Wednesday, December 28, 2011


by Michael Sturm
and Nikolaus Siegfried

"...The analysis of monetary and fiscal convergence in the GCC reveals a remarkable degree of monetary convergence, with generally low inflation rates in all member states and short-term interest rates co-moving in a narrow range. This is due to the GCC currencies’ long-standing alignment with a common external anchor, the US dollar, which has led to a very high degree of intra-GCC exchange rate stability that is all the more noteworthy as it has prevailed in an environment of liberalised capital accounts. Fiscal convergence is less marked than monetary convergence and seems to constitute an important challenge for the GCC. As far as can be discerned from available data, the budget balance-to-GDP ratios as well as public debt levels vary significantly between member states..."


Tuesday, December 27, 2011

ECB - Oil market structure, network effects and the choice of currency for oil invoicing

OCCASIONAL PAPER SERIES; NO 77 / dece mber 2007


by Elitza Mileva and Nikolaus Siegfried

"...The theoretical literature on trade invoicing explains the almost universal use of the US dollar in international trade in crude oil by means of the fact that petroleum is a homogeneous good traded in organised exchanges. Apart from serving as a medium of exchange, the US dollar fulfils the function of a unit of account by providing price transparency in the oil market. Thirdly, the macroeconomic stability of the United States and the depth of the US financial markets explain the role of the US dollar as a store of value and the low liquidity costs associated with holding the currency.

The literature makes a strong case for the use of one currency as a vehicle currency in the oil trade. However, a thorough review of the international market for crude oil points to several factors suggesting that the oil market is less homogeneous and global as commonly perceived, which indicates that invoicing in one currency may not be the only solution. A group of 11 developing countries highly dependent on petroleum exports dominates the international oil trade. The outflow of crude oil from most exporting countries is matched by an inflow of other goods and services from their trading partners – usually nearby developed countries. Similarly, the United States, the biggest importer of petroleum, relies mainly on western hemisphere sources. Thus, owing mainly to the specific features of the industry, the international oil trade is predominantly regional in nature. In addition, the introduction of trading in futures contracts for petroleum grades more relevant to local industry, with such contracts denominated in domestic currencies and traded in financial centres other than New York and London, has contributed further to the segmentation of the crude oil market.
To explain the dominant use of the US dollar in oil invoicing, the model developed in this paper treats currencies as network goods. Sellers in the market respond to the currency choices of buyers so as to minimise costs associated with the use of an established vehicle currency or a newly introduced currency. The model explains the possibility of multiple equilibria with one or two vehicle currencies.
When calibrated using actual values for the transaction costs of using US and/or euro dollars, together with a proxy for information costs, which decline as use of the new currency increases, the model identifies the preconditions for a possible switch to parallel invoicing: a) players have to expect that a certain minimum number of other players will also start using the new currency, or b) the information costs associated with quoting oil contracts in two currencies are low..."


Wednesday, December 21, 2011

ECB - Caballero - On the Macroeconomics of Asset Shortages

On the Macroeconomics of Asset Shortages
Ricardo J. Caballero
November 6, 2006

"The world has a shortage of financial assets. Asset supply is having a hard time keeping up with the global demand for store of value and collateral by households, corporations, governments, insurance companies, and financial intermediaries more broadly.
These shortages have been a perennial problem in emerging markets, where many of their economic perils and idiosyncrasies stem from this feature. But we are now seeing a shortage on a global scale. It probably began with the meltdown of a substantial share of Japanese assets in the early 1990s, it was exacerbated by European stagnation and the collective emerging market crises of the late 1990s, and it consolidated in the new millennium by the fast income growth of China and commodity countries, most of which have substantial asset demand needs but are not natural asset producers. In addition to these macroeconomic factors, there are microeconomic factors contributing to these shortages. In particular, the recent rapid pace of financial development has facilitated restructuring, innovation and economic growth, but because of their margin requirements they may well have been a net collateral consuming activity, at least in the short run..."


BIS - The end of History?

Kevin M Warsh: The end of History?
Speech by Mr Kevin M Warsh, Member of the Board of Governors of the US Federal Reserve System, to the New York Association for Business Economics, New York, 7 November 2007.
The original speech, which contains various links to the documents mentioned, can be found on the US Federal Reserve System’s website.

"...After several years of strong domestic and global growth, financial markets appeared highly accommodative for issuers and investors. Many willing investors purchased complex financial products convinced that they would achieve outsized returns because the future would look like the recent past. On the other side of the trade, originators operated under the presumption that secondary markets would remain liquid. And the resulting market-clearing prices across a range of asset classes were predicated on a world of modest risk premiums, low credit spreads, and plentiful liquidity. Market confidence ultimately begot complacency (Warsh, 2007).
By mid-summer, complacency was upended. What followed was a rapid period of retrenchment, the first phase of financial market turmoil. As concerns about losses on subprime mortgages and securitized products intensified, investors withdrew liquidity and markets became impaired. Investors revisited, almost anew, the quality of the information about their assets. Financial intermediaries also pulled back from making markets in many products, and the engines of financial innovation were all but turned off. As the strains in financial markets intensified, many of the largest financial institutions became jealously protective of their liquidity and balance sheet capacity. Amid heightened volatility and diminished market functioning, they became more concerned about the risk exposures of their counterparties and other potential contingent liabilities. For some, that process lasted days and weeks; for others, it may yet continue for many months.
In the second phase – reliquification – financial institutions decided on the new liquidity levels and capital ratios at which they were prepared to conduct business. Many banks became markedly less willing to provide funding to customers, including other banks. Given reduced confidence in their ability to quantify and price risks, balance sheet capital remained a scarce commodity. As a result, both overnight and term interbank-funding markets were pressured considerably. Even today, some banks face potentially large needs for dollar funding, and their efforts to manage their liquidity may be contributing to pressures in global money markets and foreign exchange swap markets. More broadly, many financial institutions appear hesitant to put opportunistic capital to work.
The next phase – revaluation – requires that the new prices be established in accordance with the new financial environment. The process of price discovery appears to be quicker and more assured among corporate credits. Think, for example, of the markets for high-yield and leveraged loans, in which risk spreads have returned to more moderate levels. We have seen significant evidence that the process of revaluation in other previously disrupted markets is also under way. Investors are differentiating risks, for example, among asset-backed commercial paper programs, and many spreads have moderated. Revaluation, however, may be a slower, tougher slog in the mortgage markets for those vintages in which the underlying asset quality is less certain. How quickly asset markets substantially complete the revaluation phase depends on the speed with which stakeholders regain comfort in their ability to value these assets.
Financial markets rarely normalize in a steady, linear fashion. More often, as market sentiments sway between fear and greed, asset prices fluctuate and seek support (volume) before establishing new trading ranges. That pattern is particularly pronounced when the underlying economic fundamentals are less certain. Hence, the next phases – review and refinement – are the hardest to predict with precision. As circumstances dictate, some financial institutions will review and refine their capital ratios, risk metrics, and business imperatives and proceed forward. Others may find that, in the course of review, they return to the phases of retrenchment and reliquification. Central bankers are prudent to stay alert to these changes....."


Tuesday, December 20, 2011

CNB - Present world financial crisis: Normal cycle or a sign of a collapse?

"Současná světová finanční krize: Normální cyklus, nebo náznak kolapsu?

Mojmír Hampl, Česká národní banka
Seminář Krize, kolaps a regenerace, 13. prosince 2011


"...Klíčovou otázkou zůstává, zda výše popsané abnormální problémy vyspělého světa jsou, či nejsou signálem, že křivka, okolo níž ekonomiky vyspělého světa vyklicky oscilují, se začíná stáčet směrem dolů. A konkrétněji - zda jde o symptomy toho, že ve společnostech vyspělého světa roste olsonovský vliv distribučních koalic.

Jednoduchá odpověď chybí. Sám Olson nicméně upozorňuje, že distribuční koalice se ustavují spíše tam, kde je co distribuovat, tedy tam, kde již existuje jakési bohatství. S růstem bohatství je role nově ustavovaných koalic dokonce snazší, protože vyšším bohatstvím klesá ochota každého bojovat o další korunu příjmu, jež by mu mohla být odebrána zdaněním.

Proto je jedním z hrubých a nepřesných měřítek rostoucí síly distribučních koalic rostoucí podíl státních či veřejných výdajů na vytvořeném produktu. Čím je tento podíl vyšší, tím větší je též pravděpodobnost, že k sobě narůstající část takovýchto výdajů směrují distribuční koalice. Pohled na vyspělý svět touto optikou není optimistický. Pohled do statistik ukazuje, že podíl veřejných výdajů, které nemají tvůrčí ekonomické subjekty pod svrchovanou kontrolou, v čase významně narůstá, a to systematicky. Pokud by toto měl být indikátor moci distribučních koalic, není na tom vyspělý svět dobře a symptomy většího kolapsu demonstrované dnešní krizí by nemusely být jen zdánlivé či náhodné.

Naštěstí, jak tvrdí někteří jiní autoři, ani případný příchod období úpadku nemusí být tragický. Kolaps může být jen katastrofičtější verzí transformace a není nutně konečnou stanicí. Může být jen poněkud turbulentnějším přechodem od jedné fáze ke druhé. Jakkoli na tyto otázky nemáme definitivní odpovědi – ekonomové ve vyspělém světě si je budou muset začít častěji klást – určitě si podobně jako v proudovém letadle přejme, aby byl případný kolaps doprovázen turbulencemi co nejmenšími..."


"...The key question is whether the above-described abnormal problems of the developed world are or they are not a signal, that the curve, around which the economy of the developed world oscillate, begins bottling down. And more specifically - whether the symptoms that societies in the developed world's growing influence of Olson´s distribution coalitions.
The simple answer is missing. Olson himself, however, that distribution coalitions are established rather where you distribute, ie where there is already a kind of wealth. With the growth of wealth is the role of new coalitions even easier, because higher wealth decreases the willingness to fight each other for the crown of income that would have to be withdrawn by taxation.
Therefore, one of coarse and inaccurate scales rising power distribution alliances or increasing the share of public expenditure on the product created. The higher the percentage, the greater is also likely that the growing proportion of each such expenditure coalition directing distribution. View of the developed world through this lens is not optimistic. View into the statistics shows that the share of public expenditures that do not have creative businesses under the sovereign control, significantly increasing over time, and it systematically. If this can be an indicator of distribution coalitions, there's a well-developed world and the symptoms of collapse demonstrated greater crisis today might not be apparent or just random.
Fortunately, as argued by some other authors, nor the eventual arrival of a period of decline may be tragic. The collapse can only be catastrophic releases of transformation and not necessarily the final destination. There can be only somewhat turbulentnějším transition from one phase to another. Although these questions do not have definitive answers - economists in the developed world, will have to begin to ask more - I'm sure you like in a jet wishes to be accompanied by a possible collapse of the smallest turbulences.

[Mrt: sorry for the bad translation, just a time issue]


CNB - The future of Money

Budoucnost peněz

Mojmír Hampl, Česká národní banka
Konference - Bratislava, 2. prosince 2011

[Mrt: presenting original, for translation use for example Google translator]
"Pokud je tématem dneška - a já bych řekl věčným ekonomickým tématem - budoucnost a kvalita peněz, tak si dovoluji zahájit tím, že v ekonomické vědě nemáme nejen shodu o tom, co jsou to KVALITNÍ peníze, nemáme ještě ani pořádnou, robustní definici toho, co jsou to VŮBEC peníze. Kde přesně začínají, kde končí. Co ještě je penězi a co už není."

"...When the topic of today - and I would say perpetual economic issue - the future and the quality of money, so I would like to begin by the economic science we do not match what they're GOOD money, we do not even have a proper, robust definition of what is MONEY at all. Where to begin exactly and where it ends. What is still money and what is not..." ~GoogleT.  

Monday, December 19, 2011

Sunday, December 18, 2011

ECB - The reform of the international monetary system

 The reform of the international monetary system
Speech by Lorenzo Bini Smaghi, Member of the Executive Board of the ECB,
Conference in memory of Tommaso Padoa-Schioppa,
Rome, 16 December 2011

1. Introduction

"It is a great pleasure to attend this conference today in honour and memory of Tommaso Padoa-Schioppa and to be a member of the panel discussing the reform of the international monetary system. That was a field Tommaso bore responsibility for at the ECB and which I inherited from him.
I would like to focus my remarks on his main critique – which he shared with Robert Triffin – that the international monetary system remains incapable of imposing an acceptable macroeconomic discipline on the world economy. I also wish to examine the reservations he expressed about international policy cooperation being enough to ensure stability.
I would like to organise my remarks as follows. First, I would like to explore the theoretical underpinnings of international policy collaboration, and explain why in practice it seems to fall short of what is needed in today’s global world and why countries remain trapped in short-term policy-making. I will then review some proposals made by Tommaso to correct today’s international monetary system, including the provision of an anchor and an exchange rate mechanism, and consider the consequences of maintaining the status quo. In conclusion, I will argue that it is better to prevent volatility than to cure it. The deployment of ever larger official resources to cope with potential crises cannot be the solution – neither conceptually nor practically.
The policy implications are that there are three key areas where preventive action could and should be taken, and which require structural change by major economies: first, financial developments in emerging market economies (EMEs); second, further financial and economic integration in Europe; and third, reforms to ensure that financial markets serve the real economy and support stability..."


3. Responses

How should these weaknesses be corrected? Is the answer to be found indeed in international policy cooperation?

I tend to share Tommaso’s view that soft international cooperation alone, though necessary, would be sufficient. In his words,coordination fails precisely when it is most needed, i.e. when policy preferences are most divergent”. My experience confirms that even in the wake of the global financial crisis – which brought home global interdependencies and the porosity of national boundaries for national policies – international cooperation continues to be based on the premise that the pursuit of national interests is the best approximation of the Pareto superior result. It is the philosophy underlying the G20 Mutual Assessment Process, which seeks to achieve strong, sustainable and balanced growth.

Another weakness of the current international monetary system is that in its centre of gravity – the United States – economic and monetary policy are shaped to suit domestic interests. The current system mimics therefore, as I said earlier, a generalised version of the Triffin dilemma. Tommaso recognised it as such and identified some of the elements of a solution.

First, he argued for some sort of “common exchange rate mechanism which would ensure that every country agrees to shoulder its responsibility for the appropriate valuation of their currency and that exchange rates are determined by the interaction between the market and economic policy. He anticipated that this would be well supported by floating regimes for large currencies, while smaller countries may thrive with an intermediate regime consistent with the geographic pattern of their economic and financial linkages, possibly a managed peg to the regionally dominant currency. He observed, for example, the very strong regional interdependencies in East Asia and the momentum these create for a regional monetary arrangement comparable to those which Europe sought after the Bretton Woods system came to an end.

The distinctions between large and small economies, and floating and managed currencies, are particularly revealing at the present time, when we are seeing a large anomaly. We are currently facing an unprecedented situation in which a once-small economy that pegged its currency to that of a large economy has since grown to become the world’s second-largest national economy. The result is a giant economy running a fledgling currency internationally, outsourcing its monetary policy and its international requirements for money (as a medium of exchange, unit of account and store of value) to the globally dominant currency. This has been a major source of imbalances in recent years. The way in which it has been addressed has been unsatisfactory and the effects on the prospects for the global economy are likely to become graver over time.

The major economies, while recognising the domestic impact of the policies of others, have yet to appropriately factor mutual interdependence into their utility functions and policy deliberations. In Europe, we had the luxury of reflecting on European interdependencies in decades of calmer conditions when making successive attempts to produce a stable European monetary order, leading up to European monetary union. And still, we did not learn the lessons well enough and are now having to do so the hard way. There is no alternative but for a stricter supranational disciplinary element in Europe and, by corollary, at global level. As Tommaso said, it is nonsensical for countries to believe that they can reap the benefits of economic and financial integration without their policies acknowledging the two-way street.

The second
issue is the need for an anchor to ensure the stability of a reformed international monetary system. More specifically, the interplay of demand for, and supply of, the reserve currency should be limited to what supports global stability. Just as Triffin saw an unresolvable tension for global stability arising from the subordination of the management of reserve-issuing currencies to domestic policy interests, Tommaso considered that this tension was keeping the disorder alive. In his view, what was needed was a quantum of supranationality that would hold sway over the global monetary policy stance. And here, he thought more could be made of a supranational currency, the Special Drawing Right (SDR). Tommaso recognised the hurdles to the SDR assuming its heralded role as the key reserve asset, in particular, the need for a critical mass of SDRs in both public and private sector circulation.

Although the SDR may have the potential to reduce the Triffin dilemma, it cannot remove it. As a basket of currencies, it would not reflect the domestic policy interests of the dominant economy, but rather the ‘average’ for the economies of all the currencies in the basket. And in this respect, it would only improve on global stability to the extent that the ‘average’ policy stance was better than the dominant policy. However, a mere average of policies driven by national objectives is no guarantee for the public good of a stable monetary anchor on a global scale. This would require a policy framework anchoring the global standard to an objective of global stability.

An alternative view is that of a multi-polar currency system. The emergence of such a system would accompany the global rebalancing of economic power that is taking place. It would be a market-driven process rather than requiring an international agreement, framework or mechanism. And to be most conducive to global stability, the shift to a multi-currency system should ideally occur gradually.

Like the SDR, it offers a welcome alternative to the reliance on one dominant national currency for stability, and should have the effect of eroding the exorbitant privilege of the US dollar and increasing the policy discipline on all major, internationally-used currencies. But also like the SDR, stability under a multi-currency system would still ultimately rely on nationally-oriented policies, though in the case of the multi-currency system, market participants would choose directly the sets of national policies they prefer. Would this reduce volatility, or would it be even greater, as players switch among currencies, particularly in the transition phase as the currency composition of reserves is re-weighted?

Of course, a shift to a multi-currency system requires that the privilege of incumbency of the US dollar be removed, that the sovereign debt weaknesses in the euro area be resolved, and that the renminbi develop its full international potential.

[Mrt: Freegold? :o)]

"...what kind of world are we heading for in the absence of a mechanism or anchor for global stability? The focus is likely to continue to be on measures to deal with volatility, such as increasing reserve buffers, restricting capital flows and heavily managing currency values. All of these come at a cost:

  •     excessive reserves, especially for EMEs, represent a tax on domestic consumption and, if widespread across countries, would produce a systematic excess of planned savings over planned investment, leading to a deflationary bias;

  •     capital controls are an understandable, if unfortunate, response to exceptional surges in inflows and outflows, but they produce externalities of their own, including increasing inflow or outflow pressures on other countries; and

  •     devaluing currencies can trigger beggar-thy-neighbour retaliatory measures that push the global economy into a downward spiral.
Now the failure to properly address these issues in the past has led to the current scramble for financial resources to shore up systemic stability. And the amount of reassurance demanded by markets increasingly exceeds the official resources available by an ever higher margin. National foreign exchange reserves stand again at an all-time high; regional financing arrangements – especially in Europe and Asia – are better endowed and more sophisticated than ever before; and the IMF had its resources trebled in 2009, and will soon reflect yet again upon the adequacy of its resources.
It is clear from this that prevention is always better than cure. Therefore, we must find better ways to reduce financial market volatility. Policy measures to address the problem need to be tailor-made.
In emerging markets, where financial sectors are underdeveloped, policy measures need to foster financial development. Domestic savings could then be more easily channelled into domestic investment, promoting domestic income growth and consumption, and rebalancing economic growth away from exports and reducing the incentive to maintain a low currency value. It would also lower the need for reserves and official outflows to advanced countries, and the excessive demand for US dollar-denominated financial assets.
In Europe, especially the euro area, we need deeper financial and economic integration to reduce the uncertainties and inefficiencies in the current institutional framework, so that the region becomes a core area of stability..."

[Mrt: Looks like a proposal for a postponement: E.M.-> Develop! EU -> Fix!]

Financial markets need reform so that their structure, conduct and performance supports stability. This calls for acute risk awareness, responsible risk analysis and appropriate risk pricing. It requires that participants are able to, and do, bear the consequences of their decisions without jeopardising system stability. And achieving these things necessitates an interplay between markets and regulators in such a way that balances dynamism with stability.

[Mrt: So, there is a realization that the FM is not ready yet.]

Efforts are under way in all these areas, and yet there remains much work to be done. We cannot afford to wait for the cathartic effects of the (next) crisis to improve the functioning of the international financial system.


BIS/WGC - Response to Basel Committee on Banking Supervision’s Consultative Document: “International framework for liquidity risk measurement, standards and monitoring, December 2009”

Response to Basel Committee on Banking Supervision’s Consultative Document: “International framework for liquidity risk measurement, standards and monitoring, December 2009”


Market-related characteristics
Gold also meets the four market-related requirements set out by the BCBS. Namely, gold has an active and sizeable market, committed market makers, a low market concentration and often enjoys “flight to quality” inflows.

“Active and sizeable market: the assets should have active outright sales and repo markets at all times (which means a large number of market participants and a high trading volume)”, BCBS. Most gold trading takes place in the global OTC market, which is centered on gold stored in London. The wholesalers in the OTC market are represented by the London Bullion Market Association (LBMA). There are currently 57 full members of the LBMA8, which include fabricators, brokers, refiners and shippers. Calculating daily trading volume is complicated by the numerous channels through which gold trading takes place. But we estimate that, at a minimum, average daily turnover in the gold market is c. US$100 billion. This is based on published statistics for futures traded on COMEX and TOCOM, the largest two futures exchanges, together with estimated average daily trading volumes from OTC trades cleared via London.

LBMA clearing volumes have been multiplied by a factor of three, in line with traders’ minimum estimates for actual dealing turnover that is settled using gold stored in London (some estimates are as high as eight). However, these calculations exclude all trading on exchanges elsewhere, such as Shanghai, Hong Kong, Istanbul, Taiwan and various Indian cities, as well as all OTC trades that are not settled via London, so in reality daily trading volumes are likely to be much higher. In terms of the overall size of the gold market, GFMS, the leading independent precious metals research consultancy, estimates that at the end of 2009 the total above ground stock of gold was 165,500 tonnes. This equates to US$5.2 trillion in value terms, when converted at the average 2009 gold price. Around US$1.8 billion is estimated to be held by private individuals, in the form of coins and bars, and by official institutions. Thus, even excluding the jewellery and industrial sector, the gold market is much larger than individual corporate debt issues and even sovereign debt markets. The combined market value of conventional and index-linked UK gilts, for example, was US$713 billion in 2009.

Spot gold typically settles on T+2, but can easily be traded on a T+1 basis if required. There is also an active gold leasing market between central banks and bullion banks. Typically an institution buying gold will vault the gold with the bullion bank it is purchased from, for a vaulting fee which will vary according to the quantity of gold, rather than taking physical delivery of the gold bars. There are some similarities here with ETFs, which have recently attracted investors from pension funds, endowments and even the insurance sector. The ETF shares are 100% backed by gold bars, but the individual investor does not take physical possession of the bars. “Presence of committed market makers: quotes will be available for buying and/or selling”, BCBS. There are currently nine market making members of the LBMA: The Bank of Nova Scotia-ScotiaMocatta, Barclays Bank, Deutsche Bank, Goldman Sachs International, HBSC Bank USA, JP Morgan Chase Bank, Mitsui & Co Precious Metals Inc, Société Générale and UBS AG who must quote each other in gold trading throughout the day ( There are also committed market makers for the various gold exchange-traded products.
“Low market concentration: a diverse group of buyers and sellers in an asset’s market increases the reliability of its liquidity”, BCBS. Unlike financial assets, the gold market is not solely dependent on investment as a source of demand. In the five years to 2009, 61% of demand came from the jewellery sector, 26% from investment and 13% from industrial uses..."


Operational requirements
"Operationally, the BCBS states that “high quality liquid assets” should ideally be central bank eligible. London Good Delivery Gold bars, the benchmark trading vehicle in the global OTC market, are not currently central bank eligible at the European Central Bank (ECB). However, the list of eligible assets varies widely from central bank to central bank, and over time, we see no reason why gold could not become eligible for open market operations at the world’s major central banks..."

[Mrt: The this still valid statement?]


Thursday, December 15, 2011

BIS - IFC Bulletin 1997, November

"...With respect to the role of money in the economy, Fisher contributed more to statistics and policy than to theory. Through out his life Fisher considered in stability of the value of money as a major social and economic evil. He took up the very old notion laid down in the quantity theory of money to analyse the role of money in the economy. His Equation of Ex change, MV = PT, is probably the best-known formula ever used by an economist. He introduced this equation in 1911, in his book The Purchasing Power of Money. To eliminate the social draw backs of price in stability, he propagated a kind of indexation by adapting the gold content of the dollar to the movements in the general price level. It is interesting to note that in Fisher’s view the money supply consisted not only of currency and bank notes, but also of bank deposits. The management of the money supply was primarily to be directed at the process with underlies the creation of bank deposits. This kind of reasoning is nowadays so self- evident that it is difficult to imagine that it was not generally understood when Fisher first came up with it..."


FrBSF Gold - Quo Vadis 1975

Why The Auction?
"...Last month´s auction was held, according to the Treasury´s explanation, for purpose of reducing U.S gold imports from abroad. The announcement was made just just ten days before the June 10-11 meeting in Paris of the Interim Commitee of the Board of Governors of the International Monetary Fund. The timing of the announcement thus led many observers to speculate that the U.S also wanted to underscore its determination to dethrone gold in the international monetary system and to dissuade foreign governments from attempting to restore gold to its former exalted position. The pundits noted that this presumed policy was in conflict with the French adherence to gold as a store of value and with the French attempt to keep gold as a means of international settlement..."

[Mrt: one dip one pearl, more dips into monetary history and treasures found :o)]

NOte: the page order of file is mixed 1,3,2


Wednesday, December 14, 2011

IDEAS - Advantages and Disadvantages of the Holding of Gold Reserves by Central Banks - With Special Reference to the Swiss National Bank




"A further disadvantage of the sale of gold reserves is given by the fact that it increases the difficulty of an eventual return to the gold standard, or more generally to a commodity standard including gold as one of its components. This problem is certainly not important at the moment, especially since there seems no political chance for such a change in the foreseeable future. But in the long-term perspective taken here, it still merits our attention.
For it has to be expected that the problem will become more important when monetary systems approach more and more a pure credit money standard, in which the use of government money, that is of central bank notes and coins becomes superfluous. A development into this direction can already be observed and is obviously furthered by technical progress in computer and information technology. In this case central banks will lose control of the money supply, which would lead, as already seen by KNUT WICKSELL (1898/1965), to an unstable and thus inflation-prone price level. Given these conditions, a control of the money supply by central banks can only be maintained by either government regulations (for instance minimum reserves in government money to be held with the central bank) or convertibility of the internet or computer money into gold or another commodity standard at a fixed parity. It is interesting in this respect that the former President of the German Bundesbank, Hans Tietmeyer, has told me at a conference in November 2000, that this was the main reason that he insisted on the right of the European Central Bank, to oblige the banks to hold obligatory reserves at the Central Bank. I rather believe that the convertibility at a fixed parity would be a better solution."

[Mrt: Note that he has NOT chosen the option 2 due to MTM of the ECB reserves.]


BIS - Almost a century of central bank cooperation

BIS Working Papers; No 198
Almost a century of central bank cooperation
by Richard N Cooper

Monetary and Economic Department
February 2006

[Mrt: An amazing insight into the CB world]


Tuesday, December 13, 2011

BIS - BIS 70th Annual Report - 24 August 2000

BIS 70th Annual Report

24 August 2000

V. Foreign exchange market developments

Developments in the gold market

"...The period under review was an eventful one for the gold market. In the first three quarters of 1999, the price of gold trended downwards from about $291 per ounce in January to a low of $254 in late August (Graph V.9). The remainder of the period was characterised by two major events. The first occurred in the two weeks after the joint central bank statement of 26 September 1999, when the gold price rose by about a quarter. In the following weeks, the gold price surrendered part of its gains in a very volatile market. The second took place on 7 February 2000, when it leaped by about $20 per ounce within a few hours of the decision of a major gold mine to alter its hedging strategies. This change was, however, reversed over the next few days.
Long-term, cyclical and more technical factors weighed on the gold price during the period under review. The global lowering of inflation expectations had reduced gold’s attractiveness as a store of value and dampened its price over the preceding decade. In the last few years, the price of gold suffered in addition from the broad decline in commodity prices and depressed demand in the Asian region. The substantial fall in 1999 can also be attributed to a surge in forward sales by gold producers. In order to lock in current prices so as to gain protection against future declines, gold mines stepped up their hedging sales by more than 4000/0 in the first three quarters of the year, an increase equivalent to about 100/0 of the total annual gold supply. A sharp rise in the gold lease rate in summer 1999 put pressure on banks that would normally buy gold forward from gold producers at long maturities and hedge their exposure by borrowing gold at short maturities and selling it on the spot market. In 1999, gold producers appear to have started to lock in their output prices at longer maturities (10–15 rather than 5–10 years), while banks in response were trying to lengthen the maturity of their gold borrowing beyond three to six months. Although conditions in the gold lease market eased in the autumn, hedging activity also appears to have been behind the temporary rise in volatility in October 1999 and the sharp spike in the gold price on 7 February 2000, when it jumped from $294 to $313.
The joint statement on gold, which pushed up the gold price at the end of September 1999, was issued by the central banks of the Eurosystem, the Bank of England, Sveriges Riksbank and the Swiss National Bank, which together hold about half of total official gold reserves (Table V.5). The signatories agreed to limit gold sales to a maximum of about 400 tonnes a year and to 2,000 tonnes over a five-year period. They also stated that gold would remain an important element in official reserves, that only sales that had already been decided could actually be carried out, and that the signatories would not expand their activity in the gold leasing and gold derivatives markets. The central banks’ agreement seemed to break the declining trend of the price of gold. After the announcement, the gold price rebounded from about $260 to more than $330 in early October. Overall, the gold market has seen a return to calmer conditions since then.
News about sales of official gold holdings by central banks was also viewed as a factor affecting the price of gold during the period under review. While this argument might be justified on the grounds that such sales alter the balance between the current demand for and supply of gold, these sales were relatively small compared to the size of the gold market. A sale of, say 100 tonnes is equivalent to about 40/0 of estimated world annual production and represents around 100/0 of the estimated average daily turnover in the London spot gold market. An alternative explanation for the influence of official gold sales is that, despite their relative size, they provide important signals of future intentions. Central banks are the largest single group of holders together with the IMF, with official gold reserves amounting to about 33,000 tonnes, the equivalent of 13 years’ production: hence, should the market start to anticipate future sales, this would probably affect current prices. Given the impact of the central bank agreement on the gold price, it is instructive to analyse the behaviour of the gold price around all the days on which news about official sales reached the market during the period January 1998–March 2000. While it should be stressed that this analysis focuses on news about official gold sales that reached market participants, rather than actual sales figures, it would be consistent with the signalling argument above that the former is more relevant in determining the market’s reaction and hence the gold price. News events can be classified according to whether ex ante they might have a positive or a negative impact on the gold price. Positive news includes decisions to abandon previously planned gold sales and official comments opposing gold sales. Negative news comprises reports of actual official sales or of increased prospects of future sales. Obviously, this classification is not incontrovertible. News about a previous sale that is only announced ex post might have a positive effect on the gold price, as the market would be encouraged to learn that a sale had been absorbed.
On average the gold price declined on days marked by the arrival of negative news about gold sales (Graph V.14). However, the decrease was very small (no bigger than 0.250/0) and was almost entirely reversed in the days that followed. In the case of positive news, the gold price increased on average, but again only temporarily. It should be noted that this last result appears to have been driven mainly by the central bank agreement of 26 September 1999. When this single item is excluded from the list of positive events, they are on average followed by a small decline in the gold price.
Subject to the caveats mentioned above, this analysis suggests that, over the last two years, while on some occasions news about official gold sales had a substantial impact on the gold price, its average impact was not significant. One interpretation of this apparent puzzle is that, during the period 1998– early 2000, most of this news was backward-looking. That is, it provided market participants with information about sales that had already occurred..."


Monday, December 12, 2011

BIS - Chronology + more. 3 Timelines.


(Just BIS timeline)

1990 - 1999

2000 - 2009

1980 - 1989

More advanced:
(World, ECB, BIS + Another/FOA ... or putting Another posts in a timeline)

[Mrt ongoing.]

The Timeline
(Red=war-revolution, Blue = oil, Brow=gold-financial-monetary, Violet = politics, Pink=IMF/UN/WorldBank, Natural = green)

[Mrt: ongoing.]

Note: Data on the 2 and 3will be later joined.

Sunday, December 11, 2011

BdF- Europe: a financial crisis, not a monetary one

Speech by Christian Noyer, Governor of Banque de France
Tokyo – Singapour - November 28-30th 2011

"The situation in Europe and the world has significantly worsened over the past few weeks. Market stress has intensified. Bond markets in the euro area are not functioning normally. Economies outside the euro area are feeling the effects of increased uncertainty, lower growth prospects and capital repatriation. In these conditions, it is important to clarify the mechanisms at work and identify the underlying causes. I will also discuss possible policy responses, from a Eurosystem perspective.

The true nature of the crisis

I will start with a paradox. Looking at fundamentals, the euro area today seems in a position of strength when compared to other developed economies. Growth has been stronger than in the UK and Japan since 2007. External accounts are in balance. Even the fiscal position is favorable. On aggregate, the euro area deficit (at 4% of GDP) is the smallest of all, less than half of that in the US, Japan or the UK. This remains true even for some peripheral countries. For instance, the Spanish fiscal deficit, at 6.1% of GDP, is much smaller than that in the US, the UK and Japan. Total gross public debt, at 67% of GDP, is amongst the lowest in the OECD..."


"I believe that virtue will eventually be rewarded. In the next decade, markets and lenders will trust those currencies that, whatever the circumstances, are managed with one overriding priority: preserving price stability and the intrinsic value of the currency unit. On this fundamental basis, we can look at the future of the euro with strong and realistic optimism. I see the recent decision by the Swiss central bank to peg the CHF to the euro as a confirmation of this statement."


Friday, December 9, 2011

BoE/HMT - 2011 Budget statement by the Chancellor of the Exchequer, the Rt Hon George Osborne MP

23 March 2011
2011 Budget statement by the Chancellor of the Exchequer, the Rt Hon George Osborne MP

Check against delivery

"Mr Deputy Speaker, 
Last year’s emergency Budget was about rescuing the nation’s finances, and paying for the mistakes of the past.
Today’s Budget is about reforming the nation’s economy, so that we have enduring growth and jobs in the future.
And it’s about doing what we can to help families with the cost of living and the high oil price.
We understand how difficult it is for so many people across our country right now.
That we are able now to set off on the route from rescue to reform, and reform to recovery, is because of difficult decisions we’ve already taken.
Those decisions have brought economic stability.
And without stability there can be no sustainable growth or jobs.
Without stability governments have to keep coming back to their citizens for more – more taxes and more spending cuts. 
In Britain, we do not have to do that today.
We inherited a record budget deficit.
But we have set out a credible, comprehensive plan to deal with it. 
We have had to undertake difficult measures.
But we have already asked the British people for what is needed, and today we do not need to ask for more.
So this is not a tax-raising Budget.
But nor can we afford a giveaway.
Taken together the measures I will announce today are fiscally neutral across the period.
This is a Budget built on sound money.
A Budget that encourages enterprise.
That supports exports, manufacturing and investment.
That is based on robust independent figures.
A Budget for making things not for making things up.
Britain has a plan. 
And we’re sticking to it.
In recent months, many other countries have seen their ratings downgraded and their borrowing costs soar.
Our country’s fiscal plans have been strongly endorsed by the IMF, by the European Commission, by the OECD, and by every reputable business body in Britain.
And for anyone who questions whether this matters in the real world, to real businesses and families, consider this.
Market interest rates in Greece are 12.5%, in Ireland they are close to 10%, in Portugal and Spain they are 7% and 5%.
Today our country’s market interest rates have fallen to 3.6%.
We have a higher deficit than Portugal, Greece and Spain, but we have virtually the same interest rates as Germany.
This is our powerful monetary stimulus to our recovering economy. 
Stability. Credibility. Lower interest rates.
This is what we’ve achieved.
But stability is not enough.
So today, in addition to the Red Book, we are publishing the Plan for Growth.
For this Budget confronts the hard truth that has been ignored for too long.
Britain has lost ground in the world’s economy and needs to catch up.
In the last decade, other nations have reduced their business tax rates, removed barriers to enterprise, improved education systems, reformed welfare and increased exports.
Sadly the reverse has happened in Britain.
We gambled on a debt-fuelled model of growth that failed.
With the state now accounting for almost half of all income, we simply cannot to go on like this.
Britain has to earn its way in the modern world.
Mr Deputy Speaker, I turn now to the forecasts.
Last November I told the House that the recovery was going to be more challenging than recoveries from recessions in recent decades.
That is inevitable when we’ve had the sharpest fall in output since the 1930s, the highest budget deficit in peacetime, and the largest banking crisis in our entire history.
But I said that thanks to the course we have set, the independent forecast was for our economy to grow in each of the next five years, for unemployment to peak this year and then fall and for employment to rise through this Parliament.
That remains the case in the independent forecast published today.
Those forecasts have been drawn up by the Office for Budget Responsibility.
This important change has transformed the way Budgets are put together.
So instead of Chancellors fixing the figures to fit the Budget, they now have to fix the Budget to fit the figures.     
Yesterday, the legislation to put the Office for Budget Responsibility on a permanent, statutory and independent footing received Royal Assent.
I am sure that the whole House will want to thank Robert Chote, Steve Nickell, Graham Parker, and their whole staff for the very professional job they are doing.
Let me start with their growth forecasts.
It has been known for Chancellors in recent years to rattle these off at great speed in the hope that no one will keep up.
I will not do that.
Although average quarterly growth this year is set to be higher than was previously forecast, the annual forecast for 2011 has been revised to 1.7%.
This the OBR attributes specifically to the weaker than expected final quarter of last year, the rise in world commodity prices and the higher-than-expected inflation in the UK.
However, the OBR point out that the effect, in their words, “creates scope for slightly stronger growth in later years” than previously forecast.
So while they expect real GDP growth of 2.5% next year, they forecast it will then rise:
To 2.9% in 2013;
To 2.9% in 2014;
Followed by 2.8% in 2015.
The European Commission has also this month published its growth forecasts. 
These show that the UK is forecast to grow more strongly in the coming year than Spain, Italy, France, the average for the Eurozone and the average for the EU.
All countries have to steer a course between two central risks.
The risk of a European sovereign debt crisis on the one hand and on the other the risk that comes from rising global commodity prices.
Food prices around the world have increased by nearly 50% since the beginning of last year.
Oil has risen 35% rise in just 5 months.
That is why the OBR expect inflation to remain between 4 and 5% for most of this year, before dropping to 2.5% next year and then to 2% in two years time.
I have today written to the Governor of the Bank of England to confirm that the inflation target for the Monetary Policy Committee will remain at 2%, as measured by the Consumer Prices Index.
I can also confirm that the Asset Purchase Facility set up by my predecessor will remain in place.
One cause of current instability is the conflict inside Libya.
The whole House will praise the courage and professionalism of our armed forces, who are trying to bring that conflict to an end and save lives.
And I can confirm that the additional cost of military operations will be met entirely from the Treasury reserve.
The House will also know that last week I authorised for the UK to take part in a co-ordinated G7 currency intervention in support of the Japanese Yen.
Our hearts go out to the Japanese people – and this is one way we can help. 
It is still too early to say what lasting impacts the earthquake and tsunami will have on the world economy.
But this is an opportunity for me to report that we had already decided to rebuild the UK’s foreign currency reserves, which are at a historically low level.
We will purchase a range of high-quality assets – though unfortunately, with the price of gold now at record highs, we will not be able to replenish the gold reserves sold at record lows.
I turn now to the fiscal forecasts for our debt and deficit.
Borrowing to fund the deficit this year is now set to come in at £146 billion, below target.
Then fall to £122 billion next year.
Then £101 billion the year after.
Then £70 billion in 2013-14.
Then £46 billion.
And £29 billion by 2015-16.
Inflation has had its impact but crucially the OBR assess that next year’s structural deficit remains the same as forecast last November.
In other words, the size of the task of repairing Britain’s finances is unchanged.
Our national debt, as a share of our national income, is forecast to be 60% this year, before peaking at 71%, and then starting to fall – reaching 69% by the end of the period..."


Source: Download a .mp3 recording of the Chancellor's Budget statement (51MB)


BoE/HMT - Debt Relief Beyond HIPC

Debt Relief Beyond HIPC

The UK’s proposals based on these principles are designed to assist eligible countries in making the investments necessary to achieve the MDGs by cancelling up to 100% of multilateral debt. We believe that the IMF’s gold reserves are an under-utilised resource that could be used to finance further debt relief by the IMF, and we discuss this separately below. However, any further debt relief from IDA and the African Development Fund’s internal resources would inevitably result in a dollar-for-dollar reduction in new disbursements to low-income countries..."

"IMF debt relief through better use of gold
In 1999, the IMF’s part in the Enhanced HIPC initiative was financed by the revaluation of a portion of the IMF’s gold reserves through off-market transactions. The IMF continues to hold significant reserves of gold at historic prices, well below current market prices. As an undervalued asset, the IMF’s gold provides a fundamental strength to its balance sheet, and it is our priority to maintain the IMF’s financial integrity. However, there is scope to make better use of the IMF’s gold reserves to generate the resources needed to finance deeper debt relief by the IMF, for example through a further revaluation or off-market sales. We have asked the IMF to examine a range technical approaches to using gold to finance debt relief, hope to reach agreement on a mechanism during 2005..."

"Executive Summary:
The HIPC Initiative has shown the effectiveness of debt relief in releasing resources for poverty reduction. But its achievements must be set against the wider context of a failure to achieve the Millennium Development Goals (MDGs) caused by inadequate resources. Many countries still have to choose between servicing their debt and investing in health, education, infrastructure and other areas necessary to allow them to attain the MDGs. While many donors – including the UK – provide 100% bilateral debt relief to the world’s poorest countries, in practice only 50% or less of multilateral debt is being cancelled. That is why the UK is proposing to the international community that we match bilateral debt relief of up to 100% with multilateral debt relief of up to 100%. This will need to be financed through additional resources, to assist the world’s poorest countries to meet the MDGs while ensuring that debt burdens remain sustainable, and to preserve the international financial institutions’ capacity to assist all low-income countries. We will continue to call for a revaluation or off-market sale of further International Monetary Fund (IMF) gold to fund the IMF’s share of further multilateral debt relief. But for the World Bank and African Development Bank, additional donor resources are required..."


BoE - Correspondence and financial statistics relating to the sale of part of the UK gold reserves

Bank sales, details, etc

/Mrt - very interesting/


BoE - The Control of Gold, Securities, Payments and Credits (Iraq)

S T A T U T O R Y I N S T R U M E N T S; 2000 No. 3271

The Control of Gold, Securities, Payments and Credits (Republic of Iraq) (Revocation) Directions 2000
Made - - - - - 13th December 2000
Laid before Parliament 13th December 2000
Coming into force - - 14th December 2000

The Treasury, in exercise of the powers conferred upon them by sections 2 and 7(2) of the
Emergency Laws (Re-enactments and Repeals) Act 1964(a) hereby give the following

1. These directions may be cited as the Control of Gold, Securities, Payments and Credits (Republic of Iraq) (Revocation) Directions 2000 and shall come into force on 14th December 2000.

2. The Control of Gold, Securities, Payments and Credits (Republic of Iraq) Directions 1990(b) are hereby revoked.

Clive Betts
Jim Dowd
Two of the Lords Commissioners
13th December 2000 of Her Majesty’s Treasury

(This note is not part of the Directions)
These Directions revoke the Control of Gold, Securities, Payments and Credits (Republic of Iraq) Directions 1990. Those Directions prohibited (except with Treasury permission) any recipient in the United Kingdom, the Channel Islands or the Isle of Man of an order from the government of, or any person resident in, the Republic of Iraq from carrying out that order insofar as the order (a) required the recipient to make any payment or to part with gold or securities or (b) required any change in the persons to whose credit any sum was to stand or to whose order any gold or securities was to be held.


BoE - Economic and Monetary Union policy

Economic and Monetary Union policy

The UK government's policy on Economic and Monetary Union (EMU)

On 9 June 2003 the Government published the assessment of the five economic tests, the 18 supporting studies and the third outline national changeover plan.
The assessment sets out the real benefits to Britain of membership of the single currency, shows that with the achievement of sustainable convergence and flexibility all five tests could and can be met, and lays down the concrete and practical steps which the Government will follow – radical steps which set out a new direction for reform, steps which set out the clear path ahead for Britain.  At all times the Government has and will put stability and the national economic interest first

In this section:


BoE - Statement by the Chancellor on the Economic and Monetary Union, 27 October 1997


To sum up:
we believe that, in principle, British membership of a successful single currency would be beneficial to Britain and to Europe; the key factor is whether the economic benefits of joining for business and industry are clear and unambiguous. If they are, there is no constitutional bar to British membership of EMU;
applying the economic tests, it is not in this country's interest to join in the first wave of EMU starting on 1st January 1999 and, barring some fundamental and unforeseen change in economic circumstances, making a decision, this Parliament, to join is not realistic;
but in order to give ourselves a genuine choice in the future, it is essential that the Government and business prepare intensively during this Parliament, so that Britain will be in a position to join a single currency, should we wish to, early in the next Parliament.

On Europe, Madam Speaker, the time of indecision is over. The period for practical preparation has begun. Today we begin to build a new consensus - modern and outward looking - for a country that throughout its history has looked outward to the world.

We are the first British government to declare for the principle of monetary union. The first to state that there is no over-riding constitutional bar to membership. The first to make clear and unambiguous economic benefit to the country the decisive test. And the first to offer its strong and constructive support to our European partners to create more employment and more prosperity.

The policy I have outlined will bring stability to business, direction to our economy, and long term purpose to our country. It is the right policy for Britain in Europe. More important it is the right policy for the future of Britain and I commend it to the House."


BoE - Letter to the Governor on the new Monetary Policy Framework

Letter to the Governor on the new Monetary Policy Framework
May 1997
The Governor
Bank of England

"Improving the institutional arrangements for economic policy will be accorded a high priority by the Government in order to deliver long term economic stability and rising prosperity. Our Manifesto commitment is to "ensure that decision-making on monetary policy is more effective, open, accountable and free from short-term political manipulation". The reforms I lay out below will put the arrangements for monetary policy-making on a sound and stable footing for the long term.

2. Within its overall responsibility for economic policy, including stability, growth and employment, and for setting the inflation target, the Government intends to give the Bank of England operational responsibility for setting interest rates. The Government plans to provide in the Queen's Speech for legislation to amend the Bank of England Act 1946. The Bank will of course remain in public ownership. The legislation will set up the new monetary policy framework, and provide for greater accountability. It is my intention to ensure the passage of this legislation as soon as possible.

3. This letter sets out how the new arrangements for monetary policy-making will work and how I propose that we manage matters during the transition.



06 May 1997

Statement by the Chancellor on the central economic objectives of the new government 



Speech given by
At the London Bullion Market Association Annual Conference, Lisbon
Tuesday 3 June 2003

"This morning I would like to talk about the role of the Bank of England in the gold market. One element of that is our management, on behalf of the Government, of the UK’s official gold reserves, and I’ll be saying a little about that. But I will be saying more about other aspects of our involvement in the gold market that may be less familiar to some people in the audience here. In particular I will describe the Bank’s provision of custodial and account management services to central banks and to commercial firms active in the London market, reflecting our role in seeking to ensure the efficiency and effectiveness of the UK financial sector. And I will explain the Bank’s contribution to the self-regulation of the wholesale gold market. In all these areas we cooperate closely with the LBMA, and I shall explain how that relationship functions..."


Thursday, December 8, 2011

BIS - Mr Duisenberg’s opening statement at the press conference held on 7 January 1999

Introductory statement by the President of the European Central Bank, Dr W F Duisenberg, at the press conference in Frankfurt on 7/1/99 (with transcript of questions and answers)

"Ladies and gentlemen, the Vice-President and I are here today to report on the outcome of the first meeting of the Governing Council of the European Central Bank in Stage Three of Economic and Monetary Union. For the first time, the Governing Council took decisions of an operational nature in the context of the single monetary policy.
On 1 January 1999 the euro was successfully launched. From that day onwards, the “Eurosystem” – that is, the ECB and the eleven national central banks of the Member States that participate in the euro – has assumed responsibility for the conduct of monetary policy in the euro area with the primary objective of maintaining price stability.

Question: I’d just like to talk to you about gold reserves. The ECB said it will readjust the value of its gold reserves on its books each quarter, and I think it has also decided to keep about 15% of its exchange reserves in gold. If there was a major change in the price of gold on the world market, that percentage would be likely to change, and so I would like to ask you if that means that the ECB would buy or sell gold in order to keep its proportion of reserves at that percenrage amount.

Duisenberg: Christian, you’re the gold man!

Noyer: No, there is no such conclusion to draw, because it was not a decision to hold 15% of foreign exchange reserves in gold, as a structural decision of the Governing Council. The decision of the Governing Council at the time was that in the initial transfer 15% would be made of gold, but that has no consequence on the structure of foreign exchange reserve to develop in the future, nor has it any consequence on the total percentage of gold holdings of the system, including the reserves that are still in the balance sheet of national central banks, and we know that in some cases they have more than 15% gold, and in some cases they have less, but they are for the moment and for the foreseeable future keeping the proportion they have.

Duisenberg: And in this case, the foreseeable future is much longer than in the earlier case.

Question: Mr Duisenberg, the fact that the euro has got off to such a good start is to some extent an expression of confidence in you and can we expect you to stay for eight years?

Duisenberg: This is for the first time that I give the answer which I announced I would give already on 31 December 1998, that is “no comment”.


BIS - Mr. Duisenberg reports on the outcome of the second meeting of the Governing Council of the European Central Bank

Mr. Duisenberg reports on the outcome of the second meeting of the Governing Council of the European Central BankIntroductory statement by the President of the European Central Bank, Dr. W. Duisenberg, at the press conference held in Frankfurt on 8/7/98.
"...(b) Foreign exchange issuesby deducting the shares in the ECB’s capital subscription key of the EU central banks which will not participate in the euro area at the outset. The transfer will thus be equal to 78.9153% of EUR 50 billion, i.e. approximately EUR 39.46 billion."
The Governing Council decided on the size and form of the initial transfer of foreign reserve assets to the European Central Bank from the national central banks participating in the euro area. This transfer is to take place on the first day of 1999. It has been decided that the initial transfer will be to the maximum allowed amount of EUR 50 billion, adjusted downwards

The Governing Council furthermore agreed that this initial transfer should be in gold in an amount equivalent to 15% of the sum I have just mentioned, with the remaining 85% being transferred in foreign currency assets. I should stress that the decision on the percentage of gold to be transferred to the ECB will have no implications for the consolidated gold holdings of the ESCB.

The precise modalities of the initial transfer will be finalised before the end of the year.

Before the end of the current year the Governing Council will also have to adopt an ECB Guideline pursuant to Article 31.3 of the Statute of the ESCB, which will subject all operations in foreign reserve assets remaining with the national central banks - including gold - to approval by the ECB...

/Mrt : when was it Another mentioned that about 15 percent should be?/





BIS - Lorenzo Bini Smaghi: The world after the crisis – designing the future. A monetary order for the XXI century

Lorenzo Bini Smaghi: The world after the crisis – designing the future. A monetary order for the XXI century
 Speech by Mr Lorenzo Bini Smaghi, Member of the Executive Board of the European Central Bank, at the Aspen Institute Italia, World Economy Conference, Villa Madama, Rome, 23 June 2009.

"I would like first of all to thank the organisers for inviting me to participate in this panel discussion on a new Monetary Order for the XXI Century.1 The title seems to suggest that we had a monetary order in the previous century, but then we lost it in the course of this decade and we now need something new. In fact, we have been searching for a new monetary order since the fall of the Bretton Woods agreement, in the summer of 1971, and even that order was not so orderly, after all..."


We entered this century with a new consensus, in which policy-makers took a back seat and relied heavily on markets to allocate capital across countries, while the IMF was mandated to exert a strong surveillance role with a view to ensuring transparency and encouraging early adjustment. This was the consensus reached at the G7 Summit in Cologne, in 1999, which was later adopted by the G20.
The expectations have not been fully met, for several reasons. First, several emerging market economies have not let their currencies float freely, and have continued to peg their exchange rates, although at undervalued rates (instead of overvalued). The reason has not only been a fear of floating but also a desire to promote exports as well as to accumulate reserves as a self-insurance policy in case of a crisis. In turn, the accumulation of large surpluses, especially in emerging Asia and in oil-exporting countries, has made possible the financing of the US current account deficit. It has also influenced monetary conditions in the US, lowering long term interest rates and making monetary conditions more expansionary than would otherwise have been the case.
The second reason is that the IMF has not succeeded in convincing countries to pursue macroeconomic policies consistent with sustainable current account positions. Advanced economies, in particular the US, have not taken IMF advice fully into consideration in their decision-making. Emerging economies, partly following the example given by the advanced countries, have also attached less importance to IMF surveillance. The accumulation of external assets has made them less dependent on IMF funding and advice. For example, the IMF has not succeeded in completing an Art. IV surveillance programme with China since 2006. Furthermore, the IMF has been reproached by emerging market economies of lacking legitimacy, in view of their relatively low quota and representation..."


BIS - Mr Issing’s speech entitled “Hayek – currency competition and European monetary union”

Text of the Annual Hayek memorial lecture delivered by Mr Otmar Issing, a member of the Executive Board of the European Central Bank, hosted by the Institute of Economic Affairs in London on 27 May 1999.
Mr Issing’s speech entitled “Hayek – currency competition and European monetary union”

"As a young student I read “The Road to Serfdom”. It was the first book written by Hayek I came across, and it has left a deep and lasting influence on me. Only 11 years after the Hitler regime and the war I suddenly started to understand the interdependence between totalitarianism and economic policy. Since then I have read most of Hayek’s publications. Many left their marks, only to mention the impressive “The Constitution of Liberty”.
But, perhaps more than anything else, it was the perception of “competition as a discovery process” which has shaped my thinking. This approach is of extreme relevance for economics but goes far beyond this. Related to this “discovery” is “pretence of knowledge” as a permanent danger for societies. All those in public office responsible for making decisions should never forget this message..."


"...Money used as a unit of account has characteristics of a public good. Given the unit-of-account function, the medium-of-exchange and store-of-value functions have traditionally, but not exclusively, been supplied by private enterprise.

Just as stable money is of crucial importance for a stable price level in a macroeconomic context, a stable price level is of equal significance for the efficient performance of money in a microeconomic context. A stable price level is, in principle, of central importance in ensuring that the three famous microeconomic functions which money provides are allowed to operate with maximum efficiency..."

/Mrt. to be edited-formated later/


1. Introduction

Monday, December 5, 2011

ACU - Asian Clearing union


The central banks and monetary authorities of regional members and associate members of the UNITED NATIONS ECONOMIC AND SOCIAL COMMISSION FOR ASIA AND THE PACIFIC (ESCAP),
DESIRING to establish a facility to settle payments for current international transactions within the ESCAP region on a multilateral basis,

RECOGNIZING that such a facility would contribute to the expansion of trade and the promotion of monetary co-operation among their countries,

RECOGNIZING further that a facility designed to promote the use of the participants' currencies would reduce the use of extra-regional currencies to settle current international transactions within the region and thereby effect economies in the use of foreign exchange and reduce the cost of making payments for such current international transactions,

REALIZING that a region-wide clearing facility could co-exist and function in co-operation with sub-regional or less than regional arrangements in Asia and the Pacific,

CONVINCED that the regional clearing facility must be established and operated in a manner that will not prejudice the principles of multilateral trade and payments,

ON WHOSE BEHALF this AGREEMENT has been signed, HAVE AGREED as follows:


Friday, December 2, 2011

IMF - IMF Enhances Liquidity and Emergency Lending Windows

IMF Enhances Liquidity and Emergency Lending Windows
Press Release No. 11/424
November 22, 2011

"The Executive Board of the International Monetary Fund (IMF) approved on November 21 a set of reforms designed to bolster the flexibility and scope of the Fund’s lending toolkit to provide liquidity and emergency assistance more effectively to the Fund’s global membership. These reforms, which have been under preparation for some time, will enable the Fund to respond better to the diverse liquidity needs of members with sound policies and fundamentals, including those affected during periods of heightened economic or market stress—the crisis-bystanders—and to address urgent financing needs arising in a broader range of circumstances than natural disasters and post-conflict situations previously covered.
“I commend the Executive Board for the expeditious response to support the membership in these difficult times,” said IMF Managing Director Christine Lagarde following the Executive Board meeting. “The Fund has been asked to enhance its lending toolkit to help the membership cope with crises. We have acted quickly, and the new tools will enable us to respond more rapidly and effectively for the benefit of the whole membership.
“The reform enhances the Fund’s ability to provide financing for crisis prevention and resolution. This is another step toward creating an effective global financial safety net to deal with increased global interconnectedness,” she added.
The reform replaces the Precautionary Credit Line (PCL) with the more flexible Precautionary and Liquidity Line (PLL), which can be used under broader circumstances, including as insurance against future shocks and as a short-term liquidity window to address the needs of crisis bystanders during times of heightened regional or global stress and break the chains of contagion. The Fund’s current instruments for emergency assistance (Emergency Natural Disaster Assistance and the Emergency Post-Conflict Assistance) are consolidated under the new Rapid Financing Instrument (RFI), which may be used to support a full range of urgent balance of payments needs, including those arising from exogenous shocks.

Key elements

The Precautionary and Liquidity Line:
  • Qualification criteria remain the same as under the PCL. A member needs to be assessed as having sound economic fundamentals and institutional policy frameworks, having a track record of implementing sound policies, and remaining committed to maintaining such policies in the future. A member can seek support when it has either a potential or actual balance of payments need at the time of approval of the arrangement (rather than only a potential need, as was required under the PCL).
  • Can be used as a liquidity window allowing six-month arrangements to meet short-term balance of payments needs. Access under a six-month arrangement would not exceed 250 percent of a member’s quota, which could be augmented to a maximum of 500 percent in exceptional circumstances where the member faces a balance of payments need that is of a short-term nature and results from exogenous shocks, including from heightened regional or global economic stress conditions.
  • Can also be used under a 12 to 24-month arrangement with maximum access upon approval equal to 500 percent of a member’s quota for the first year and up to 1000 percent of quota for the second year (the latter of which could also be brought forward to the first year where needed, following a Board review). As under the PCL, arrangements of these durations include Executive Board reviews every six months.
The Rapid Financing Instrument:
  • The RFI broadens coverage of urgent balance of payments needs beyond those arising from natural disasters and post-conflict situations, and can also provide a framework for policy support and technical assistance.
  • Funds are available immediately to the member in need upon approval with access limited to 50 percent of the member’s quota annually, and to 100 percent on a cumulative basis.
  • The member needs to outline its policy plans to address its balance of payments difficulties, and the IMF must assess that the member will cooperate in finding solutions for these difficulties.
Review of Flexible Credit Line and PCL:
The Executive Board also reviewed the FCL and PCL and found that that these instruments have bolstered confidence and moderated balance of payments pressures during a period of heightened risk. The rigorous qualification framework has worked well and access decisions have reflected the evolution of risks facing users of these instruments. The review calls for focusing qualification discussions more on qualitative and forward-looking aspects of policies and policy frameworks, and enhancing the transparency of access decisions."

[Mrt: Note how the previous post synchros. Liquidity increase.]