Good point made by a Chinese Assistant Professor, published in a tightly controlled Chinese newspaper

Personally, I think the Chinese want a weak currency right now to ensure it recovers fully from the global crisis (via the rest of the world buying up its cheaply made goods). However, it is clear to me that the Chinese eventually want to become a global economic superpower. IMO, they cannot fully accomplish this unless their currency plays a more global role. Personally, I don't see it as possible for their currency to be accepted globally without being backed by significantly more gold. All of the top currencies in the world are backed by a high percentage of gold. Of course, there are questions as to whether the US still maintain all the gold it claims at Fort Knox (apparently, it hasn't been audited since 1953, and there are a lot of theories going around), but that's a totally different story.

The Chinese Assistant Professor does a good job in making the case in the following article:

Official Chinese paper calls for more gold reserves

By: Reuters
8th December 2009

BEIJING - China should increase the proportion of gold in its foreign exchange reserves to ensure the safety of its overall portfolio, an official Chinese newspaper said on Tuesday.

The commentary, which was written by an academic and appeared in the overseas edition of the People's Daily, also said that a bigger holding of gold was a crucial building block for the yuan to become an international currency.

Gold has soared to record highs over the past month, in part on expectations that China will step up gold purchases to boost its official reserves of the precious metal.

"Although the return on gold may not be high, its safety is widely acknowledged. We should put safety first in managing our foreign exchange reserves and do our utmost to ensure that we can maintain the value of our current assets," Jing Naiquan, an assistant professor of economics at Zhejiang University, wrote.

He added that the dollar's credibility has been supported over the decades by sizeable U.S. gold reserves, and that gold is an important backstop for all free-floating currencies.

"Having sufficient gold ensures that a currency will gain global acceptance, so the renminbi will inevitably need gold as a guarantor as it goes out to the world," he wrote.

The Chinese-language overseas edition of the People's Daily is a low-circulation offshoot of the domestic paper, which is the official mouthpiece of the ruling Communist Party.

While such a commentary might not directly reflect leadership opinion, its appearance in China's tightly controlled official media suggests the idea of buying more gold has at least some support in elite circles.

However, Hu Xiaolian, a vice-governor of the People's Bank of China, said last week that gold prices were high and that markets should be wary of the formation of an asset bubble.

China said in April that its official gold holdings had risen to 1 054 t from 600 t in 2003, but gold is still a small portion of its $2,27-trillion of foreign exchange reserves, which are mostly invested in dollar-denominated assets.

But China is the world's biggest producer of gold and the government said that its increase in gold holdings in recent years was acquired entirely domestically, not on the international market.

Edited by: Reuters