His current views on gold are fairly well known by now. Alan Greenspan, former Chairman of the U.S. Fed, doesn't really mind the stuff. So in a recent essay he wrote on gold reserves in Foreign Affairs ("Golden Rule: Why Beijing Is Buying" pointed out to us by Ed Steer's Gold & Silver) Greenspan does cover some familiar ground: That gold, as a form of money, is unique as no one else's liability, or in his words, that "It has never required the credit guarantee of a third party."

This, he notes, is why central banks hold it - despite the cost of doing so - as a form of crisis insurance and bling to impress peers. Gold represents some 10% of the value of reserves and Greenspand notes: "If, in the words of the British economist John Maynard Keynes, gold were a 'barbarous relic,' central banks around the world would not have so much of an asset whose rate of return, including storage costs, is negative." In this respect the short essay is a defense of gold that will not - at least not entirely - come as a surprise to many goldophiles for its talking points.

But Greenspan leads with China reserve talk that is especially well timed in the context of the gold market in Asia today - growing and becoming the locus of price setting. Greenspan opens thus: "If China were to convert a relatively modest part of its $4 trillion foreign exchange reserves into gold, the country’s currency could take on unexpected strength in today’s international financial system." It's a comment that is sure to catch a lot of attention.

David Fuller's view

I do not think China wants too much strength in its currency but it does aim to be a leading global superpower in every respect.  Therefore, a steady currency backed by significant gold reserves makes sense for China, and it is certainly a better store of value over the long term than $4 trillion of foreign exchange reserves.