On Saturday April 23, 2011 Tang Shuangning, chairman of China Everbright Group, told a forum in Beijing that China should reduce its excessive foreign exchange reserves and further diversify its holdings.  Tang specified an appropriate amount of US dollars between $800 billion and $1.3 trillion.

China as of late has been increasing its dollar reserves by $197.4 billion in the first quarter to a total of $3.04 trillion.

Zhou Xiaochuan, governor of China’s central bank said on the Monday after the forum that China’s foreign exchange reserves “exceed our reasonable requirement.”  Zhou believes that China should diversify its foreign exchange reserves more strategically which has been echoed by others familiar with the situation.  Some believe the reserves should be used to upgrade technology and acquire resources needed for the real economy.

Tang suggested five areas of investment which include 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.

Whether or not China will actually take action and cut its US dollar holdings is up for speculation, however if they do it can only be bad for the US.  Those dollars are currently sitting on the sidelines in the way of savings.  If those dollars are divulged it could create inflation to uptick dramatically here is the US.

Regardless of the consequences, this is just another signal that US dollar dominance is fading.  It seems as though tough talk on the dollar is becoming more common place.  Countries around the world are either diversifying away from the dollar or at least considering it, and if countries are doing it shouldn’t we be thinking about doing the same thing.  It only makes sense at this stage in the game, especially with all of the uncertainty in the markets, that we all diversify some of our dollar assets into something that will protect our overall portfolio, just like China is doing.

Gold and silver are a great hedge against a falling dollar because gold is priced in dollars and therefore will rise as the dollar falls.  If you are considering buying gold coins or using precious metals to diversify your portfolio give us a call or request the free information kit.