Tuesday, September 8, 2009
There are 4 recent signs that China is moving out of the dollar.
A few days ago, the U.S. Treasury Department revealed that China actually REDUCED its note and bond holdings by $25 billion in June. Although China did NOT sell shorter-term Treasury bills — and isn’t expected to — it’s still the largest amount of Treasuries China has ever sold in a single month.Second, China will issue a non-Dollar denominated Renminbi bond sale on September 28th (6 Billion Renminbi worth).
Third, China has agreed to purchase $5o billion dollars worth of IMF bonds (denominated in the IMF Special Drawing Rights currency).
We will diversify incremental reserves into euros, yen, and other currencies. Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets.
As Edward Harrison correctly notes:
To be sure, there are other voices in Chinese officialdom that are striking a less alarmist tone. One cannot rely on the words of one Chinese official to represent policy makers in China. And Cheng never said the Chinese are now actively diversifying away from the U.S. dollar. Nevertheless, Chinese officials have been talking along this dollar bearish line for months now and I tend to believe their words will lead to action.
That is, at a minimum, bullish for Gold and bearish for the U.S. Dollar.