Macro guru Luke Gromen is unveiling China’s “elegant” solution to the yuan’s depreciation while ensuring that many of its citizens do not financially suffer.
In a new video, the investor tells his 43,400 YouTube subscribers that China can absorb defaults because the state controls both the debtor and the bank.
Under this system, Gromen explains that the currency, or the yuan, takes the loss as the government would need to print money to pay off the debt. However, Gromen points out that strict capital controls exist in China to prevent people from converting their yuan into a stronger currency.
Under certain circumstances and on a limited basis, the investor notes that foreign creditors can dump their yuan to buy gold.
Gromen also says that China has been encouraging its citizens to buy gold since 2022, allowing those who hold the precious metal to become richer even if the yuan slides.
“In theory, state-backed bank, state-backed debtor: debtor defaults on the bank, both state-backed, no loss. There’s no ability to flow out except on a limited basis through gold, but you already pre-loaded your citizens for 20 years with gold.
So the only way to capital in any real way out of China is for the price of gold to go up a lot in Chinese yuan… The gold that all of its citizens have been front-running for 20 years goes up. Their balance sheet goes up in yuan terms.
It’s very elegant.”
Earlier this month, reports emerged that China has added over a billion dollars to its gold stockpile. Data from China’s central bank reveals that the nation’s gold reserves grew to $243.99 billion at the end of July, up from $242.93 billion at the end of June.
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