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China currency regulator warns that U.S. could pursue weak dollar policy

Section: Daily Dispatches

By Kevin Yao and Zhou Xin
Tuesday, June 7, 2011

BEIJING -- China should guard against risks from "excessive" holdings of U.S. assets as Washington could pursue a policy to weaken the dollar, a senior currency regulator said in comments published on a website that briefly pushed the dollar lower.

However, the comments by Guan Tao of the State Administration of Foreign Exchange were quickly removed from the website at his request. He told Reuters the comments had been made in private academic discussions and represented his personal view only.

"We must be alert of economic and political risks in excessive holdings of U.S. dollar assets," Guan, head of the international payment department at SAFE said in the article on the website of China Finance 40 Forum, a Beijing-based think-tank of Chinese economists, bankers and officials (

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Prophecy Resource (TSXV:PCY) and Pacific Coast Nickel (TSXV:NKL)
Begin 8,000-Meter Drilling Program Wellgreen Project

Company Press Release, June 2, 2011

VANCOUVER, British Columbia -- Prophecy Resource Corp. TSX-V:PCY, OTC-QX: PRPCF, Frankfurt: 1P2) and Pacific Coast Nickel Corp. (TSX-V: NKL, US-PINK: PNIKF, Frankfurt: P94) have begun an expansion drilling program on their Wellgreen platinum, nickel, and copper project in the Yukon Territory, Canada. The program has been commenced by Prophecy and will be completed by Pacific Coast Nickel upon completion of the arrangement transaction whereby Pacific Coast Nickel will acquire the Lynn Lake and Wellgreen properties from Prophecy.

The program includes 8,000 meters of solid-core diamond drilling from through September with up to three drills to test at least 17 infill and exploration targets. This drilling will augment the existing resource which is being updated to National Instrument 43-101 standards by Wardrop Engineering, a Tetra-tech company. The resource estimate (based on 701 drillings before 2011) is expected to be released in July. The 2011 drilling is aimed to further augment the resource estimate.

The grades and type of disseminated mineralization at Wellgreen are highly analogous to those observed in Minnesota's Duluth Complex.

For the complete company statement, please visit:

"The United States has taken an expansionary fiscal and monetary policy to stimulate economic growth, and the United States may find it hard to resist the policy temptation of weakening the dollar abroad and pushing up inflation at home," he said.

The dollar, broadly lower on the day over market worries about the health of the U.S. recovery, edged down slightly further after Guan's remarks. It hit a one-month low against a basket of currencies and the euro and a record low versus the Swiss franc.

Chinese officials have blamed ultra-loose U.S. monetary policy for fuelling global inflation and asset bubbles but they tend to be less vocal about China's huge holdings of U.S. assets for fear of roiling the currency market.

At times though, top Chinese officials, including Premier Wen Jiabao, have publicly called on the United States to ensure the safety of Chinese holdings of U.S. assets.

The U.S. federal budget deficit is expected to reach $1.4 trillion this year and stay high for several years. Congress is locked in tense negotiations over a deal to reduce the deficit and raise the $14.3 trillion debt limit under pressure from ratings agencies.

The deficit was built up in reaction to the global financial crisis, when the Federal Reserve also relaxed its monetary policy. Rates are virtually zero and the central bank has pumped cash into the economy by buying bonds, a program that is due to end this month.

China has never published its holdings of U.S. Treasuries, but some economists have said as much as 70 percent of the country's foreign exchange reserves, which hit a record $3.05 trillion at the end of March, are parked in dollar assets.

China has been trying to diversify its reserves, the world's largest, away from the U.S. dollar, but analysts say such diversification has been gradual.

Market conditions are favorable for China to forge ahead with market-based reforms of the yuan regime, Guan said, adding however that there is no basis for any sharp yuan rise.

"Recent improvements in the current account balance, especially in the trade balance, have shown that there is no basis for yuan to appreciate significantly," Guan wrote.

As such, the timing is good now for China to improve the yuan exchange rate formation mechanism, he said without elaborating.

"The market conditions for two-way movement of yuan exchange rate are gradually coming into existence," Guan said.

Separately, an adviser to the central bank called for yuan reforms in "a bold and decisive" fashion to reduce the central bank's massive foreign currency buying, which has pumped excessive cash into the economy and exacerbated inflation risk.

The central bank's dollar buying on the domestic market to keep the yuan exchange rate stable has been costly as such intervention fuels price rises, Zhou Qiren, who is also a professor at Peking University, said in comments published in the Economic Observer newspaper.

The yuan has gained 5.33 percent since it was depegged from the dollar in June 2010, and 1.65 percent since the start of this year.

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Lewis E. Lehrman on How to Solve the U.S. Debt Problem

Lewis E. Lehrman, chairman of the Lehrman Institute, sponsor of The Gold Standard Now project, advises that to reduce the $1 1/2 trillion U.S. deficit, the Republican Party must initiate an investment program.

Working Americans are not saving, which enables the banks to lead the country into a cycle of debt, leverage, boom, panic, and bust.

Lehrman says: "Eliminating the budget deficit of a trillion and a half dollars cannot be done overnight. The proposal by U.S. Rep. Paul Ryan was very dramatic -- one Republican called it radical -- but it was not happily received. The solution, of course, is to design an American program for prosperity, because you can solve these entitlement problems with a growing economy.

"We need a tremendous program of investment, and investment comes from savings. When you pay savers, middle-income professionals and working people, 0 percent at the bank, you are not going to encourage them
to save. Then we are left with a bank cycle of debt, leverage, boom, panic, and bust."

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