November 14, 2008

Will China Switch to Gold?


The Hong Kong Standard asserts that China may up its gold reserves to close the gap with the US. Beijing's offical gold reserves are a mere 7% of Uncle Sam's hoard. Beijing has moved to diversify its foreign exchange reserves (world's biggest) into other currencies but China's reserves are still mainly denominated in the dollar and used to buy mostly USA Treasury debt. Given the admitted lack of transparency now in Washington's financial picture thanks to Wall Street corruption, it would not be a surpise if Beijing began to move away more quickly from the dollar. Noble winning economist Robert Mundell who advises the Chinese government was overhead at a confab saying that Beijing should buy IMF gold holdings. China may announce its readiness to support IMF's balance sheet at the G20 summit this weekend. Would gaining IMF gold be part of any financial assistance?


In Sao Paulo this week China's Central Bank chief Zhou Xiaochuan hinted that China may allow the Yuan to depreciate in order to do whatever it takes to support Chinese exports. Meanwhile Canada is ready to pressure China to appreciate the Yuan at the G20 summit. Interesting times...

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