China is expanding the overseas utility of its currency by fostering Hong Kong as an international marketplace for gold transactions denominated in yuan. The initiative aims to reduce dependence on the US dollar by broadening channels for settling gold trades directly in yuan, bypassing the greenback.

US economic media outlet CNBC reported on the 12th (local time) that China's efforts to scale up Hong Kong's gold trading infrastructure and increase its gold reserves are bolstering the internationalization of the yuan. Charles Chang, a Greater China corporate credit ratings director at S&P Global Ratings, projected that as Hong Kong's gold trading volume grows, yuan-denominated physical gold transactions unlinked to the US dollar will also increase.

Chang pointed out that a major stumbling block for yuan internationalization has been the limited availability of places to actually use the yuan abroad. He explained that if transaction counterparties receiving yuan are able to convert it into gold, the avenues for utilizing the currency expand further.

This forms a strategy to widen the usage of the yuan through gold trading. While the US dollar currently holds an overwhelming share in international finance and trade, the share of the yuan remains relatively small. Experts interviewed by CNBC also noted that Hong Kong's expanding gold market alone will not fundamentally alter the dollar-centric international financial order in the short term.

In its 2026–2030 Five-Year Plan for Economic and Social Development released last September, the Hong Kong government confirmed its policy to push forward with the development of a yuan-denominated gold market. By increasing gold trades priced and settled in yuan, the government aims to broaden participation among international investors.

Facilities to back this vision are also taking shape. In June of last year, the Shanghai Gold Exchange opened its first offshore gold delivery designated warehouse in Hong Kong and listed trading contracts enabling physical gold delivery in Hong Kong. This established a foundation allowing international investors outside the Chinese mainland to take delivery of gold in Hong Kong.

In July of this year, Hong Kong’s gold central clearing and settlement system entered trial operations. Serving as a system to handle gold transfers and settlements between trading parties, a linkage mechanism was also introduced to enable the movement of physical gold between the Hong Kong and Shanghai gold markets. These measures expand the foundation to handle everything from gold trading to storage and delivery.

Hong Kong also plans to significantly increase its gold storage facilities. The precious metals depository at Hong Kong International Airport currently has a storage capacity of 150 tons, and the Airport Authority is pursuing a project to expand the facility to a 1,000-ton scale. Including facilities from other financial institutions such as banks, the Hong Kong government aims to boost Hong Kong's total gold storage capacity to over 2,000 tons within the next three years. Chang assessed that if these storage expansion plans are realized, Hong Kong could grow into one of the world's largest gold trading centers.

Apart from expanding trading infrastructure, China is also increasing its central bank's gold reserves. According to World Gold Council data, China's official gold reserves exceeded 2,300 tons in the second quarter of this year. The United States, the world's largest holder of gold, held over 8,100 tons during the same period, more than three times that of China. The People's Bank of China has purchased gold for 23 consecutive months up to September. Analysts suggest China's continuous gold purchases are tied to a long-term strategy of reducing dependency on US dollar-denominated assets within its foreign exchange reserves.

Hao Zhou, chief economist and head of research at Guotai Junan International in Hong Kong, evaluated that China's 23-month streak of gold purchases enhances the credibility of its yuan internationalization strategy. He explained that by steadily increasing its gold reserves, China is reinforcing the long-term trust foundation of its financial system and lowering its reliance on dollar-denominated reserve assets.

However, Zhou emphasized that gold alone does not determine the international standing of the yuan. While expanding gold reserves can elevate trust in the yuan, he noted that the extent to which the currency will see increased use in international trade, investment, and foreign exchange reserves by central banks worldwide remains a separate issue.

Yingying Xia, head of precious metals and new energy research at Nanhua Futures in Hangzhou, China, similarly projected that central bank gold purchases by China and other nations will help lower global financial market dependence on US Treasuries and dollar reserve assets. She forecasted that this trend could progressively weaken dollar dominance over the medium to long term.

China is not the only country increasing its gold reserves. According to S&P Global Ratings, multiple emerging market central banks have expanded their gold purchases since 2022. World Gold Council statistics show that Poland secured a larger quantity of additional gold than China during this period. This signifies that reserve diversification through gold is not a move restricted to China alone.

Going beyond purchasing gold, China is also stepping up efforts to secure gold mines. According to S&P Global Ratings, Chinese companies have been acquiring major gold mines in Latin America, Africa, and Asia. This means they are simultaneously increasing gold reserves while engaging in gold production and supply.

Chang evaluated China's gold-related plans and activities as a comprehensive and long-term strategy. Expecting these moves to continue for years to come, he noted, "What the market often misses is the comprehensive nature of this strategy."

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