Tag Archives: europe

1973 EU CB’s Traded Gold In Secret At Free Market Price

Another piece of the puzzle

The more I read about it the more clear it becomes that the euro, at first a monetary block in Europe, was spawned right after the US abandoned gold in 1971. The European Community (EC) block was the biggest threat for the US hegemony in the seventies, if Europe would unite it could break the USD. Europe’s aggregated gold reserves were (and still are) greater than US holdings, a crucial reserve asset when fully utilized.

Soon after the inception of the Bretton Woods system in 1944 the US needed to suppress the price of gold because they printed far more dollars than they had gold to back it up, finally the suppression failed in 1968 when the London Gold Pool collapsed. What followed was a two-tier system; monetary gold was valued at a fixed price far below the free market price of gold.

The two-tier system created by the American monetary wizards was anything but sustainable; foreign central banks could buy gold at the US Treasury for dollars at a discount, subsequently selling the gold on the free market for a higher price, though the agreement was central banks would not trade with the private market.

Because the dollar was overvalued (against gold) European central banks exchanged billions of dollars for thousands of tonnes of gold, draining US gold reserves.

US Official Gold Reserves

In 1958 the UK exchanged $900,000,000 dollars for 799 metric tonnes of gold at the US Treasury. From January to March 1965 France pulled 428 tonnes from the US, from April to June 1971 France got out 251 tonnes.

That’s when Nixon temporarily suspended convertibility of dollars into gold on August 15, 1971.

Next up for the US was to completely remove gold from the international monetary system. Having the dollar as the sole monetary anchor would ensure the US from world domination. Europe, on the other hand, tried to re-introduce gold into the system at the free market price.

In the next quotes we can read how Henry Kissinger, National Security Advisor and Secretary Of State at the time, was discussing the matter with his team.

Mr Enders to Mr Kissinger about the proposal (re-introduction of gold) from Europe (EC).

…Mr. Enders: Both parties [US and EC] have to agree to this. But it slides towards and would result, within two or three years, in putting gold back into the centerpiece of the system—one. Two—at a much higher price. Three—at a price that could be determined by a few central bankers in deals among themselves.

…They would determine the value of their reserves in a very small group.

Mr Kissinger: And we would be on the outside.

Mr. Enders: The policy we would suggest to you is that, (1), we refuse to go along with this—

Secondly, Mr. Secretary, it does present an opportunity though—and we should try to negotiate for this—to move towards a demonetization of gold, to begin to get gold moving out of the system.

…It’s against our interest to have gold in the system because for it to remain there it would result in it being evaluated periodically. Although we have still some substantial gold holdings—about 11 billion—a larger part of the official gold in the world is concentrated in Western Europe.This gives them the dominant position in world reserves and the dominant means of creating reserves. We’ve been trying to get away from that into a system in which we can control—

If they have the reserve-creating instrument, by having the largest amount of gold and the ability to change its price periodically, they have a position relative to ours of considerable power.

I think we should look very hard … at very substantial sales of gold—U.S. gold on the market—to raid the gold market once and for all.

The US was against any form of European monetary cooperation. The next quotes are from a phone call between Kissinger and Under Secretary Simon:

K: … I’ve just been called to the President. Let me tell you — Shultz has sent me a copy of the cable that Volker gave him – that Volker sent him about the interventions, and he has asked for my views. I basically have only one view right now which is to do as much as we can to prevent a united European position without showing our hand.

S: Okay. Well, I interpret that as less intervention, which is a good idea, and I think George will be very happy with that comment. Do as much as we can to prevent a unified European position.

K: I don’t think a unified European monetary system is in our interest. I don’t know what you think for technical reasons, but these guys are now helping to put it to us.

In this political battle the US and Europe remained on speaking terms (both not showing their hand). But the EC was occasionally poking the US; if necessary they would trade gold in secret at the free market price.

Wikileaks logo black

From Wikileaks:

1973 November 21, 16:14

1. IN A CONVERSATION WITH ECON MIN, FREYCHE, ECONOMIC AND FINANCIAL ADVISOR TO PRESIDENT POMPIDOU, SAID GOF FULLY UNDERSTANDS OUR VIEWS ON PURCHASES OF GOLD BY CENTRAL BANKS AT A PRICE ABOVE THE MONETARY PRICE. FREYCHE SAID THAT, ALTHOUGH THERE ARE PRESSING TECHNICAL REASONS WHY THE CENTRAL BANKS OF THE EC MIGHT WANT TO BUY AND SELL GOLD AMONG THEMSELVES AT A PRICE ABOVE THE MONETARY PRICE, THE GOF AS WELL AS ITS EC PARTNERS WERE VERY RELUCTANT TO DO THIS, PRIMARILY BECAUSE THEY

CONFIDENTIAL CONFIDENTIAL PAGE 02 PARIS 30004 211932Z

HAD NO DESIRE TO TAKE A STEP WHICH MIGHT BE INTERPRETED AS AN ATTEMPT TO CREATE A MONETARY BLOCK IN OPPOSITION TO OR RIVALRY WITH THE U.S. IN OTHER WORDS, HE SAID, FRANCE WAS HOLDING BACK FROM SUCH A DECISION BECAUSE OF A DESIRE TO DEMONSTRATE GOODWILL TOWARD THE U.S. NONETHELESS, HE CONTINUED, THE EC MIGHT EVENTUALLY BE FORCED TOTAKE THIS STEP. SIXTY-FIVE PERCENT OF ITALY’S RESERVES AND 40 PERCENT OF FRANCE’S WERE IN GOLD. IT WAS WELL KNOWN THAT NEITHER ITALY NOR FRANCE WAS WILLING TO PART WITH ANY OF THIS GOLD AT THE MONETARY PRICE WHEN THIS PRICE WAS SO MUCH LOWER THAN THE FREE MARKET PRICE. THUS, A LARGE PART OF THE RESERVES OF THESE TWO COUNTRIES WAS IN EFFECT FROZEN AND COULD NOT BE USED IN THE SETTLEMENTS AMONG THE “SNAKE” COUNTRIES REQUIRED TO MAINTAIN THE SNAKE. THIS, OF COURSE, WAS ONE OF THE REASONS WHY ITALY HAD SO FAR BEEN UNWILLING TO ENTER THE SNAKE. IF THIS PROBLEM BECAME SERIOUS ENOUGH SO THAT THE EUROPEAN CENTRAL BANKS FELT OBLIGED TO BEGIN EXCHANGING GOLD AMONG THEMSELVES AT A PRICE ABOVE THE MONETARY PRICE, FREYCHE SAID THAT THIS DECISION WOULD NOT BE TAKEN WITHOUT FULL PRIOR CONSULTATION WITH THE U.S. AUTHORITIES. HE ALSO SAID THAT EXCHANGES OF GOLD AT SUCH A PRICE WOULD BE RESTRICTED TO EC CENTRAL BANKS AND IT WAS POSSIBLE THAT THE PRICE AT WHICH THESE TRANSACTIONS WOULD BE CARRIED OUT WOULD BE KEPT SECRET.

2. COMMENT: FREYCHE’S CONCILIATORY ATTITUDE ON THIS MATTER IS WELCOME. NONETHELESS, WE BELIEVE, PARTICULARLY IN VIEW OF THE MANY PUBLIC STATEMENTS BY SENIOR FRENCH OFFICIALS ON RIGHT TO BUY AS WELL AS SELL GOLD AT MARKET PRICE, THAT FRANCE’S OBJECTIVE CONTINUES TO BE PRESERVATION OF SIGNIFICANT ROLE FOR GOLD IN MONETARY SYSTEM AND, IN THAT PERSPECTIVE, TO OBTAIN AGREEMENT WITH EUROPEAN PARTNERS TO SELL GOLD IN INTRA-EUROPEAN SETTLEMENTS AT VALUE NEAR TO MARKET PRICE. THIS BEING THE CASE, FREYCHE’S ASSURANCE NO SUCH DECISION WOULD BE REACHED WITHOUT PRIOR CONSULTATION WITH U.S. IS IMPORTANT AND USEFUL. IRWIN

CONFIDENTIAL NNN

(h/t @mortymer001)

Previously released historic documents

1970 February 24, Washington DC, US. Pompidou and Nixon

1971, October 28. Phone call between Nixon and Kissinger on gold

1971, December 13 & 14, Azores. Negotiations between Kissinger and Pompidou about the value of currencies and gold

1971, December 13, negotiations between Nixon, Pompidou and Kissinger about the value of currencies and gold

1973, March 14, Kissinger and Simon telephone conversation

1973, May 18, Paris, France. Meeting Kissinger And Pompidou on value of gold

1974, March 6, Washington, US. Note From the Deputy Assistant Secretary of State for International Finance and Development (Weintraub) to the Under Secretary of the Treasury for Monetary Affairs (Volcker): GOLD AND THE MONETARY SYSTEM: POTENTIAL US–EU CONFLICT

1974, April 22 & 23, Zeist, The Netherlands. Meeting European Ministers Of Finance On Gold

1974, April 25. Minutes of Secretary of State Kissinger’s Principals and Regionals Staff Meeting on gold

1976, October 29, Wikileaks: PBOC focused on gold & SDR’s

Will Gold Be Part Of A New International Monetary System?

Anyone who has been paying attention to the global economy the past years can agree with me our central bankers have conducted miserable monetary policy and have taken insufficient measures to fight crises. All major economies have embarked in printing unprecedented quantities of money, but the only thing they bought was time. Quantitative easing on such a scale is like kicking the can determined to reach the end of the road. The future looks anything but sanguine.

Where is this going? Are our leaders truly gonna allow for the international monetary system to implode? Is there no plan B? And we are supposed to believe gold isn’t of any significance in economics?

In our current highly unstable economic environment the price of gold is relatively low, according to gold proponents like me. In addition, we can see immense flows of physical gold going from West to East that are guaranteed not to return in the foreseeable future. If the price of gold isn’t suppressed, my previous two observations can only be explained as physical supply outstripping demand since April 2013 – when the price of gold declined substantially to its current relative low levels. But perhaps there is more than meets the eye.

I would like to share a theoretical explanation for the observations just mentioned, supported by historic diplomatic documents that provide some guidance through the present fog.

Let’s start just before gold was removed from the system:

In the sixties France stepped out of the London Gold Pool, as it didn’t want to waste any more gold on the war the US was waging against Vietnam. The London Gold Pool was a joint effort by the US, the Netherlands, France, Germany, Italy, Belgium, Switzerland and the UK to peg the price of gold at $35 an ounce. But because the US was printing dollars to finance the war in Vietnam – this devalued US dollars – a lot of gold was required to be sold to maintain the price at $35. Shortly after France left the Pool it collapsed in March 1968. From the IMF:

While the total number of U.S. dollars circulating in the United States and abroad steadily grew, the U.S. gold reserves backing those dollars steadily dwindled. International financial leaders suspected that the United States would be forced either to devalue the dollar or stop redeeming dollars for gold.

The dollar problem was particularly troubling because of the mounting number of dollars held by foreign central banks and governments: In 1966, foreign central banks and governments held over 14 billion U.S. dollars. The United States had $13.2 billion in gold reserves, but only $3.2 billion of that was available to cover foreign dollar holdings. The rest was needed to cover domestic holdings. If governments and foreign central banks tried to convert even a quarter of their holdings at one time, the United States would not be able to honor its obligations.

The Incredible Shrinking Gold dollar IMF

And that is exactly what happened; in 1971 the US closed the gold window, no longer could foreign central banks convert dollars into gold (except on the open market). As I’ve written before: (i) Europe, most notably France was not amused and wanted to revalue gold, (ii) the US was very persistent to completely phase out gold from the monetary system in order to leverage the power of the US dollar hegemony.

I’ve found documents that connect the past with the present. On February 24, 1970, French President Pompidou met with US President Nixon in Washington DC. The oncoming quotes are from the US minutes of the meeting:

Turning to France, the President [Pompidou] said he wished to emphasize again that – as distinguished from the positions of some of his predecessors in this office – he would not comment on the independent French policy. He might have his own views but he felt that a strong independent France devoted to the same goals as we are is in the interest of the US. A strong Europe in the economic sense might seem not to be in the US interest, in the long term it was. What we need is a better balance in the West. It is not healthy to have just two superpowers; in such a situation there is more chance of a conflict than when there are more centers of power. Greater strength of the European economies, an independent French policy, and, in Asia, a stronger Japan, would eventually make for a more stable world. The position of the U. S. at the end of World War II was not healthy. Twenty-five years had passed and things were changed. This we regarded as a healthy development.

In the final analysis with three billion people on earth if civilization is to survive … this will be decided by the Soviet Union, by China, and eventually Japan, by Western Europe, by that he meant France, Britain and Germany and the United States. Africa is moving along, but it is a century away.

Latin America is also moving but it is fifty years or more away. In Asia, India and Pakistan will have enormous difficulty in simply keeping pace with their increase in population. We have a great responsibility to use the power we have to build the kind of a world that keeps the forces of expansion in check and thus give the forces of freedom a chance to grow in their own way and not like tin soldiers lined up behind the biggest one.

Pompidou’s idea was clearly to spread economic power across the globe for a more balanced, peaceful and prosperous world. We can also read the first signs of a unified Europe between the lines. Pompidou is one of the best forecasters I’ve ever read, what he said 45 years ago has more or less happened by now. However, Pompidou’s ideology could not coexist along the dollar hegemony. The US, therefor, embarked in divide and conquer, a notorious strategy to gain and maintain power. The next quotes are from a telephone conversation on March 14, 1973, between Henry Kissinger, National Security Advisor, and William Simon, Under Secretary of the Treasury: 

K: … I’ve just been called to the President. Let me tell you — Shultz has sent me a copy of the cable that Volker gave him – that Volker sent him about the interventions, and he has asked for my views. I basically have only one view right now which is to do as much as we can to prevent a united European position without showing our hand.

S: Okay. Well, I interpret that as less intervention, which is a good idea, and I think George will be very happy with that comment. Do as much as we can to prevent a unified European position.

K: I don’t think a unified European monetary system is in our interest. I don’t know what you think for technical reasons, but these guys are now helping to put it to us.

S: Yes, sir.

K: I don’t know whether that’s true in the short term, but I’m convinced that that’s true in the long.

S: I just agree with you a thousand percent.

K: So I’d rather play with them individually. You know, if it were a question of supporting an individual currency, I’d be much more inclined to do that.

S: Yes, such as the mark.

K: That’s right.

S: Yes, sir.

K: Does that make sense to you?

S: Yes it does.

K: You understand, my reason’s entirely political, but I got an intelligence report of the discussions in the German Cabinet and when it became clear to me that all our enemies were for the European solution that pretty well decided me.

S: Yes, sir. Well, I pass. I’m going to be talking to George on the telephone.

K: Be careful. Everything in Bonn is tapped.

S: I promise you I will.

Next, from Wikileaks, a report of a meeting held by all European Ministers of Finance about gold, written to the American Ministry Of Foreign Affairs on April 23, 1974 (Europe and the US were debating this issue for a few years):

MADE IN A WIDER INTERNATIONAL CONTEXT, WHAT CAME OUT OF ZEIST WAS A CONSENSUS ON CERTAIN SUBSTANTIVE PROPOSITIONS THAT ARE TO BE FURTHER EXPLORED BEFORE THEY ARE SUBMITTED TO A NEXT MEETING OF THE COUNCIL OF MINISTERS OF THE EEC [EU]. IF AT A LATER STAGE THE COUNCIL REACHES AGREEMENT ON A CERTAIN POSITION, THE FURTHER PROCEDURE COULD BE THAT THE EUROPEAN COMMUNITY FORMULATES A FORMAL PROPOSAL ON HOW TO DEAL WITH THE PROBLEM OF GOLD IN THE PERIOD BEFORE THE REFORM OF THE INTERNATIONAL MONETARY SYSTEM.

IN ZEIST, MINISTERS HAVE AGREED ON TWO GENERAL PROPOSITIONS. FIRST, THEY HAVE RE-ASSERTED THAT THE SDR SHOULD BECOME THE PRINCIPAL RESERVE ASSET IN THE FUTURE SYSTEM, AND THAT ARRANGEMENTS FOR GOLD IN THE INTERIM PERIOD SHOULD NOT BE INCONSISTENT WITH THAT GOAL. SECOND, THEY HAVE AGREED THAT SUCH INTERIM ARRANGEMENTS SHOULD ENABLE MONETARY AUTHORITIES TO EFFECTIVELY UTILIZE THE MONETARY GOLD STOCKS AS INSTRUMENTS OF INTERNATIONAL SETTLEMENT.

THERE WAS A CONSENSUS AMONG MINISTERS THAT AN INCREASE OF THE OFFICIAL GOLD PRICE, ALTHOUGH IT MIGHT SERVE THE SECOND OBJECTIVE, WOULD BE INCONSISTENT WITH THE FIRST. IN ORDER TO MOBILIZE MONETARY GOLD AS AN INTERNATIONAL RESERVE ASSET, THEY HAVE AGREED THAT:

1) MONETARY AUTHORITIES SHOULD BE PERMITTED TO BUY AND TO SELL GOLD BOTH AMONG THEMSELVES, AT A MARKED-RELATED PRICE, AND ON THE FREE MARKET. THE MONETARY AUTHORITIES WOULD HAVE COMPLETE FREEDOM TO BUY OR TO SELL GOLD, AND WOULD HAVE NO OBLIGATION WHATEVER TO ENTER INTO ANY PARTICULAR TRANSACTION.

2) CERTAIN DELEGATIONS ARE OF THE OPINION THAT GOLD TRANSACTIONS WITH THE FREE MARKET SHOULD NOT, OVER A CERTAIN PERIOD OF TIME, LEAD TO A NET INCREASE OF THE COMBINED OFFICIAL GOLD STOCKS.

3) IN ORDER TO APPLY THESE PRINCIPLES, VARIOUS PRACTICAL SOLUTIONS CAN BE ENVISAGED. TWO WERE MENTIONED IN PARTICULAR. ONE IS THAT MONETARY AUTHORITIES PERIODICALLY FIX A MINIMUM AND A MAXIMUM PRICE BELOW OR ABOVE WHICH THEY WOULD NOT SELL OR BUY ON THE MARKET. THE OTHER CONSISTS IN CREATING A BUFFER STOCK TO BE MANAGED BY AN AGENT WHO WOULD BE CHARGED BY THE MONETARY AUTHORITIES TO INTERVENE ON THE MARKET SUCH AS TO ENSURE ORDERLY CONDITIONS ON THE FREE MARKET FOR GOLD.

Now we know what Europe was planning in seventies, this explains a lot better what occurred later on. Remember the Washington Agreement On Gold? Just before the euro was introduced in 1999, all European central banks collaborated in a program called the Central Bank Gold Agreements (CBGA), or the Washington Agreement On Gold, to jointly manage gold sales. (note, Eurozone aggregated gold reserves currently still transcend US reserves)

Central Bank Largest Sellers

In 1991 the Dutch central bank (DNB) held 1,700 tonnes in official gold reserves, currently it holds 613 tonnes. When the Dutch Minister Of Finance, J.C. de Jager, was questioned about these sales in 2011 he answered:

Question 6:  Can you confirm that since 1991 DNB has sold 1,100 tonnes of the 1,700 tonnes it owned…

Answer 6: Since 1991 DNB sold 1,100 tonnes. At the time DNB determined that from an international perspective it owned a lot of gold proportionally. It decided to equalize its gold holdings relative to other important gold holding nations. 

Right, so since the seventies Europe wanted to spread economic power across the globe, replace the dollar as the world reserve currency and sold parts of its official gold reserves “to equalize its gold holdings relative to other important gold holding nations. These types of plans aren’t realized overnight; it can take decades, it can even take more decades than estimated. Who knows? We can be in the final stage right now.  

Not so long ago I published a Wikileaks cable from 1976 wherein China expresses its particular interest in gold and SDR’s. Of course this is all just a theory, but it seems as if the redistribution of the chips, physical gold flowing form West to East, is all part of orchestrated preparations for the next international monetary system, anchored by gold. This system would require gold to be spread among the major economic power-blocks proportionally. 

Chinese mining 1949-2014 x

Total Estimated Chinese Gold Reserves 1995 - 2014

Jean-Claude Trichet, former president of the European Central Bank, said on November 4, 2014:

The global economy and global finance is at the turning point in a way, …new rules have been discussed not only inside the advanced economies, but with all emerging economies, including the most important emerging economies, namely, China.

 

Gold world

 

(h/t Freegold)

historic documents:

1970 February 24, Washington DC, US. Pompidou and Nixon. 

1971, October 28. Phone call between Nixon and Kissinger on gold.

1971, December 13 & 14, Azores. Negotiations between Kissinger and Pompidou about the value of currencies and gold.

1973, March 14, Kissinger and Simon telephone conversation. 

1973, May 18, Paris, France. Meeting Kissinger And Pompidou on value of gold.

1974, March 6, Washington, US. Note From the Deputy Assistant Secretary of State for International Finance and Development (Weintraub) to the Under Secretary of the Treasury for Monetary Affairs (Volcker): GOLD AND THE MONETARY SYSTEM: POTENTIAL US–EU CONFLICT.

1974, April 22 & 23, Zeist, The Netherlands. Meeting European Ministers Of Finance On Gold.

1974, April 25. Minutes of Secretary of State Kissinger’s Principals and Regionals Staff Meeting on gold.

Eurosystem Increasing Allocated Official Gold Reserves

The Eurosystem is expressing an increasing interest in gold.

One of the commenters on this blog, Arend Lammertink, notified me of official gold reserves data disclosed on the websites of the Dutch central bank (DNB) and the German central bank (Bundesbank). At DNB we can find a sheet that shows the Dutch central bank started separating its gold holdings from one category (gold, and gold receivables), to more detailed categories in May 2014.

Screen Shot 2014-12-02 at 2.29.55 PM
Source: DNB

The row goudbaren means ‘gold bullion’ and niet ge-alloceerde goudrekeningen means ‘unallocated gold accounts’. The white rows represent the value, the weight is disclosed in millions of fine troy ounces; The Netherlands holds 612.5 tonnes in total, fully allocated and nothing is leased since 2008 (same as Germany).

Over at the site of the Bundesbank the same information is published from 18 of the 28 member states of the European Union that use the euro currency (The Eurosystem). The Bundesbank (BuBa) publishes the fine troy ounces of the official gold reserves of the Eurosystem in ‘Gold bullion’ and ‘Unallocated gold accounts’. If we add up both categories the outcome for all countries equals the Official Gold Reserves disclosed by the World Gold Council. Concluding ‘Gold bullion’ is allocated (and obviously unallocated is unallocated).

From BuBa:

The application of the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) is binding for EU member states by virtue of a regulation adopted by the European Commission. Moreover, the reporting requirements of Eurosystem NCBs vis-à-vis the European Central Bank are stipulated in a guideline.

From the guideline Changes in the methodology and classifications of the balance of payments and the international investment position:  

With regard to reserve assets, gold transactions and positions will in the future be subdivided into gold bullion, which includes gold bars and allocated gold accounts, and gold receivables, to which no specific gold holdings are assigned.

The unallocated gold accounts of the Eurosystem relate to gold to which no specific gold holdings are assigned.

Eurosystem Official Gold Reserves Allocation, October 2014
The ECB holds 22 % (109 tonnes) of its gold reserves in unallocated accounts.

The data demonstrates most of the Eurosystem official gold reserves are allocated and since January 2014 (which is as far as the more detailed data goes back) the unallocated gold reserves are declining as we can see in the next chart.

Eurosystem Total Official Gold Reserves (10,787 tonnes)

Unfortunately we do not know what happened prior to 2014.

Note, allocated does not mean the gold is located on own soil, but is does mean the gold is assigned to specific gold holdings, including bar numbers, wether stored on own soil or stored abroad. Unallocated gold relates to gold held without a claim on specified bar numbers, often these unallocated accounts are used for easy trading.

Two good descriptions of unallocated gold accounts from the LBMA:

To take the analogy of simple currency bank accounts, precious metal bars, of any form, may be drawn down, or allocated, from an unallocated account in just the same way that bank notes with specific unique numbers may be drawn out of a bank checking account.

As you might know bank accounts are fractionally backed.

UNALLOCATED ACCOUNT: An account where specific bars are not set aside and the customer has a general entitlement to the metal. This is the most convenient, cheapest and most commonly used method of holding metal. The holder is an unsecured creditor.

The fact the Eurosystem discloses the ratio between its allocated and unallocated gold and, more important, the fact that the portion of allocated gold is far greater and increasing, tells me the Eurosystem is allocating as much gold as they can. Add to that the Germans are currently repatriating over 600 tonnes of their allocated gold from the US and France, and The Netherlands has just repatriated 123 tonnes of its allocated gold from the US. Will the rest of the Eurosystem follow to repatriate their gold from abroad?

The Eurosystem is surely up to something with its gold. This can only be seen in advance of a reform of the international monetary system. As Jean-Claude Trichet, former president of the European Central Bank, stated on a financial forum in Beijing at the end of October 2014:

The global economy and global finance is at the turning point in a way… New rules have been discussed not only inside the advanced economies, but with all emerging economies, including the most important emerging economies, namely, China.

On behalf of China the General Manager of the Precious Metals Department at ICBC (the largest bank in China and the world), Zhou Ming, stated on the LBMA Forum in Singapore in June 2014:

  1. International gold prices will return to rational levels after shooting high.
  2. With the status of the US dollar as the international reserve currency is shaky, a new global currency setup is being conceived.
  3. Uncertain changes will happen to gold’s traditional dollar-pricing so the US dollar’s influence on gold pricing needs to be re-evaluated.
  4. With the rise of Asian economies, China and India will continue to be the world’s pillars of physical gold demand.
  5. Gold has not only moved from West to East but will continue to move to the East.

So, China and Europe are embracing gold prior to the replacement of the US dollar as the world reserve currency. I truly wonder what will replace the US dollar.

Guest Post: The Golden Age Of Our Times Is The Age Of Gold

Towards a new international monetary system – Part 2.

[This is the English translation, first published here on 2014/04/10, of the original article written in French]

We first established in January 2013 the need to resolve the problem of the international monetary system, and its absolute priority. [1]

We then proposed in May 2013 a strategy to effectively prepare the necessary resilience to support the change in the international monetary system. [2] The various official announcements over the past months have largely confirmed that this anticipation was shared. [3]

The synthesis of this strategy was again stressed by Laurence Brahm on 21/10/2013:

” It is not the complete removal of the old Bretton Woods financial architecture but rather the creation of a new parallel structure to the old. Eventually, countries will be able to choose which architecture is better suited to their own plans for reconstruction and renovation. ” [4]

The Golden Age (Zucchi)
The Golden Age (Zucchi)

This week of March 2014 where I release this article sees an important step in international relations. It is nothing less than discussing the 2015 framework and choosing between the repetition of the Vienna Conference in 1815 (the Concert of Nations) or Yalta Conference in 1945 (the Cold War) that will support the “new rules of the game in international politics“. [5]

In fact, this week in Europe a large number of high level bilateral meetings take place:

– President Xi met with the Prime Minister of the Netherlands, François Hollande, Angela Merkel and then with the European Commission president [6]

– President Obama met with President Xi, and then he has extended his trip at the last minute to meet the Heads of State of The Netherlands, Italy, Belgium, UAE, South Korea, Japan, then a meeting with the Pope in Rome and a meeting with the King of Saudi Arabia. [7] Followed by a planned meeting with Mr Barroso and Van Rompuy [8]

– The G7 meeting on the sidelines of the Nuclear Security Summit in 2014.

– And other bilateral meetings, more or less official and prepared, among other heads of state following their presence at the Nuclear Security Summit 2014.
Officially the goal is mostly to talk about the crisis in Ukraine and Crimea, or to sign some contracts. The public communiques will mention them.

We believe that other issues, much more important but related, will be discussed: those around the current reorganization of the new international monetary and financial system. [8.1]

Marketable U.S. Treasuries held by the Fed in custody for Foreign Official and International Accounts; till 3/26/2014; (Sources: St Louis Fed, Conscience-Sociale.org)
Marketable U.S. Treasuries held by the Fed in custody for Foreign Official and International Accounts; till 3/26/2014; (Sources: St Louis Fed, Conscience-Sociale.org)

Our analysis is that the Ukrainian crisis was triggered by the U.S. deep state in preparation for the introduction of this next reorganization. [9] This is to retain the EU in the area of U.S. domination. [9.1]

The time has come to clarify what we mean by new international monetary and financial system.
We believe this is not only about launching what is already announced:

– A Development Bank for BRICS parallel to the World Bank
– A BRICS stabilization fund parallel to the IMF
– New bilateral trade agreements parallel to the WTO but to go much further.

ad-728x90-arrow-gold

Firstly, the BRICS Development Bank is becoming a “Bank initiated by BRICS for the development of all interested parties” and whose governance is open to any state wishing to join with the framework agreement. [9.2]

Secondly, and this is the most innovative part: it is to create another institution parallel to the Bank for International Settlements (BIS).

This is the oldest international financial institution fully governed by the West (6 permanent members and founders are the central banks of Belgium, France, Germany, Italy, UK and USA, which can have a double voting weight – analogy with Obama’s meetings this week is not a coincidence [10])

BIS is the central bank of central banks, that is to say, it organizes and manage trade between them … especially those concerning physical gold. Activities related to financial regulation (the famous Basel Committee rules) were added much later, after the existence of the bank became public when it was kept secret since its inception. [10.7]

The first problem to solve for the overhaul of the international monetary and financial system is not really the choice of a new currency. This is only a means. This is primarily to ensure price stability and the development of international trade. Otherwise, the only alternative is endless war for resources that are increasingly scarce. It is therefore necessary to separate the problem of a reference currency for international trade, from that of a reserve currency for central banks.

Global geopolitical dislocation following the 2008 crisis has cut the Gordian knot: there is no need any more to make a decision for all countries (which has blocked reform for many years [10.6]). Now BRICS countries have the initiative and willingness to move forward. This will is the key factor as we wrote: [10.9]

The global geopolitical context is characterized primarily by a tilt after reaching the tipping point: the decline of the American empire on the one hand and the rise of the multipolar initiative led by BRICS on the other. Because they are so desperately lacking in autonomy of decision and willingness, the EU and Japan find themselves buffeted by this tidal wave of history.

The choice is made for several years, international trade will be based on gold [10.3].

How will this happen in practice? Not with boats or trucks loaded with bullion, of course. As we said a “second BIS” was designed that can manage a clearing house for payments (settlements) in physical gold, especially to add to it a fundamental function to allow again international settlements for goods using “Real Bills” (a.k.a. Gold Bills), as recommended by the New Austrian School of Economics. In his work Professor Fekete described these Gold Bills as being “destined to be settled in gold coins that are made available after the ultimate consumer surrenders them in exchange for finished consumer goods upon maturity”. [10.4] Their issue is strictly limited by the orders received to buy goods. They allow increasing the money velocity without systematically using coins and without any risk of inflation. [10.1]

This is far from a simple “100% gold” standard.

Gold is the only money (gold – silver ratio must float) as everyone knew for millennia. Today most people have more or less forgotten this unique role, Western central bankers have tried for a century to put lipstick on a pig, so to speak. [10.8] By deceiving us, they deceived themselves and began to believe their own nonsense. A historical failure and on a global scale. Alas, it is a failure of the European spirit. We need to recognize it in order to find the impetus beneath our feet allowing us to arise from the depth of this graveyard by the sea. [10.2]

BRICS countries do not necessarily need the West to initiate this new settlement system. [10.5] It must be noted in this respect what it can supersede. The dollar currency and U.S. Treasury at the foundation of famous “petrodollars” are replaced by the Gold Bills that will allow buying oil for example. [11] It is the function of reference currency for international trade.
But US Treasuries have a function of income related to their mid/long term interest rate too – it is also a fatal flaw in this system. This is the second problem: the choice of the reserve currency for central banks.

The new system offers very smartly to decouple these two functions. The income function can be brought (at appropriate time) by introducing gold bonds, that is to say bonds denominated in gold weight (ie not merely an obligation backed by gold collateral denominated in fiat currency – a.k.a. gold backed bonds), with interests denominated in gold weight and whose principal is redeemable in gold weight. Again, we must have an institution for the issuance of these bonds.

Note that to start, it is not necessary to replace any national currency by gold coins. The gold bills will circulate in parallel of currencies, and user confidence in these currencies will be reflected in real time in the local price of that currency measured in mg of gold (that is to say, the inverse of the ‘price of gold’ measured in the currency, which is the usual vision that we have – a totally wrong perception because you can not measure the length of a bar with a rubber-band: you must take the opposite approach). Hence the fundamental importance of not having rigged gold markets as currently in New York and London. [12]

(Source: GoldSwitzerland.com)
(Source: GoldSwitzerland.com)
Price of one U.S. dollar in mg of pure gold since 1968 till 3/24/2014 (Sources: St Louis Fed, LBMA, Conscience-Sociale.org )
Price of one U.S. dollar in mg of pure gold since 1968 till 3/24/2014 (Sources: St Louis Fed, LBMA, Conscience-Sociale.org )

The U.S. have no way to prevent BRICS countries to launch this parallel system, a competitor of the one based on U.S. Treasury bond, and which finally obliterate their attraction.

The only remaining choice as new rules for American decision-makers (that is to say, the public state and the deep state) are the following, as they are standing with their back to the wall [12.2]:

– either to accept an open cohabitation of two parallel systems, with 100% of the players who know that the dollar system can not be competitive (very quickly one system will endure and all U.S. Treasury assets going up in smoke). Modestly this is called “asset restructuring in U.S. bonds market.” This is the path of Vienna in 1815. [12.1]

– or not to accept this open cohabitation, that is to say close the door to hide behind and build a wall as high as possible so that no one can escape from the dollar zone. For this area can last as long as possible (while being doomed because of deflation), it must be the largest possible, and the EU is a tempting (with its remaining gold reserves) and very easy prey thanks to Atlantist governments and European Commission who are obediently following the interests of the American deep state. The strategy is therefore to make them sign the TTIP as soon as possible, which quickly convinces them not repatriate their gold and abandon the euro (two currencies for the US-EU area only, is one too many) as they have already abandoned their sovereignty. This is the way of Yalta in 1945. [12.3]

The next time you meet your President or Prime Minister, you now know which good question to ask him: what did he choose for us and that is supposed to commit all?
BRICS countries are reaching out to European people since 2009, and our governments show their disdain so far, preferring the shadows of the world before. [13] But it is not too late to think about our place in Europe and in the world, it remains few short months and the ticket can be taken since this week. Hurry up or repent.

What is currently discussed off-line is however everybody’s concern, and will commit us for a long time to come. Do not suffer without understanding.

An error doesn’t become a mistake until you refuse to correct it. (O.A. Battista, 1917-1995)

Written by Dr. Bruno Paul

_______________________

[1] ‘La crise écologique globale exige une refonte du système monétaire international’, Conscience Sociale, 01/2013; This article was itself in the continuity of the fundamental question raised in 2011: ‘How to replace the world trade reference currency’, Conscience Sociale, 06/2011

[2] a) ‘Towards a new international monetary system – part 1′, EN or FR version, Conscience Sociale, 2013; b) the first mention of this strategy can be found in the conclusion of ‘La géoéconomie des Bons du Trésor US’, Conscience Sociale , 12/2012

[3] a) ‘China, Europe Agree on Currency Deal’, TheTrumpet.com ; b) ‘China’s planned crude oil futures may be priced in yuan’, Reuters ; c) ‘India to resume paying Iran in Euros’, India Times ; d) ‘PBOC Says No Longer in China’s Interest to Increase Reserves’, Bloomberg ; e) ‘China’s central government has reportedly approved 12 new free trade zones, including ones in Tianjin and Guangdong’, The Diplomat ; f) ‘Harbinger: 23 countries begin setting up swap lines to bypass dollar’, The Examiner ; g) ‘FMI: La réforme de l’institution reste bloquée par Washington’, Les Echos ; h) ‘Dollar-based system is inherently unstable – The culprit is the dollar’, Financial Times ; i) ‘A Shanghaï, Pékin s’offre un laboratoire des réformes’, Le Monde ; j) ‘La banque de développement et le FMI des BRICS sont nés’, L’Express ; k) ‘Shanghai Free-trade Zone to lead on yuan reform’, South China Morning Post ; l) ‘IMF Quota and Governance Reform: Political Impulse Needed for Progress on Reform Process’, CIGI ; m) ‘South Korea, Australia ink US$ 4.5 billion currency swap agreement’, Sovereign Wealth Fund Institute ; n) ‘BRICS Bank: Caution is a good policy’, India & Russia Report ; o) ‘G20 regrets IMF reforms delay, India says can’t wait for long’, Industan Times ; p) ‘Медведев: особую экономическую зону в Крыму будет курировать Козак’, RBC Daily ; q) ‘Gold trading to open up to foreigners in Shanghai’, SCMP, 03/2014; r) ‘Russia without dollar – what are the risks?’, pravda.ru, 03/2014

[4] a) Les Brics veulent en finir avec l’extrémisme des marchés financiers’, RIA Novosti ; b) original article: ‘БРИКС положит конец рыночному фундаментализму’ RBC Daily

[5] a) R. Cohen, ‘International Politics: The Rules of the Game’, Longman Group United Kingdom, 1982 ; b) Le Président Xi déclare ainsi cette semaine: “China is firmly committed to … building a new model of major country relations”, Reuters, 03/2014

[6] Le Parisien , 03/2014

[7] The Guardian, 03/2014

[8] European Council , 24/03/2014

[8.1] Ne pas ignorer par exemple: a) ‘Did Russia Just Move Its Treasury Holdings Offshore?’, WSJ, 03/2013 ; b) ‘Emerging Markets central banks sell US government bonds’, Financial Times, 03/2014

[9] a) ‘La crise ukrainienne, un événement de la politique profonde’, Conscience Sociale, 03/2014; b) For the exact definition of ‘deep state’ see ‘La politique profonde et l’Etat profond (deep deep politics and the State), Conscience Sociale, 03/2014

[9.1] ‘Global systemic crisis-escalation in the US reaction for survival: trigger a cold war to make it easier to annex Europe’, Global Europe Anticipation Bulletin n°83, 03/2014

[9.2] ‘The Way Forward for the Brics New Development Bank ‘, All Africa , 03/2014

[10] Obama and Cameron prepared this meeting last week: whitehouse.gov , 03/2014

[10.1] Real Bills maturity is 91 days maximum.

[10.2] ‘La Crise de l’Esprit Européen‘ and ‘La conjecture de Valéry, de Paul à Paul‘, Conscience Sociale, 02/2014

[10.3] ‘Building a strong economic and financial security barrier for China – Actively build and implement national gold strategies’, In Gold We Trust, 09/2013

[10.4] a) For more details, you can read his recent announcement ‘Gold Bills Payable in Gold Sovereigns’ AE Fekete , 03/2014; b) On the distinction between Gold Bills and Real Bills: ‘Interview with Prof. Fekete’, Daily Bell, 03/2014

[10.5] The group formed by the BRICS is already sufficiently autonomous: ‘Sanctions effect: Russia to change its Economic Partners… for the better’, Russia Today , 03/2014

[10.6] ‘U.S. Dollar, Euro, Renminbi as invoicing currencies in international trade and as reserve currencies – A bibliography’, Conscience Sociale

[10.7] Founded in 1930, its existence was publicly unveiled in 1977. Note also that according to the by-laws the small territory of the BIS building is not subject to Swiss law. Police or army can not have access. See also ‘Tower of Basel: The Shadowy History of the Secret That Runs the World Bank’, Adam LeBor , PublicAffairs, 2013

[10.8] ‘Bernanke Tells Congress: I Don’t Really Understand Gold’ , Forbes , 07/2013; But they recognized themselves be burnt out: see Conscience Sociale, 08/2013

[10.9] ‘Focus’ chapter in Global Europe Anticipation Bulletin No. 83, 03/2014

[11] It should be noted in this respect that the BRICS countries have learn from the experience of purchases by India of Iranian oil using gold, through Turkish banks. This is a case of an unjust embargo imposed by the West proved to be a weakness that would lead to huge consequences. History is fond of this kind of irony. See a) WSJ , 02/2014; b) Foreign Policy , 02/2014

[12] a) ‘Sun Zhaoxue: The United States Intends To Suppress Gold To Ensure The Dollar’s Dominance’, In Gold We Trust, 01/2014 ; b) The origin of this strategy date back to distant times. See for instance: ‘Minutes of Secretary of State Kissinger’s Principals and Regionals Staff Meeting, Washington, April 25, 1974′, in FOREIGN RELATIONS OF THE UNITED STATES, 1973–1976 VOLUME XXXI, FOREIGN ECONOMIC POLICY, DOCUMENT 63 ; c) ‘La Manipulation du Prix de l’Or’, 24hgold, 09/2008 ; d) ‘Barclays, Deutsche Bank Accused of Gold Fix Manipulation’, Bloomberg, 03/2014

[12.1] ‘What the world needs is 19th century behavior’, Russia in Global Affairs, 03/2014

[12.2] ‘L’implosion du marché COMEX et la dé-américanisation du monde’, Conscience Sociale, 10/2013

[12.3] ‘L’Union européenne: la nouvelle URSS’, Vladimir Bukovsky

[13] ‘La dérive néo-conservatrice de la politique française’, Agile Democracy , 03/2014

In Gold We Trust