| Triffin Dilemma always exists in modern international monetary system. The reserve currency issuing countries pay more attention to the domestic policy, unwilling to take any responsibility for the world, which caused a number of serious financial crises. The recent financial crisis shows that increasing the foreign exchange reserves is still not enough to maintain the economic and financial stability. The international monetary system is a continuation of the international political system. The reform direction of the super-sovereign currency such as paper gold is not feasible. The currency board system and the regional currency are not suitable for Chinese conditions. As the second largest economy in the world, promoting RMB internationalization is the inevitable choice of maintaining Chinese financial stability and realizing the sustainable economic development for China.Realization of a country's currency internationalization needs many conditions. In addition to economic strength, maturity, liquidity and internationalization of financial market, capital account liberalization degree, the credibility of the currency value stability is also one of the important aspects. In the current credit monetary system, the asset quality of the central bank is one of the key factors to improve the credibility of currency value stability. As an important part of the central bank's assets, the gold reserves help to increase a country's monetary credibility and have certain effect on the monetary internationalization.The monetary attribute of gold already existed many years ago, and it still exits nowadays. Many countries add gold in their foreign reserve portfolio in recent years, which is a signal that gold reserve is more and more important in the international monetary system. This paper analyzes the role of gold in the currency internationalization from the following perspectives. Firstly, from the perspective of the central bank's balance sheet, by comparing Chinese and the major reserve currency issuing countries'balance sheets, it puts forward that as a developing country, in the case of the government bond rating is not high, increasing holdings of gold is helpful to improve the Chinese central bank's asset quality, and plays a positive role in improving the reliability of RMB. Secondly, throughout the internationalization progresses of the pound and dollar, the policy of Britain and the United States that linked to gold and holding adequate gold reserves helps to improve the credibility of pound and dollar value stability, and plays an important role in their becoming international currencies eventually. Thirdly, the monetary attribute of gold is particularly prominent in the international trade and international payments, and in the financial crisis and political conflicts. Compared to other currencies, the monetary attribute of gold makes people more willing to believe the international payment ability and debt paying ability of the central banks that they have a lot of gold reserves in the crises, and believe that the withdrawal mechanism of holding their currencies can be effectively guaranteed, so as to enhance the credibility of a nation's currency value. Fourthly, the empirical analysis shows that gold helps the central bank's asset value, thereby to improve monetary credibility.Our study found that gold could hedge against dollar devaluation risk. The dollar price of gold and the dollar index are negatively correlated, so gold can hedge against inflation. Grainger causality test results show that, there is a long-term stable equilibrium between the price index and the gold price, and the price index is the Grainger reason of gold price fluctuation. Correlation between gold and other central bank allocated assets is low, so increasing gold reserves is helpful to improve the income of Chinese central bank's reserve portfolio. By the sample efficiency optimization technique in the portfolio optimization theory, we found that on the same level of risk, the asset portfolio including gold returned more than the portfolio excluding gold, and we calculated the optimal holding rate of gold for Chinese central bank under the various risk tolerance. On this basis, finally this paper suggested that China should appropriately increase the gold reserves. But under the current conditions increasing gold reserves directly by central bank is not the best choice, so China can implement the "gold held by people" strategy, through increasing nongovernmental gold reserves to increase the national gold reserves. Based on this strategy we introduced the policy recommendations for the development of Chinese gold market.On the relationship between gold reserve and the internationalization of RMB, some scholars have studied, but little research on the deep-seated reasons of gold's role for currency internationalization is discussed. This paper made some innovations on that. Firstly, through the analysis of the central bank's balance sheet, it discussed the effect of increasing gold holdings on improving the credibility and the internationalization of RMB. Next, from the historical perspective, it analyzed the gold's role in the internationalizations of pound and dollar, and the monetary attribute of the gold different from other sovereign currencies, and qualitatively analyzed how gold improve the monetary credibility and internationalization. Last, this paper built a quantitative analysis model to calculate the effect of increasing gold reserves, for the central bank against the dollar devaluation and the quantitative easing policy of the reserve currency issuing countries. According to the Harry M. Markowitz optimum portfolio theory, it calculated the optimal gold holdings for central banks under different risk tolerances. And we also made an empirically analysis on the mechanism of gold to improve monetary credibility from the viewpoint of enhancing central bank asset quality. |
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