“China Should Cap Foreign Exchange Reserves”

Uh-oh. From Xinhua news we get this:

BEIJING, April 23 (Xinhua) — China should reduce its excessive foreign exchange reserves and further diversify its holdings, Tang Shuangning, chairman of China Everbright Group, said on Saturday.

The amount of foreign exchange reserves should be restricted to between 800 billion to 1.3 trillion U.S. dollars, Tang told a forum in Beijing, saying that the current reserve amount is too high.

China’s foreign exchange reserves increased by 197.4 billion U.S. dollars in the first three months of this year to 3.04 trillion U.S. dollars by the end of March.

Tang’s remarks echoed the stance of Zhou Xiaochuan, governor of China’s central bank, who said on Monday that China’s foreign exchange reserves “exceed our reasonable requirement” and that the government should upgrade and diversify its foreign exchange management using the excessive reserves.

Meanwhile, Xia Bin, a member of the monetary policy committee of the central bank, said on Tuesday that 1 trillion U.S. dollars would be sufficient. He added that China should invest its foreign exchange reserves more strategically, using them to acquire resources and technology needed for the real economy.

Tang also said that China should further diversify its foreign exchange holdings. He suggested five channels for using the reserves, including replenishing state-owned capital in key sectors and enterprises, purchasing strategic resources, expanding overseas investment, issuing foreign bonds and improving national welfare in areas like education and health.

The Chinese have good reason to be worried about their foreign exchange holdings, especially the dollar. They may be in a lot of trouble of the dollar collapses because we can’t get serious about spending.

Is Gold the New Black? States Look to Bring Gold Standard Back

I’m not at all sure this is a good sign.

Starting in May, Utah residents will be able to shop in a currency other than the dollargold, something that hasn’t happened since 1933.

Utah became the first U.S. state last month to recognize gold and silver coins minted by the federal government as legal tender. More than a dozen other states are considering similar measures, and are expected to follow Utah’s example. The move, proponents say, is caused by declining faith in the U.S. monetary system and concern about rising inflation.

It’s not like they going to start carrying around gold coins. Rather the dollar will be backed by gold and can be converted if desired. I may not know enough to be sure, but, by itself, I don’t think this is a bad idea. At present, the dollar, and really no currency, is not backed by anything tangible. A dollar is worth a dollar because the government says so. But, this news is worrisome because it shows that some people are losing faith in the dollar and anticipate higher inflation. Half of economics is psychology, what people think is going to happen, and fears of inflation could become a self-fulfilling prophecy.