China Says Major Shift On
Dollar Policy Coming

Financial Intelligence
By John Browne
A News Max Alert

Some very worrisome news came out of China this Saturday - but it got a little more than a blip in the U.S. press.
At a high-level financial conference this past weekend, China's Premier Wen Jiabao said, "China would actively explore and expand the channels and methods for using [its] foreign exchange reserves."
Considering that the bulk of China's reserves are in U.S. dollars, it should send tremors about the future of the greenback.
The dollar has been reeling in recent years. A shift by China out of dollars - as Wen is hinting - could be catastrophic.
China's reserves recently surpassed Japan's - now exceeding $1 trillion. Some 70% of these reserves -­ more than $700 million - are in dollars.
Interestingly, The Wall Street Journal carried this critical story on page A7 of Monday's editions with this pleasant spin headline: "China Shift on Reserves Isn't Likely to Hit Dollar."
Perhaps I am missing something. China keeps most of its reserves in dollars - and its leader just announced they plan on diversifying their portfolio. This means it won't affect the dollar?
It is of note that the Financial Times placed its report on the China development smack in the center of Monday page one. Why would U.S. media wish to play down such an important item?
While we believe that in the short-term the dollar may not be hurt - the item should send tremors down the backs of U.S. dollar investors planning to hold the greenback over the long-term.
The Journal reported that Wen's statement was the "highest-level confirmation yet that China is thinking actively how it can use its reserves, which have increased by more that six times since 2000 and made China one of the worlds largest holders of U.S. Treasury bonds."
Later the article observed that, ". . . currency traders are hypersensitive to any signs Beijing is losing its appetite for the U.S. currency."
The FT went on to observe, "This policy switch opens the way for China, which has been largely passive in managing its money to establish an agency akin to Singapore's government."
As I wrote in my Financial Intelligence email in December and in our sister publication, Financial Intelligence Report, as the U.S. dollar depreciates, China is actively reviewing its holdings of gold.
When China resumes, or even announces its intention to resume, its purchases of gold, expect the price of gold to respond, as we have constantly warned, possibly in a major manner.
Of course, we believe it is not in China's short-term interests to disrupt the currency markets or the U.S. dollar, of which it holds some $700 billion.
But, in the longer-term, we believe China will use all its strengths, including economic and military to further its path towards super power status.
In this respect, we note last week's news (given a low profile in our mainstream media) that China had shot down one of its own defunct satellites, 500 miles out into space, at the same height as U.S. military satellites. What sort of message does that send to any observant investor or military strategist throughout the world?
To us it means that China is already on the march to super power status and is our main challenge, even in times of peace.
We urge our readers and investors to pay great heed to the recent announcements and especially actions of the Chinese, even if buried deeply in our news media.
We believe that China's actions are set to influence such key items as the U.S. dollar (and therefore U.S. interest rates), world commodity prices, gold, and U.S. defense strategy and spending.
If you want to protect your portfolio and wealth in the coming years ahead, I suggest you read some of our recent Financial Intelligence Report issues, including:



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