Thursday, June 6, 2013

Franklin Templeton Money Manager: We Will See a Gold Backed Asian Currency

"Boom Bust" emails:

I just read your post about Philippa Malmgren saying the Chinese may back their currency with gold. Funny thing, but two days ago I had the opportunity to briefly talk to Dr. Mark Mobius from Franklin Templeton Investments (I assume you know who he is - a well traveled portfolio manager with insights into emerging and frontier markets.) During a presentation he mentioned that people in Asia had been guying gold like crazy after the gold price fell in April. He said dealers in India were sold out. One of his colleagues from Turkey said people in Turkey had been buying massive amounts of gold coins as well, at big premiums to the spot price (i.e. suggesting a decoupling of the price of physical gold from the spot price on Comex.)

The most interesting part, and linked to your post and Malmgren's statement about the Chinese backing their currency with gold, was when I asked Mr. Mobius after the presentation: "Do you believe we will see an Asian nation back their currency with gold?" His answer: "Yes, of course." When as a follow up question I asked "Do you think we'll see a return to the gold standard?", his answer was "Yes, we should."

Mobius knows much about economies in Asia. Seems like he and Malmgren are of the same opinion on this issue.

You can read (by using the built in Google translate function on my blog) about this at this blogpost I wrote:

Best regards,
"Boom Bust"


  1. This is interesting. On one hand, we have politicians and a few bought and paid for economists charging that the Chinese intentionally undervalue their currency. On the other hand, we have talk of the Chinese and/or other Asian nations looking toward a gold standard. It's hard to imagine both of these line of thinking occurring at the same time in the same central banks.

  2. No it's not. They could easily be trying to keep their dollar assets from losing all value in the present while preparing to move to a gold (and dollar destroying) standard in the future. Keeping the lid on the pot so it doesn't boil over before you're ready.

  3. Tell me, which Asian country wants to destroy its export sector by backing their currency with gold (in a manner other than what they are already doing by holding gold in their reserves)? From what I am reading, every single country wants to boost its exports by devaluing its currency. Pray tell which country plans on doing exactly the opposite, and why in the world would they want to do that?

    1. The problem is that the "cheap currency = greater exports" is a faulty proposition.

      A strong currency allows for lower price inflation and the ability to more easily purchase internationally-priced commodities. For a manufacturer, this is a boon.

      Explain Germany and Japan. Both had thriving export sectors while having strong / relatively appreciating currencies.

      China faces a problem no matter what choice they make. Why not make the choice that secures raw materials at pennies on the dollar?

    2. It is one thing to say that Germany or China can have a strong export sector notwithstanding a strong currency. It is quite another to say that they want a strong currency and are willing to give up all their flexibility over monetary policy to get that. It seems to me that the Asian economies are all geared toward growth and none of them want to intentionally increase demand for their currency and slow down velocity. This idea of a gold standard in Asia is nothing more than a wishful thinking fantasy of a few hard money advocates in the United States.

    3. "...and are willing to give up all their flexibility over monetary policy to get that."

      Who said anything about giving up all their flexibility over monetary policy? If China goes this route, they will maintain it only for as long as it is helpful. Imagine the benefit of buying commodities on the cheap.

      What state hasn't come off of gold whenever necessary? Byzantium lasted overall for about 800 years; my guess is that is about as long as all the other state-managed gold standards combined....

  4. I speculated about this China / gold possibility some time ago, the core of the idea here:


    China, in combination with Russia could easily institute a gold backed currency. Both countries have a complimentary use for each other. While transitioning to a gold backed currency will cause short-term internal havoc in China, such havoc is coming anyway and the CCP needs some way out for the long term. The Chinese are nothing if not long-term thinkers.

    China has a problem. They have a problem no matter what they do. They must transition their economy because they know the US can no longer buy what they used to buy. And even if the US could, does China still want the paper in trade?

    China is buying assets, locking up future supply, etc. These can easily be priced in dollars. A strong Yuan (relative to the dollar) would work wonders for controlling future price inflation in China (which is quite well baked in from the monetary side). What better way to strengthen the Yuan than tie it to gold? Maybe backed 20% or so. Then pay for the assets for pennies on the Yuan, so to speak.

  5. I always follow the gold sellers of New York. I was wondering if people know this law, why there is so much speculation ? It can be also invested wherever Treasury deems appropriate, if not acutely needed for foreign exchange interventions.