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Leading Chinese Economists Urge Government To Dump U.S.
Treasuries, Buy Gold
Fears reemerge that China could resort to "nuclear
option"
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 Prominent
economists in China are calling for their government to ditch
vast holdings of U.S. Treasuries in favour of tangible assets
such as gold, a move that would have a far reaching impact on
the economy.
Reuters
reports that Yu Yongding, a former academic adviser
to the Chinese central bank has appealed to state representatives
to move away from U.S. debt and invest in assets denominated
in other currencies, as well as other financial instruments
and real goods.
"Although assets in other currencies and forms are not
an ideal replacement for U.S. Treasury bonds, diversification
should be a basic principle," Yu wrote in the China Securities
Journal.
"When demand for U.S. Treasury securities is strong, it's
a rare opportunity for us to gradually pull back. That way,
it will not have a big impact on prices and China will not suffer
too much," he said.
Another influential financial expert, Zhang Monan, of the powerful
think tank The State Information Center, also commented to the
journal that China should replace increasing amounts of its
foreign exchange reserves with hard assets such as gold.
The move could send gold prices back toward record highs following
a recent slide.
China holds the world's largest stockpile of reserves, worth
some $2.5 trillion.
China cut its U.S. treasury holdings by $32.5 billion in May,
yet it still
holds $867.7 billion, making it the largest holder
of U.S. government debt in the world.
In the past China has repeatedly threatened to use the so called
"nuclear option" and liquidate its vast holding of
US treasuries in response to continued pressure on the Communist
state to force a yuan revaluation. Such an event could trigger
a dollar crash which would now have disastrous consequences
for an American economy mired in recession.
Such an eventuality could lead to runaway inflation, making
the cost of living unaffordable to even middle class Americans
as food prices skyrocket.
Further
reports have suggested that Senior Chinese military
officers have proposed selling U.S. bonds en mass as a way of
"punishing" Washington.
China's central bank has also previously supported
calls for a new supra-national global currency
to replace the dollar, and earlier this year strongly
signaled that the country will move away from pegging
its currency to the dollar.
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