A 'Copper Standard' for the World's Currency System?

Hard money enthusiasts have long watched for signs that China is switching its foreign reserves from U.S. Treasury bonds into gold bullion. They may have been eyeing the wrong metal.

China's State Reserves Bureau (SRB) has instead been buying copper and other industrial metals over recent months on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons.

"The next industrial revolution is going to be led by hybrid cars, and that needs copper. You can see the subtle way that China is moving into 30 or 40 countries with resources," said Nobu Su, head of Taiwan's TMT group.

John Reade, metals chief at UBS, said Beijing may have a made strategic decision to stockpile metal as an alternative to foreign bonds. "We're very surprised by Chinese demand. They are buying much more copper than they will need this year. If this is strategic, there may be no effective limit on the purchases as China's pockets are deep."

Zhou Xiaochuan, the central bank governor, piqued the interest of metal buffs last month by calling for a world currency modeled on the "Bancor," floated by John Maynard Keynes at Bretton Woods in 1944.

If his thoughts reflect Communist Party thinking, it would explain the bizarre moves in commodity markets over recent weeks. Copper prices have surged 49% this year to $4,925 a ton despite estimates by the CRU copper group that world demand will fall 15% - 20% this year as construction wilts.

One thing is clear: Beijing suspects that the U.S. Federal Reserve is engineering a covert default on America's debt by printing money.

Beijing may yet buy gold as well, though it has not done so yet. The gold share of reserves has fallen to 1%, far below the historic norm in Asia. But if a metal-based currency ever emerges to end the reign of fiat paper, it is just as likely to be a "Copper Standard" as a "Gold Standard."