Quora Answer: If China Now Has 100 Million Tons of Gold, Can It Go on the Gold Standard, & Replace the Dollar System?

The following is my answer to a Quora question: “If China now has 100 million tons of gold, can it go on the gold standard, and replace the dollar system?”

China does not have 100 million tons of gold.  The entire world does not have 100 million tons of gold.  The world does not even have 200,000 tons of gold.  All the gold in the world is estimated at around 200,000 tons, although that number varies considerably, depending on the source.  Of that, China’s official gold holdings is just under 2,000 tons.

China’s M2 money supply is just under RMB 200 trillion, of which RMB 25 trillion is cash.  This means there is not enough gold in the world to back all that money, let alone gold held by China’s central bank.  China is not going back to the gold standard; no major economy in the world can afford to do that.  It would mean constricting the money supply to a fraction of what it is, which would be disastrous to the world economy.

On a related note, gold has value because of its scarcity.  If there really were so much gold in the world, it would not be worth much since it would be a common material.  This would make it unsuitable to back any currency.