Beijing and Shanghai-based gold industry analysts said the country had almost doubled its bullion holdings. But they said China was likely to make as many purchases as possible within its borders, rather than turn to international markets where it could push up gold prices.

Beijing's exact gold purchasing intentions are a state secret, but industry analysts are betting on more purchases as Beijing has been clear about its desire to diversify its foreign reserves away from the US Dollar. Although gold is quoted in Dollars, its price usually rises when the Dollar weakens.

The analysts base their bet, at least in part, on the history of another buyer: Russia. After Moscow announced it was buying bullion, it regularly disclosed information revealing almost monthly increases in its gold assets.

China's current gold reserves represent only about 1.6% of total foreign reserves, a vastly smaller percentage than the world's average of 10.5%. Nevertheless, its percentage is similar to the 2.2% in Japan, the world's seventh-largest holder. The challenge for Beijing is to attain a similar diversification, requiring large amounts of gold, without disturbing the market.

Hou Huimin of the China Gold Association, forecast that China's gold reserves could rise in the long term to as much as 5,000 tonnes. "It won't be a leapfrog achievement but a gradual increase along with the country's economic status."

One potential source of gold for China is the International Monetary Fund's expected sale of about 400 tonnes of bullion. Analysts said Beijing could try to purchase a block of that sale in an off-market agreement.

China last year overtook South Africa as the world's largest gold producer and is estimated to have produced 282 tonnes of gold. Some gold from state-owned producers goes directly into Beijing's gold stockpile every year. Gold purchases from state-owned producers can be made secretly and at below-market prices, making them more attractive than international purchases.

In addition, turnover at the Shanghai gold exchange rose nearly threefold between 2007 and 2008 but it is impossible to know how much of that, if any, may have been reserve buying, analysts said.

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Emerging economies such as China and Russia are calling for alternatives to the Dollar as a reserve currency. The trigger is the Federal Reserve's liberal policy of expanding the money supply to prop up America's banking system and its over-indebted households. Because the magnitude of the bad assets within the banking system and the excess leverage of its households are potentially huge, the Fed may be forced into printing Dollars massively, which would eventually trigger high inflation or even hyper-inflation and cause great damage to countries that hold Dollar assets in their foreign exchange reserves.

The chatter over alternatives to the Dollar mainly reflects the unhappiness with US monetary policy among the emerging economies that have amassed nearly $10,000bn (€7,552bn, £6,721bn) in foreign exchange reserves, mostly in Dollar assets. Any other country with America's problems would need the Paris Club of creditor nations to negotiate with its lenders on its monetary and fiscal policies to protect their interests. But the US situation is unique: it borrows in its own currency, and the Dollar is the world's dominant reserve currency. The US can disregard its creditors' concerns for the time being without worrying about a Dollar collapse.

The faith of the Chinese in America's power and responsibility, and the petroDollar holdings of the gulf countries that depend on US military protection, are the twin props for the Dollar's global status. Ethnic Chinese, including those in the mainland, Hong Kong, Taiwan and overseas, may account for half of the foreign holdings of Dollar assets. You have to check the asset allocations of wealthy ethnic Chinese to understand the Dollar's unique status.

The Chinese love affair with the Dollar began in the 1940s when it held its value while the Chinese currency depreciated massively. Memory is long when it comes to currency credibility. The Chinese renminbi remains a closed currency and is not yet a credible vehicle for wealth storage. Also, wealthy ethnic Chinese tend to send their children to the US for education. They treat the Dollar as their primary currency.

The US could repair its balance sheet through asset sales and fiscal transfers instead of just printing money. The $2,000bn fiscal deficit, for example, could have gone to over-indebted households for paying down debts rather than on dubious spending to prop up the economy. When property and stock prices decline sufficiently, foreign demand, especially from ethnic Chinese, will come in volume. The country's vast and unexplored natural resource holdings could be auctioned off. Americans may view these ideas as unthinkable. It is hard to imagine that a superpower needs to sell the family silver to stay solvent. Hence, printing money seems a less painful way out.

The global environment is extremely negative for savers. The prices of property and shares, though having declined substantially, are not good value yet and may decline further. Interest rates are near zero. The Fed is printing money, which will eventually inflate away the value of Dollar holdings. Other currencies are not safe havens either. As the Fed expands the money supply, it puts pressure on other currencies to appreciate. This will force other central banks to expand their own money supplies to depress their currencies. Hence, major currencies may take turns devaluing. The end result is inflation and negative real interest rates everywhere. Central banks are punishing savers to redeem the sins of debtors and speculators. Unfortunately, ethnic Chinese are the biggest savers.

Diluting Chinese savings to bail out America's failing banks and bankrupt households, though highly beneficial to the US national interest in the short term, will destroy the Dollar's global status. Ethnic Chinese demand for the Dollar has been waning already. China's bulging foreign exchange reserves reflect the lack of private demand for Dollars, which was driven by the renminbi's appreciation. Though this was speculative in nature, it shows the renminbi's rising credibility and its potential to replace the Dollar as the main vehicle of wealth storage for ethnic Chinese.

America's policy is pushing China towards developing an alternative financial system. For the past two decades China's entry into the global economy rested on making cheap labour available to multi-nationals and pegging the renminbi to the Dollar. The Dollar peg allowed China to leverage the US financial system for its international needs, while domestic finance remained state-controlled to redistribute prosperity from the coast to interior provinces. This dual approach has worked remarkably well. China could have its cake and eat it too. Of course, the global credit bubble was what allowed China's dual approach to be effective; its inefficiency was masked by bubble-generated global demand.

China is aware that it must become independent from the Dollar at some point. Its recent decision to turn Shanghai into a financial centre by 2020 reflects China's anxiety over relying on the Dollar system. The year 2020 seems remote, and the US will not pay attention to something so distant. However, if global stagflation takes hold, as I expect it to, it will force China to accelerate its reforms to float its currency and create a single, independent and market-based financial system. When that happens, the Dollar will collapse.

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Two former managers of the Bank of China and their wives were sentenced on Wednesday in a scheme that used US banks and casinos to launder more than $485m stolen from the bank, federal officials said.

They were convicted on August 29 by a federal jury in Las Vegas on charges of racketeering, money laundering, international transportation of stolen property and passport and visa fraud.

The former bankers laundered the stolen money through Hong Kong, Canada and the United States. They emigrated to the United States with their wives by obtaining false identities, and entered into "sham marriages" with US citizens, federal officials said in a statement.

They conducted "a significant number of transactions" with the stolen money through Las Vegas casinos, including bets that ranged from $20,000 to $80,000.

The two men, Xu Chaofan and Xu Guojun, were sentenced to 25 and 22 years in prison respectively. Their wives, Kuang Wan Fang and Yu Ying Yi, were each sentenced to eight years in prison. All four were sentenced to three years of supervised release and ordered to pay $482m in restitution.

"We will hold fully accountable those foreign nationals who abuse the financial systems of their home countries and who then, by fraudulent means, seek to live richly off their ill-gotten gains in the United States," Assistant Attorney General Lanny Breuer said.

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Foreign bondholders facing heavy losses after a Chinese aluminium company filed for provisional liquidation have raised the stakes in the battle for the company's assets by hiring high-profile financial advisers to represent them .

Asia Aluminum, one of the world's top three aluminium processing companies, was placed in provisional liquidation by a Hong Kong court in March after investors spurned a proposed $1.2bn debt restructuring.

The company could re-emerge following a restructuring or could be liquidated, in effect wiping out the value of the bonds, which are mostly held by foreign hedge funds.

Hedge funds which control $727m of the company's payment-in-kind notes have appointed KPMG, the professional services firm, as receivers of their bonds.

KPMG will represent the pik-holders in dealings with Ferrier Hodgson, the independent restructuring firm that was appointed to run Asia Aluminum and decide on a next step.

The company's future is being watched closely across Asia and in debt markets as an important guide to investor rights as companies scramble to restructure their finances in the downturn.

Greentown China Holdings, a struggling property company, this week unveiled plans to buy back almost all its $400m of foreign bonds at 85 cents in the Dollar after a capital raising bankrolled by mainland lenders.

Asia Aluminum's pik-holders fear their bonds could soon be deemed near worthless because they are held offshore - while the company's chief assets are held onshore - and so potentially out of the reach of Ferrier Hodgson.

One person familiar with the investors' thinking said: "The pik-holders want to make sure that no stone is left unturned in the battle for compensation.

"Hiring KPMG will help to keep up the pressure."

KPMG acts as liquidator of the bulk of the Asian operations of Lehman Brothers and advises on the onshore restructurings of mainland Chinese companies.

KPMG confirmed it had been appointed as receivers by the pik-holders but declined further comment, while Ferrier Hodgson could not be reached for comment.

Asia Aluminum angered investors in February when it launched a tender offer for its outstanding international bonds at less than 30% of face value.

The foreign investors maintained the tender offer did not reflect the company's financial position or prospects.

Asia Aluminum claimed that the debt restructuring was needed because of deteriorating cash flow and earnings, combined with rising costs and debt burden.

The fortunes of the company, which makes the aluminium frames used in high-rise buildings, have waned with the sudden collapse in construction activity.

The plan included an offer to buy back $450m in high-yield bonds for 27.5 cents in the Dollar and to repurchase $727m Pik notes for 13.5% of face value. Holders of the high-yield bond have not hired KPMG.