China: A Paper Tiger?

The Chinese have over $2 Trillion in foreign currency reserves, over 60% of this in US Dollars.  China’s gold holdings of around 1,000 tons equates to about 1% of their foreign currency reserves.  The US on the other hand has over 8,000 tons of gold or about 75% of it’s foreign currency reserves in Gold. As countries around the globe look to inflate their economies out their economic troubles by “re-flating”, the race to debase currencies world-wide is on.  This has become nearly an open competition with even with the UK openly stating they want a weaker Pound.  The US also wants to weaken the dollar, they have called for the Chinese to let the yuan float—ie appreciate relative to the dollar.  They are holding rates down, and they continue to spend voraciously as the dollar declines.  China is at a crossroads. Does China want to continue with their amazing growth? Do they want to maintain their recently accumulated wealth? Do they want to be a true world leader? Or, do they want to watch their amazing wealth evaporate and their country slide back to the dark ages? If they wish to maintain their growth and wealth they need to aggressively build their gold reserves. It makes the most sense to do this while they still can. In other words before their massive foreign currency reserves are inflated away completely.