedman felt that one of the major reasons these capitalist countries were hit by the economic crisis and inflation was their fixed exchange rates, which allowed them to import America's inflation. Soon afterwards, the US government announced that it would get off the gold standard and freely float the exchange rates.
As one of the major financial centers in the world, the quoted price of London's gold market has been the barometer for the international price of gold. Two years ago, the price of gold plunged to a twenty-year low of US$258 per ounce when news that England and Australia dumped their gold leaked out. In the 1980s, the value of gold was US$800 per ounce but in the span of twenty years, the price of gold has dropped by more than a half.
As China gets closer to joining the WTO, China's capital market, foreign exchange market and silver market need to be fully opened.
In the early 1950s, China produced only four tons of gold each year. By 1999, China's annual production of gold reached 172.9 tons. In 1982, China opened up the gold jewelry market. As China's economic reforms deepened and personal income increased, the demand for gold has steadily grown. In 1989, China's gold consumption was only 40.3 tons but ten years later, gold consumption reached 205 tons. The country's gold reserve did not increase in the 1980s. On the contrary, the percentage of gold reserves in the overall foreign exchange reserves dropped by 2.1 percent. In addition, China adjusted the price of gold six times last year alone due to the price on international markets and foreign exchange.
The State Economic and Trade Commission and People's Bank of China have already opened up the silver market in the first half of this year, which laid the foundation for the opening up of the gold market.
In reality, the debate about opening up the gold market started early this year. The English-language Shanghai Daily quoted an anonymous expert saying that the People's Bank of China would speed up its plans to open the gold market and loosen its grip on its monopoly over the trade of gold starting in October. According to officials in charge of China's gold, China will have a free gold market within two years.
(People’s Daily)
