Koos Jansen
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Koos Jansen
Posted on 23 Jan 2015 by

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.

Koos Jansen
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  • Frank Knopers

    More about the wikileaks cables here: http://anotherfreegoldblog.blogspot.fi/

    Good work Koos, heading in the right direction! #freegold

  • http://www.bullionbaron.com/ Bullion Baron

    The talk of redistribution reminds me of a couple of FOFOA quotes.

    “Gold would not be valuable if one person owned all of it. It is most valuable in its widest distribution possible, the wealth reserve, which requires a much higher valuation than it has right now. A higher valuation denominated in hard assets, not just fiat currencies!”

    “…if you were King of the World with 35,000 tonnes of gold in a world of 160,000 tonnes, you would gladly – happily – reduce your “stash” to 10,000 tonnes if that reduction came with a 50x revaluation. Trying to get ALL the gold into your hoard is a fool’s strategy.”

    http://fofoa.blogspot.com.au/2012/02/yo-warren-b-you-are-so-og.html

    • KoosJansen

      Note my (h/t Freegold)

      • http://www.bullionbaron.com/ Bullion Baron

        Yes I did note the h/t.

        I wonder if you put every countries official holdings in a spreadsheet, along with figures such as GDP, sovereign debt, population etc whether there would be a distribution pattern evident (e.g. grams to gdp on a per capita basis or some other similar measure) to indicate supply was being balanced across the globe… it’s a bit hard when we don’t have current figures from China. Countries such as Australia and Canada (resource rich) might be left behind on purpose due to their large in ground supplies of the metal.

        • KoosJansen

          That was my next plan… Gold to GDP/population/M1. Should be something in there.

          What you say about resource rich countries makes sense: Canada has 4 tonnes of official gold reserves ;-)

    • therooster57

      I concur… the value of gold is in its movement as a currency. If we add real assets into circulation (L2) to an existing liquidity pool that is debt based (L1), we get total liquidity of L1 + L2 , which in turn allows for a reduction in L1 (debt). This is how gold and other PM’s can purge debt right out of circulation.

  • blabla

    Hello i have a question, i have read at several places, suggestions, that the withdrawls from SGE and also the “cumulative” total imports will end in china central bank, i find that a misinformation from “gold bugs” for people who do not think for themselves, because as far as i know chinesse people like gold (as jewelry investments etc.) and also china has quite a large (the biggest?) manufacturing plants (talking mainly about electronics), where gold is also used.

    I believe a huge chunk of the gold imported to china DOESNT go to the central bank but goes simply to the private sector (jewelry, investment gold etc for the public, and as gold use in electronics by the manufacutring companies)… WHY do all gold bugs always suggest that ALL imported gold to china= gold purely for the central bank?

    If this was true, where would the ¨public and manufactured get their gold, since they obviously need and have it…??

    I saw this is also in this your article, can you please exaplain it?

    • KoosJansen

      According to my findings all gold we see going in to China is NOT fro the government. PBOC gold comes in through the backdoor.

  • Sven

    I think the neocons have a different plan now.

    Evidence?

    1) The US CONgress not passing IMF reforms.
    2) Kissinger being heavily criticized after offering support to Russia.
    3) Dick Cheney’s comments that “the American way of life will not be compromised.”
    4) Victoria Nuland, “F*$k the EU.”
    5) IMF position statement that they are not subservient to the US.
    6) US actions post 911 and collapse of the Soviet Union (dollar hegemony).

    What changed with Kissinger? If he didn’t want support for the EU back then because our enemies supported it, why the kind words about Russia?

    Is there an internal fracturing of the powers that be in the US? You better believe it.

    • B.

      Great points, Sven. I would add these too:

      7) Greenspan actively promoting “the premier currency”… again
      8) The Fed cooperating with repatriation requests
      9) No direct NATO involvement in Ukraine
      10) European support for US hegemoney fracturing (who is talking?)

  • DameEdnasPossum

    Koos, I response to you headlines be question:

    “I certainly hope so.”

  • B.

    Exemplay work, once again, Koos! Here is the formula we’ll all need to learn: CQS = (0.5*Y + 0.3*O + 0.15*V + + 0.05*R) K. The IMF’s IMFC 14th Quota proposal better get a move on or there may not be a 15th with US deference. BTW: (0.05*R) includes “monetary gold”. RMB/BRICS internationalization will not wait forever.

  • Fiat 33

    Singapore govt now requires reporting for cash purchases of gold above sgd20000

  • usernamekitj

    A question.Koos,is there a public source for following out of, western,hours trading PMs around the globe?Thx

  • George Job

    The Republic of China reorganization gold loans or bonds issued in 1913 were widely defaulted upon. I once read the US retrieved/confiscated gold from China after WW2 in effect to compensate for these defaults. My understanding is the gold we see today going back to the East is

  • George Job

    a return of this original gold. Remember these guys are international bankers as they know no borders. The arrangement being China makes these old gold loans right. I’m thinking this is being done before the RMB inclusion into the basket. As an aside, I can not see how a SDR bond without a degree of gold backing can bring the liquidity needed back to any failed fiat system. But that does not mean at first they will try it on.
    http://www.globalsecuritieswatch.org/Letter_To_Chinese_Gov.pdf

  • Melanie Harkin

    nobody and I mean NOBODY knows how much gold is actual held around the world.

    • Frankenstein

      Historical possession and mining records allow a pretty good estimate of the total, particularly as most (75% I believe) of the world’s gold has been produced after 1900 with high production, modern technology.
      WHERE that gold is today is much more murky, and maybe that is what you meant to say??

  • therooster57

    It didn’t seem to occur to anyone, until recently, that Bretton Woods and the closing of Bretton Woods was all about bullion and the re-monetization of bullion as a debt-free real-time currency with completely scalable liquidity given its current floating characteristic.

    The reunion of the the dollar and bullion is a real-time symbiotic marriage of the measure (USD) and the weight (bullion) …. in real-time. Weight can now be the unit of account for settlement (debt-free), given the elasticity of its trade value.

    You cannot pour new wine into old wineskins. The information age is like a new wineskin.

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