Friday, February 24, 2012

CVCE - 'Why a European currency?', from Communauté européenne (October 1968)


EUR - LEX - Special scheme for investment gold from 1998

Council Directive 98/80/EC of 12 October 1998 supplementing the common system of value added tax and amending Directive 77/388/EEC - Special scheme for investment gold

Official Journal L 281 , 17/10/1998 P. 0031 - 0034


EUR-LEX - Exempt investment gold

Value added tax (VAT) — Exempt investment gold — List of gold coins meeting the criteria established in Article 344(1), point (2) of the Council Directive 2006/112/EC (special scheme for investment gold) — Valid for the year 2012

Official Journal C 351 , 02/12/2011 P. 0017 - 0031

Thursday, February 23, 2012

Subject: Free trade in gold in the EU


E-2268/08 (ES) by Salvador Garriga Polledo (PPE‑DE) to the Commission (21 April 2008)
Subject: Free trade in gold in the EU
Answer from the Commission (28 May 2008)

Subject: Free trade in gold in the EU
The current financial turbulence and its repercussions on the money markets are inciting savers to turn to gold as a safe place to put their savings, so as to avoid the serious consequences of the dangerous swings in the money and currency market.
However, certain Community countries prevent free trade in gold, in its widest sense and consequences, based on specific confused and ill-justified reasons, within the framework of the freedom of goods and services within the Community.
What are the Community rules governing trade in gold within the EU as a whole, and what laws could prevent a Community citizen from freely purchasing gold if he or she wishes to do so in order to provide security for his or her savings?


Answer given by Mr Verheugen on behalf of the Commission
The Commission is aware that the national laws of many Member States provide that articles of precious metal lawfully marketed in another Member State must be checked and authorised before they are put on their national markets. Often, Member States require articles of precious metal to be hallmarked to indicate the manufacturer, the nature of the metal and its standard of fineness.
In some cases, these national requirements may constitute obstacles to the free movement of articles of precious metal within the EU. However, according to the jurisprudence of the Court of Justice, some of these requirements may be justified under certain circumstances, in order to ensure the effective protection of consumers and to promote fair trade.
In 1975 and 1993, the Commission tabled legislative proposals (1) to bring about a truly integrated internal market for precious metals. The lack of broad support for these proposals obliged the Commission to withdraw them.
The Commission hopes that its new proposal on mutual recognition in the non-harmonised field of products(2) will eliminate most existing technical barriers relating to the degree of purity of articles of precious metal. However, this proposal will facilitate but not abolish existing checking and authorisation procedures regarding articles of precious metal.
(1)COM(1975)607 final and COM(1993)322 final.
(2)COM(2007)36 final.




CVCE - 'The Pompidou-Brandt agreement relaunches the European currency', from Corriere della Sera (18 February 1972)


CVCE - 'Interview with Valéry Giscard d'Estaing', from Communauté européenne (April 1969)



CVCE - 'European Monetary System clarified', from Luxemburger Wort (6 December 1978)


CVCE - 'The man who twice devalued the dollar' from Le Monde (25 April 1994)




Knowing the past to build the future

Based in Luxembourg, the CVCE is an interdisciplinary research and documentation centre dedicated to the European integration process. Its mission is to create, share and valorise knowledge in an innovative digital environment.

MTF - Rpf. A09460 PRIME MINISTER European Issues

Rpf. A09460
European Issues


This isa major issue in its own right which Ministers will wish to consider carefully. The EMS started on 13 March 1979. The UK does not participate in the exchange rate and intervention mechanism but does participate in other aspects, notably the introduction and development of the ECU (the European Currency Unit, a basket unit comprising weighted proportions of all Community currencies), the expansion of the Community's medium term credit facility and the long term goal (scheduled for two years after the start of the system) of the creation of a European Monetary Fund.

An early question the UK faces is whether to deposit 20 per cent of our gold and dollar reserves with the European Monetary Co—operation Fund in return for which, we shall receive ECUs. We can do this at any time, but if an affirmative decision is taken there would be political advantage in making these deposits at the earliest moment since this action would help to confirm that the UK does have a commitment to the EMS even though we are not participating in the exchange rate mechanism.

The EMS will be discussed at the Finance Councils on 14 May, 18 June and 16 July. ' In September 1979 there will be a review of the functioning of the divergence indicator, an aspect of the EMS which has been considered to be of particular importance to the UK in that it is a way of putting pressure on strong currencies corresponding to the pressure weaker currencies experience in using reserves to maintain their levels within the margins. The review provides a natural occasion for re—examination of the question of UK participation in all aspects of the EMS...."


MTF - files on the 1975-78 Economic Summits (the first four G7s)

The G7 summits: declassified records published for the first time

The first G7 summit took place in Rambouillet in November 1975 (in fact with only six attendees).
Records of these annual meetings of the leading world heads of government are now beginning to be available in British and US archives, and has uploaded files on the first four


MTF - EMS material on this site


MTF - Britain & the origin of the EMS, 1978

1973 Mar: pre-history - "the snake"

"...Late in the evening of Thursday 1 March 1973, the British Prime Minister, Edward Heath, met with West German Chancellor Willy Brandt at Schloss Gymnich, near Bonn. It was a time of acute crisis in international markets. The last components of the post-war system of fixed exchange rates, Bretton Woods, were collapsing – the US authorities unilaterally unpegging the dollar from gold, allowing it to float – and European governments were struggling to formulate their response.
Brandt made an astonishing suggestion. The member states of the European Community should join a “common float” against the dollar, linking their currencies and pooling reserves to defend their parities. Since the Bundesbank held vast reserves, unlimited support from this source would have transformed market perceptions of sterling and other participating currencies. It would also have constituted a large step towards full monetary union. For a strong supporter of European integration like Heath, the prospect was alluring. In fact the proposal was not entirely a surprise - we had heard something similar a few weeks before in Paris from Brandt's Finance Minister, Helmut Schmidt - but voiced by the German Chancellor himself, the idea had historic significance..."

1978 mar 12: déjà vu in Bonn

1978 mar-apr: waiting for Giscard

"It quickly became clear than the Germans were reluctant to commit the Schmidt scheme to paper, and that it was unlikely to gain definition till the French Parliamentary elections in April at the very earliest: had the left won, Schmidt told Callaghan he would not go ahead with the scheme. In fact Giscard was far from being in the dark as to Schmidt's thinking - the two had long matured the ideas rehearsed in Bonn - but it is likely true that he preferred not to be involved in detailed discussions which might leak in the run-up to the poll and hand his opponents on the left a stick with which to beat him. Against expectations, Giscard's party won the elections and a right-wing government was formed led by Raymond Barre. The French now entered openly into the process. Callaghan met Giscard and Schmidt for breakfast before the final session of the Copenhagen European Council on 8 April and believed he had secured explicit agreement to a 'tripartite' approach, the three powers each designating a single official to take things forward. (Couzens was chosen for Britain, with the result that the Bank of England fell out of the inner circle and struggled to return to it.) The French and Germans were each to prepare a paper, which the British would examine in a "neutrally critical stance". For political reasons Italy was to be included in the scheme, though it was not to be involved in these preparatory discussions . Schmidt said that he envisaged a two-tier Community in the longer run.
Intriguingly, the proposals at this stage gave a central role to the European Unit of Account (EUA), an obscure monetary instrument against which currencies would be pegged and cash settlements made between participating central banks, to be issued perhaps by a "European Monetary Fund". (The EUA is better known by its later name, the European Currency Unit, a terminological change promoted by Giscard because its acronym, ECU, was also the name of a medieval French coin). Plainly the EUA/ECU had the potential to develop into a parallel currency, and at the breakfast meeting Schmidt and Giscard told Callaghan explicitly that such was their intention. Many years later the idea of a parallel, as opposed to a single, European currency played a part in MT's diplomatic response to European Monetary Union ("the hard ecu"), though it tended to be seen as a spoiler rather than a serious proposal.

1978 apr-jul: from copenhagen to Bremen

1978 jul-nov: negotiating from outside

1978 nov 30: a visit to Frankfurt

1978 dec - 1979 Mar: delayed birth & AFTER SHOCKS


WUR-LEX - WRITTEN QUESTION No. 2170/96 by Gerhard SCHMID to the Commission. German Bundesbank gold

WRITTEN QUESTION No. 2170/96 by Gerhard SCHMID to the Commission. German Bundesbank gold

Official Journal C 365 , 04/12/1996 P. 0088

WRITTEN QUESTION E-2170/96 by Gerhard Schmid (PSE) to the Commission (2 August 1996)
Subject: German Bundesbank gold
After the European Central Bank (ECB) is set up, the national central banks of the Member States belonging to the Monetary Union must transfer a certain proportion of their monetary reserves to that bank.
1. What will happen to the gold holdings of the national central banks, and in particular the Bundesbank?
2. Must a certain proportion thereof also be transferred to the ECB?
3. How are these gold holdings valued?
Answer given by Mr de Silguy on behalf of the Commission (23 September 1996)
According to Article 105(2) third indent EC Treaty, one of the basic tasks to be carried out through the European system of central banks (ESCB) shall be 'to hold and manage the official foreign reserves of the Member States'. The transfer of foreign assets to the European central bank (ECB) is laid down by Article 30 of the statute of the ESCB and the ECB: '... the ECB shall be provided by the national central banks with foreign reserve assets, other than Member States' currencies, ECUs, IMF reserve positions and SDRs, up to an amount equivalent to ECU 50 000 million' (Article 30.1.). This means that the following types of assets are eligible for transfer to the ECB: currencies of third countries, currencies of non-participating Member States and gold. However, the requirement of transfer of gold is not expressly provided for. The decision on the amount and the composition of the foreign assets to be transferred has to be made by the Council of the ECB and therefore can only be made after the setting-up of the ECB in early 1998.
The non-transferred parts of the foreign reserve assets remain at the national central banks, whose free disposal is only limited by article 31.2. of the statute of the ESCB and ECB. Operations in the remaining foreign reserve assets and Member States'transactions with their foreign exchange working balances are, above a certain limit to be established by the ECB Council, subject to approval by the ECB. This provision will ensure the consistency of these operations with the exchange rate and monetary policies of the Community.
The question of the valuation of the foreign reserve assets is currently under discussion in the European monetary institute.


WUR-LEX - WRITTEN QUESTION No. 3357/98 by Georges BERTHU to the Commission. Transfer of national central bank gold reserves to the ECB

by Georges Berthu (NI) to the Commission
(30 October 1998)
Subject: Transfer of national central bank gold reserves to the ECB
On 21 October 1998, when the report on foreign currency reserves in the third stage of EMU was being considered in plenary sitting, I asked Commission Member Mr de Silguy if foreign currency reserves in gold currently held by national central banks would be physically transferred, in whole or in part, to Frankfurt. The different statements made at European level hitherto have remained ambiguous on that point. Nor was the question answered in the debate that followed. Can the Commission issue a formal answer?
Answer given by Mr de Silguy on behalf of the Commission
(15 December 1998)
According to Article 3 of the Statute of the European System of Central Banks (ESCB) and of the European Central Bank (ECB), the official foreign reserves of the Member States are held and managed by the ESCB.
Article 30 of the ESCB/ECB Statute specifies the conditions under which the ECB shall be provided with foreign reserve assets by the national central banks. It states that the ECB shall have the full right to hold and manage the foreign reserves that are transferred to it and to use them for the purpose set out in the Statute.
However, there are no plans for the physical transfer of gold reserves from the national central banks to the ECB.


WUR-LEX - Value added tax (VAT) — Exempt investment gold — List of gold coins meeting the criteria

Value added tax (VAT) — Exempt investment gold — List of gold coins meeting the criteria established in Article 344(1), point (2) of the Council Directive 2006/112/EC (special scheme for investment gold) — Valid for the year 2012

Official Journal C 351 , 02/12/2011 P. 0017 - 0031


EUR-LEX - COMMISSION OPINION on a recommendation of the European Central Bank for a Council Regulation concerning further calls of foreign reserves assets by the European Central Bank

"In a letter dated 14 October 1999, the Council requested the opinion of the Commission on a recommendation of the European Central Bank (ECB) for a Council Regulation concerning further calls of foreign reserves assets by the ECB. The competence of the Commission to deliver an opinion on this recommendation follows from Article 107(6) of the Treaty in connection with Article 30.4 of the Statute of the European System of Central Banks and the European Central Bank..."




DESIRING to lay down the Statute of the European System of Central Banks and of the European Central Bank provided for in
Article 8 of the Treaty establishing the European Community,
HAVE AGREED upon the following provisions, which shall be annexed to the Treaty establishing the European Community.


Article 31
Foreign reserve assets held by national central banks
31.1. The national central banks shall be allowed to perform transactions in fulfilment of their obligations towards international organizations in accordance with Article 23.
31.2. All other operations in foreign reserve assets remaining with the national central banks after the transfers referred to in
Article 30, and Member States' transactions with their foreign exchange working balances shall, above a certain limit to be established within the framework of Article 31.3, be subject to approval by the ECB in order to ensure consistency with the exchange rate and monetary policies of the Community
31.3. The Governing Council shall issue guidelines with a view to facilitating such operations.



ECB - OPINION OF THE EUROPEAN CENTRAL BANK on the taxation of the Banca d’Italia’s gold reserves

of 14 July 2009
on the taxation of the Banca d’Italia’s gold reserves

Done at Frankfurt am Main, 14 July 2009.
The President of the ECB
Jean-Claude TRICHET


Wednesday, February 22, 2012

HSG - Keynote Address by Under Secretary Robert Hormats

Foreign Economic Policy, 1973-1976
Keynote Address by Under Secretary Robert Hormats
George Mason University School of Public Policy, Arlington, Virginia
March 7, 2011
    • Ed Rhodes, Dean, George Mason School of Public Policy
    • Dr. Robert Hormats, Under Secretary of State for Economic, Energy, and Agricultural Affairs
    • Dr. Kathleen Rasmussen, Division Chief, Asia & General, Office of the Historian
"...So we had this constant ring of various complicated issues during this period. And during this period I was economic advisor to Henry Kissinger, so I sat in on almost all the discussions that focused on all these issues and was constantly sending him memos on the various issues that are described in this book. Moreover, during this period, one of the things that we had in mind was that the industrialized countries should work more closely together with one another and therefore came up with the idea toward the end of 1975. And it wasn’t initially an American idea; it was really the idea of Chancellor Schmidt and French President Giscard d’Estaing to get the industrialized countries together to discuss how do we deal with the oil issue, how do we deal with the exchange rate issue, how do we deal with the trade issue, was there a view on the developing country problem.
And initially the idea was for the French to call the meeting, and they – which they did. The Germans would come, the Brits would come, the Americans would come. Japan – they were a little unsure whether Japan could come because Japan was sort of an outlier at that point. But it was a big economy, it was second-biggest in the world, and therefore there was a general conclusion Japan should come and would have to be there. But Japan was very reticent about playing much of a global role. So it wasn’t – it knew it had to come, but it really was a little bit shy about being as pushy on some of these issues as the French or the Germans or the Americans or the Brits were.
And then there was the question of Italy. Originally, it started out as the G-5, not a G-6 or certainly not a G-7. And why did Italy get in there? The Italians got in because there was – and we tend to forget this, but there was a very strong communist movement in Italy at the time. They got a third of the votes. It wasn’t a Moscow kind of communist party, but there were communists nonetheless, and it was the middle of the Cold War. So Prime Minister Moro, who was prime minister of Italy, made an impassioned plea to the United States and to Germany and to France to get in and be part of it because if the West did demonstrate support for him, he would be weaker in dealing with the communists. Well, the French weren’t quite sure they wanted Italy in there. They didn’t have a very favorable view of the Italian economy at that point. But the United States, again as sort of the champion of the Western Cold War – and the Germans, I must say – insisted on Italy coming. So Italy – Prime Minister Moro was invited. He, unfortunately, was killed by radicals and found in the trunk of his car about three months afterwards, so – but Italy did get in and has been a member ever since.
Canada – the French vehemently opposed Canada, did not want Canada in. We tried everything we could because we didn’t it to be so pro – so Europe-centered. So we supported having Canada in, and the French refused to invite them. But the U.S. got its revenge because the following year, when we had the summit in Puerto Rico, the U.S. unilaterally invited the Canadians, and the Canadians have been members ever since. And then it became the G-7...."



EC - A currency for Europe

A currency for Europe:
Speech by President Van Rompuy
at the occasion of the launch of a campaign about the euro
at the University of International Business and Economics,

"...Of the 27 EU countries, 17 share the euro. Most of the 10 others will also join the currency in the future (the United Kingdom being the most significant exception.)..."



Tuesday, February 21, 2012

NBER - 2 papers

This PDF is a selection from an out-of-print volume from the National Bureau
of Economic Research

Volume Title: A Retrospective on the Bretton Woods System: Lessons for
International Monetary Reform
Volume Author/Editor: Michael D. Bordo and Barry Eichengreen, editors
Volume Publisher: University of Chicago Press
Volume ISBN: 0-226-06587-1
Volume URL:
Conference Date: October 3-6, 1991
Publication Date: January 1993
Chapter Title: The Collapse of the Bretton Woods Fixed Exchange Rate System
Chapter Author: Peter M. Garber
Chapter URL:
Chapter pages in book: (p. 461 - 494)


Monday, February 20, 2012

FED - The changing role of gold in the International Monetary System

Winter 1974-75
By Hang-Sheng Cheng and Nicholas P. Sargen

"Without any fanfare, the United States has now closed a long chapter in its monetary history. On December 31, 1974, the Government revoked a 41-year ban on U.S. citizens' ownership of gold, and a week later, on January 6, 1975, it started auctioning a portion of its gold stock on the open market. These actions not only signaled the U.S. Government's decision to end the monetary role of gold, but also called into question the metal's future role in the world economy. Symbolically, the auction was conducted not by the U.S. Treasury, a monetary authority, but rather by the General Services Administration, a housekeeping arm of the U.S. Government. Thus, in a quiet way the U.S. Government suggested to the world that henceforth it will handle its gold in the same way it han dies its used office furniture.
This historical decision presaging an end to the monetary role of gold has important implications for the world at large. As far back as mankind's memory extends, gold has been associated with money as a store of value, as a means of payment, and as a backing for national currencies. Because of the deep-rooted association of gold with money, many people will continue to regard gold as a prime financial asset for a long time into the future. Advocates of gold will question not only the
Government's wisdom in attempting to demonetize the metal, but even its ability to end unilaterally the monetary role of gold, either in the international monetary system or in the minds of the public..."


"The decline and fall of the gold standard has been so exhaustively analyzed in standard textbooks and popular writings 5 that it would not be worthwhile repeating here. Suffice it to say that gold's relative importance started to decline even during the nineteenth centry, as its share in the aggregate money supply of Britain, France, and the United States declined from about one-third in 1815 to only one-tenth in 1913, while the share of bank deposits expanded from a mere six percent to sixty-eight percent. 6 Robert Triffin has characterized this period as a century of "gradual euthanasia" of gold money and its replacement by credit money..."


BIS - Mr. Trichet discusses Franco-German monetary cooperation and monetary union

Mr. Trichet discusses Franco-German monetary cooperation and monetary

Speech by the Governor of the Bank of France, M. Jean-Claude Trichet, on the occasion
of the fiftieth anniversary of the Land central bank of Rheinland-Palatinate and the Saarland in
Mainz on 2/6/97.


Sunday, February 19, 2012

ECB - WD - Ceremony on the occasion of the establishment of the European System of Central Banks

Ceremony on the occasion of the establishment of the European System of Central Banks

Speech delivered by Dr. Willem F. Duisenberg, President of the European Central Bank,Frankfurt, 30 June 1998

Mr. President of the European Council, the Prime Minister of the United Kingdom, Mr. Blair
Herr Bundeskanzler der Bundesrepublik Deutschland, Dr. Kohl
Mr. President of the European Parliament, Mr. Gil Robles
M. le Président de la Commission européenne, M. Santer
Herr Bundeskanzler der Bundesrepublik Österreich, as from tomorrow President of the European Council, Dr. Klima
Herr Minister-Präsident des Landes Hessen, Dr. Eichel
Frau Oberbürgermeisterin der Stadt Frankfurt, Frau Roth
Fellow Governors,
Ladies and Gentlemen,
The introduction of the single currency, the euro, in eleven countries of the European Union on 1 January 1999 is more than a milestone in the process of European integration which, having started soon after the Second World War, has now been continuing for almost half a century. This process is aimed at maintaining peace and stability and fostering prosperity in Europe. Although it has experienced setbacks, on balance it has been successful. The introduction of the euro is not only the result of this process. If successful, and we all are doing our utmost to make it a success, it will give further impetus to co-operation and integration in Europe.
The establishment of the European System of Central Banks is the logical consequence of the decision to introduce a single currency. No single currency without a common central bank, or rather common system of central banks, comprising the European Central Bank and the national central banks since the ESCB is a federal system. This clearly reflects the fact that Europe - or the euro area for that matter - is not a single nation, but a group of nations. The ESCB was established on 1 June, i.e. well in advance of the birth of the euro, because it has to adopt a clear framework for the conduct of the common monetary policy from 1 January 1999 onwards, it has to test all systems and procedures in the context of this framework, it has to set up its own organisation and it has to ensure a smooth transition from the current national monetary policies to the future single monetary policy.
There is every reason to mark today the occasion of the establishment of the ESCB. Today is the point that separates the road behind to a common European System of Central Banks and the road we have to travel in the future to make the euro a success, which means to make it a stable currency.
Looking back, it is fair to say that the road has been long and sometimes winding. Thanks to the vision and determination of a number of people we have arrived where we are today. I cannot mention everybody who has been involved in the process leading to the creation of the European Central Bank over the past decades. In terms of "founding fathers" I am thinking of Raymond Barre, Valéry Giscard d’Estaing and Helmut Schmidt, the three of whom regretfully could not be here today. I am further thinking, and they are here and I bid them a very warm welcome indeed, of Pierre Werner, responsible for the Werner Report in the early seventies, Jacques Delors, who chaired the committee named after him which mapped out the road to European Economic and Monetary Union and the ECB, and Alexandre Lamfalussy, President of the European Monetary Institute in years in which many people were, to say the least, somewhat sceptical about EMU. I not only thank them for what they have done in preparation for the institution of which I have the honour of being President, I also congratulate them on what has been achieved as a result of their work
The establishment of the ESCB and, somewhat later in time, the introduction of the euro are, as I said, not the end of the road, but in a sense its extension into new territory. The ESCB has been given the clear mandate of maintaining price stability, and without prejudice to that of supporting the economic policies in the Community. By fulfilling its mandate it will contribute to creating the appropriate conditions for sustainable growth of incomes and employment in the Community: the ultimate goals of economic policy. This is no easy task. The road in the future will sometimes be winding again. This is true, even in view of all the preparations for EMU by all parties concerned, like the European Commission, the European Monetary Institute, the national central banks, national governments and all private companies, institutions and individuals. The ESCB faces many challenges and I should like to share with you those which I think are the most important.
The first is to make clear and show in practice that monetary policy has to be based on euro area-wide considerations. The ESCB’s monetary policy has to be one and indivisible. It has to be characterised by a truly European outlook. A precondition for adopting this outlook is that the ESCB acts as and is seen to act as a unity and speaks with "one voice", although sometimes in different languages. Put in modern language: this requires team-building, inevitably a process.
The ESCB should be open and transparent, for at least three reasons. First, transparency enhances the effectiveness of monetary policy by creating the correct expectations on the part of economic agents. This relates not only to actual monetary policy decisions, but applies more in general. The ESCB is endowed with an independent status and it should be explained why this independence is so vital. It should also be crystal clear about what monetary policy can and what it cannot achieve. Monetary policy can only achieve price stability in the longer term, not on a year-on-year basis. It needs to be supported by sound fiscal policies and a structural development of wages in line with productivity and the objective of price stability. Otherwise, price stability can only be maintained at a high cost in terms of lost income and employment. That is why I attach great importance to the Pact for Stability and Growth. The ESCB will have to define quantitatively what it means by price stability, it will have to explain its monetary policy strategy, have to explain its monetary policy measures, the derivation of targets, etc. In the context of what monetary policy can and cannot achieve, I repeat what I have said before on several occasions: monetary policy is neither the cause of nor the solution to the still unacceptably high level of unemployment in Europe. Solving that problem mainly requires structural policies to make markets operate more flexibly.
The second reason why transparency is crucial is because in a democratic society the central bank has to account for its policies. Without the broad support of the population, ultimately no central bank can fulfil its mandate over a long period of time.
The third reason is that transparency towards the outside world can also structure and discipline the internal debate inside the central bank. Let me emphasise that openness not only refers to the citizens and institutions of Europe, but also to people and institutions outside Europe. The ESCB will need to have good relations with other central banks, in particular by building on the relations of the European national central banks with other central banks around the world.
Perhaps the most important challenge for the ESCB is to win the confidence of the citizens of Europe. The euro is their currency, and they should be able to trust that it keeps its value. The best way for the ESCB to acquire the necessary credibility with the citizens of Europe is to demonstrate that it takes its task of maintaining price stability very seriously. Building up a track record of stable prices will be vital in achieving this. Demonstrably stable prices are more effective in this regard than a million words in speeches, interviews and official publications. Therefore, it is essential also that policies in the remainder of this year aim at maintaining the current low levels of inflation in the euro area. That would allow the start of the euro early next year to take place in a climate of favourable price developments.
I have referred to the past and briefly discussed the future. Let me now turn to the present, to today. This is the right moment to thank the Federal Republic of Germany, the Land of Hessen and the City of Frankfurt for hosting this new, truly European institution, the European Central Bank. Today is also the moment to enjoy what has been achieved by the efforts of many, but we ought at the same time to be aware of the fact that from tomorrow on the challenging task of making the euro a success will again demand our dedicated efforts.
This event today caps the process of living up to the obligations assumed under the Treaty on European Union, the Treaty that has become known as the Treaty of Maastricht. It seemed fitting to let the cap be put in place by the men’s choir of the city of Maastricht, the Royal Maastreechter Staar. Their first performance will be to sing short excerpts from national songs of all member states of the European Union in the respective original language.


ECB - Preparation of Economic and Monetary Union

Preparation of Economic and Monetary Union

"In the 1960s, with European economic integration making progress, the idea arose of creating a single currency.
However, a single European Economic Community (EEC) currency was not yet foreseen in the treaties. Moreover, at the time, all six EEC countries were part of a reasonably functioning international monetary system (the "Bretton Woods system"). Within this system, exchange rates of currencies were fixed but adjustable and remained relatively stable until the mid-1960s, both within the EEC and globally.
In 1969, the European Commission submitted a plan (the "Barre Plan") to follow up on the idea of a single currency because the Bretton Woods system was showing signs of increasing strain. On the basis of the Barre Plan, the Heads of State or Government called on the Council of Ministers to devise a strategy for the realisation of Economic and Monetary Union (EMU). The resulting Werner Report, published in 1970, proposed to create EMU in several stages by 1980. However, this process lost momentum in a context of considerable international currency unrest after the collapse of the Bretton Woods system in the early 1970s and under the pressure of divergent policy responses to the economic shocks of that period, in particular the first oil crisis.
To counter this instability and the resulting exchange rate volatility among the currencies, the nine members of the then EEC[1] relaunched the process of monetary cooperation in March 1979 with the creation of the European Monetary System (EMS). Its main feature was the exchange rate mechanism (ERM), which introduced fixed but adjustable exchange rates among the currencies of the EEC countries. Thus it required adjustments in monetary and economic policies as tools for exchange rate stability. Within the EMS framework, the participants succeeded in creating a zone of increasing monetary stability and gradually relaxing capital controls.
A further impetus for pursuing a single currency and EMU was provided by the adoption of the Single European Act in 1986. This Act set a timeframe for launching the Single Market and reaffirmed the need for achieving EMU.
In 1988 the European Council confirmed EMU as an objective and mandated a committee of monetary policy experts, in particular the governors of the EC central banks, to propose concrete steps leading to EMU.
The resulting Delors Report recommended that EMU be achieved in three steps. The legal basis for EMU still had to be created. The report led to negotiations that resulted in the Treaty on European Union, signed in Maastricht on 7 February 1992. This Treaty established the European Union (EU) and amended the founding treaties of the European Communities by adding a new chapter on economic and monetary policy. This new chapter laid down the foundations of EMU and set out a method and timetable for its realisation.

[1] Belgium, Denmark, Germany, Ireland, France, Italy, Luxembourg, the Netherlands and the United Kingdom."


[Mrt: I am surious about the origins in connecting to the changing monetary plane in seventies, also Barre report]

[Mrt Connected to this:]

"History of Monetary Integration
MONETARY INTEGRATION, remarkably was not listed as one of the primary goals of the Treaty of Rome that established the EC. Actually, European monetary integration, rather than being a persistent priority, has been a vague objective of the EC and only received attention periodically, often as a result of financial crises of certain magnitudes.
The first move towards monetary cooperation occurred during the early period of 1958-61 and was caused by the reality of persistent balance of payments surpluses in the original six members of the EC. During this period the EC established the Committee of Governors of the Central Banks to coordinate issues of exchange rate management and international monetary policy.
The increasing monetary instability of the late 1960s, created primarily by the inflationary pressures of the Vietnam war, generated financial dangers that appeared to threaten the existence of the European customs union. These concerns were expressed in the Barre Report which recommended the setting up of a machinery for monetary coordination. At the December 1969 Hague summit, the Barre Report motivated a detailed discussion on the issue of a coordinated European monetary policy. However, differences of opinion existed among the finance ministers and as a compromise solution, it was suggested that a study group be formed to review these issues carefully. The chairmanship of this group was assigned to M. Pierre Werner, the then Prime Minister of Luxembourg.
The Werner Report, published in 1970, has become a significant document on the topic of monetary integration. It recommended the development of the European Currency Unit (ECU), a centralized European credit policy, a unified capital market policy, a common policy on government budgeting and the gradual narrowing of exchange-rate fluctuations.
The monetary crises of the early 1970s that led to the rescinding of the gold convertibility of the dollar on August 15, 1971 and the floating of the guilder and mark created great pressures for finding an alternative solution to the abandoned Bretton Woods system of fixed exchange rates. The major economic powers, the U.S.A., the United Kingdom, Japan, Germany, Italy, Canada and France, known as G-7, in their Smithsonian Accord agreed to allow their participating currencies to fluctuate within a 4.5% band vis a vis the U.S. dollar and EC currencies to vary as much as 9% against each other. It was agreed that if a participating country's currency moved outside such a band that country's central bank was responsible for sufficient intervention to move its rate back within the acceptable range."

Source: Toward monetary union of the European Community: history and experiences of the European monetary system

 "...The Barre report of 1969 was the first  systematic EC approach to monetary issues. It argued that increasing international monetary instability would create problems for the Common Agricultural Policy and the working of the customs union (Giavazzi and Giovannini 1989)..."


Friday, February 17, 2012


The EIR is not a verifiable source which can be crosschecked... last 4 posts taken out.

Thursday, February 16, 2012

OECD - Draft Gold Supplement to the due diligence guidance

"...The Drafting Committee presented a second draft of the supplement at the following meeting of the working group on gold on 18 November 2011. The supplement was then opened for final comments from the working group, and to the general public through an online consultation held from 5 December 2011 until 13 January 2012.

The Drafting Committee revised the draft supplement through a consensus-driven process, bearing in mind all comments received. On 2 February 2012, the working group unanimously endorsed the supplement, marking an important first step towards creating supply chains of gold that support peace and security in conflict-affected and high-risk areas.

The Supplement on Gold is now being considered for final approval by the OECD Investment and Development Assistance Committees.



LBMA - Responsible Gold - The Role of the LBMA

OECD Gold Working Group Meeting Responsible Gold The Role of the LBMA
Stewart Murray Chief Executive, London Bullion Market Association Paris, 18th November, 2011



International Symposium
MARCH 2011


Chairperson: Axel WEBER, President, Deutsche Bundesbank 23
Speakers: Franklin ALLEN, Professor, Wharton School, University of Pennsylvania 25
Jacob A. FRENKEL, Chairman, Group of Thirty, Chairman, JPMorgan Chase Intl. 32
Pierre-Olivier GOURINCHAS, Professor, University of California, Berkeley 36
Kenneth ROGOFF, Professor, Harvard University 41
Nouriel ROUBINI, Professor, Stern School of Business, New York University 44

Chairperson: Mario DRAGHI, Governor, Banca d’Italia, Chairman, Financial Stability Board 51
Speakers: Lorenzo BINI SMAGHI, Member of the Executive Board, European Central Bank 54
Olivier BLANCHARD, Economic Counsellor, International Monetary Fund 63
Choongsoo KIM, Governor, Bank of Korea 66
Olli REHN, Member of the European Commission for Economic and Monetary Affairs 70

Chairperson: Michel CAMDESSUS, Managing Director, International Monetary Fund (1987-2000) 75
Speakers: Charles A. E. GOODHART, Professor Emeritus, London School of Economics 77
José DE GREGORIO, Governor, Central Bank of Chile 80
Olivier JEANNE, Professor, Johns Hopkins University, Baltimore 86
Jean-Pierre LANDAU, Deputy Governor, Banque de France 93
Athanasios ORPHANIDES, Governor, Central Bank of Cyprus 95

Moderator: Martin WOLF, Associate Editor and Chief Economics Commentator, Financial Times 101
Panellists: HU Xiaolian, Deputy Governor, People’s Bank of China 102
Christine LAGARDE, Minister of the Economy, Finance and Industry, France 104
Jacques de LAROSIÈRE, Advisor, BNP Paribas 107
Kiyohiko G. NISHIMURA, Deputy Governor, Bank of Japan 109
Janet YELLEN, Vice Chair of the Board of Governors, Federal Reserve System 111

William R. WHITE, Chairman, Economic and Development Review Committee, OECD



at the request of the German Federal Ministry of Finance on a draft legislative proposal for the issue of a 1 DM gold coin and the establishment of a ‘Monetary Stability’ Foundation
6. The ECB holds the view that the minting and sale of gold coins is not in contradiction with the central bank gold agreement of 26 September 1999 between the ECB and the central banks of Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, Switzerland and the United Kingdom. In this context, note is taken of the fact that the Deutsche Bundesbank has already informed the ESCB of its intention to issue the 1 DM gold coins.

7. Finally, the ECB welcomes the intention of the Federal Government to maintain and promote the public awareness of the importance of monetary stability..."

Done at Frankfurt am Main on 28 August 2000.
The Vice President of the ECB
Christian Noyer


Wednesday, February 15, 2012

HSG - 111. Volcker Group Paper

Foreign Relations of the United States, 1969–1976
Volume III, Foreign Economic Policy; International Monetary Policy, 1969–1972, Document 111

111. Volcker Group Paper


This subject is discussed in this memorandum under these headings:
1) Activation of Special Drawing Rights
2) Gold Price Problems
3) Interchangeability of Dollars, Gold and Other Reserve Assets
4) Exchange Rate Policies and Principles—Fixed Parity or Limited Flexibility


2) Gold Price Problems. — While an early activation of the SDRs would help to set at rest speculation for an increase in the official price of gold, we cannot be sure that an aggressive devaluation by the French would not bring this problem to the center of the stage. Minister Schiller's continued references to a “realignment of currencies” might also envisage a change in the official monetary price of gold, and hence references to it continue to keep up the hopes of speculators.

The Schiller realignment problem might become serious if the Germans and other Europeans were to delay activation of the SDR and give the French support for a rise in the official gold price. We hope that this technique will not be adopted, and Schiller indicated last November that he was in favor of activation of the Special Drawing Rights. But it seems possible that he is seeking a general realignment of currencies to facilitate and cover a Deutschemark revaluation, and it is reported that he has expressed the view that the dollar is overvalued.

An aggressive French devaluation, which carried with it at least some depreciation of the pound sterling and other European currencies, could present a problem to the U.S. in choosing its future gold and exchange policy. This would be especially true if Germany, Italy, and Japan, for example, were to follow the French with some depreciation. Presumably these strong currencies would move only if the French depreciated by such a large percentage that they would be fearful of the impact on their trade. However, if by any chance there were such a general depreciation by the major countries, the United States would seem to face a decision on these basic alternatives:

a) Elimination of full convertibility and aggressive negotiations with other countries on mutually acceptable exchange rates for all major currencies in terms of the dollar. Such an aggressive negotiation might have to be backed up by threats to make illegal transactions in dollars at any other than a mutually agreed exchange rate.

b) The adoption of a general system of export subsidies and import taxes to offset foreign depreciation or even gain some advantage for U.S. exports in terms of some countries.

c) Depreciation of the dollar in terms of gold and other currencies, which would imply a rise in the official monetary price of gold.

3) Interchangeability of Dollars, Gold and Other Reserve Assets.Assuming that the problem of the gold/dollar relationship is not brought to a head by some monetary crisis, as mentioned in the preceding section, there is a more fundamental question of the long-term U.S. policy with respect to convertibility of dollars into gold. Various approaches have been suggested which have the effect of limiting the potential strain of convertibility. One of these is the freezing in some way of foreign dollar balances. One is the reserve settlements account of Mr. E.M. Bernstein, which is an advanced method of eliminating convertibility that would present very difficult if not impossible negotiating problems. The third is a continuation of the rather informal way in which convertibility has been to some extent limited through central bank cooperation, the re-channeling of reserves into the international money market, through commercial banks, and other ways of holding down the growth in official dollar reserves.

The fourth approach is the suggestion for a dollar bloc and a gold bloc, with a flexible exchange link between the two.

These various proposals may be judged against the long history of monetary evolution. The convertibility of money into a metallic asset has been steadily restricted until it no longer exists domestically in most advanced countries. For a number of years convertibility into gold has been limited to international transactions. Last year, the two-tier system took a further step, and eliminated the convertibility of dollars into gold at a fixed price for foreign private holders of dollars.

What remains is the convertibility link for foreign monetary authorities. It is this link, and the possible loss of gold associated with it, that provides the major remaining impetus to international adjustment arising out of the balance of payments. But this link also threatens the stability of the monetary system, by permitting a run on the U.S. gold reserve on the part of foreign central banks.

Perhaps one of the most important long-term problems facing the U.S. is how to move out of this commitment in a graceful manner without causing undue disturbance to the monetary system and with a fair measure of international approbation, at some time in the future. It is not yet clear whether this can be done, and a breaking of the link may have to come in the context of some crisis and a threatened run on the dollar.
One possibility, over time, is that the nations of the world come to accept Special Drawing Rights in lieu of gold when they convert dollars into other reserves. Such preference for SDRs over gold may be a long time in coming. The preference of many monetary authorities for gold would be to some extent weakened if it became clear that the commodity gold price could dip below the official price of $35 per ounce.

A partial approach to the problem of reducing our vulnerability to convertibility would be the freezing of dollar balances in some form. Most experts believe, however, that this would not be acceptable to foreign countries without some kind of commitment to the effect that the U.S. would no longer have the flexibility of settling its deficit initially with dollar liabilities instead of reserve assets. There is a feeling in many quarters that it would be dangerous for the U.S. to give up the more favorable bargaining position which it now has, when it can pay out dollars initially and then discuss with foreign monetary authorities the various techniques for handling these dollars if the central bank does not want to hold them in its reserves. The reason for this feeling is that, with the U.S. unable to create new reserves in this form, the European countries might use too harshly their veto over the creation of Special Drawing Rights so that the growth in reserves that would be permitted might fall heavily short of the amounts needed to prevent a steadily tightening shortage of world reserves.
The same considerations apply to the Bernstein plan, which makes no allowance for the role of the U.S. as a continuing reserve center with the potential power to create additional reserves in the form of dollar liabilities. Under that plan, there would be no increase in dollar liabilities held as reserves.
The U.S. still has to develop a clear position as to its long-range objective with respect to the maintenance of convertibility and the interchangeability of dollars and gold...

[Mrt: A dollar block and Gold block already discussed 40y ago.]


More: US Gov documents and meetings

Monday, February 13, 2012

EIA - Shale Gas and the Outlook for U.S. Natural Gas Markets and Global Gas Resources

Shale Gas and the Outlook for U.S. Natural Gas Markets and Global Gas Resources
Organization for Economic Cooperation and Development (OECD)
Richard Newell, Administrator
June 21, 2011 | Paris, France

[Mrt: pg: 23]


For more information:

U.S. Energy Information Administration home page |
Short-Term Energy Outlook |
Annual Energy Outlook |
International Energy Outlook |
Monthly Energy Review |

Sunday, February 12, 2012


WendyFeb 9, 2012 08:07 PM
Mortymer it would be good if you could open a discussion post that people could use to discuss the content of the site. It's hard to follow or initiate any discussions with so many posts. Just an idea :)

mortymerFeb 9, 2012 11:34 PM
I am not so sure if I understand, you mean a page -new post - which would be like a forum? Yes, that is easy. Is it what do you mean?

WendyFeb 10, 2012 06:11 AM
Yes mortymer, a page that everyone can go to knowing that there is ongoing discussion

WendyFeb 10, 2012 09:22 PM
mortymer have you given this more thought? I was thinking an open forum" post in each month. this would provide an avenue to discuss relevent information without having to "chase" each blog post.

Mrt: Ok.  /One condition: all offensive, non factual, personal posts will be deleted. Do not ask me for opinion, I am not an arbiter nor I have background of a CBer, I am just learning, the subject is very interesting and I know very little.

Saturday, February 11, 2012

FED - AG - The History of Money

Remarks by Chairman Alan Greenspan
At the Opening of an American Numismatic Society Exhibition, Federal Reserve Bank of New York, New York
January 16, 2002
The History of Money

"The other day I told a spendthrift friend that I had to deliver a short address on the history of money. He responded, "I understand the history of money. When I get some, it's soon history." Fortunately, not all market participants are as spendthrift as my friend. Savers have been in sufficient abundance since the beginning of the Industrial Revolution to enable investment to further material well-being. Money, as a store of value, was an early facilitator of savings and one of the great inventions of mankind. Saving and investment is very difficult in a barter economy.
The history of money is the history of civilization or, more exactly, of some important civilizing values. Its form at any particular period of history reflects the degree of confidence, or the degree of trust, that market participants have in the institutions that govern every market system, whether centrally planned or free.
To accept money in exchange for goods and services requires a trust that the money will be accepted by another purveyor of goods and services. In earlier generations that trust adhered to the intrinsic value of gold, silver, or any other commodity that had general acceptability. Historians, digging deep into the earliest evidence of human practice, link such commodities' broad acceptability to peoples' desire for ostentatious gold and silver ornaments..."


Friday, February 10, 2012

David Rothkopf Videos (videos)

"Begin with his hour-long speech at Middlebury College, one of the most expensive schools in the world. It is one of the institutions that trains America's elite.

Rothkopf is an engaging speaker. He gets his ideas across very well. You really should consider them."

 3 videos

[Mrt: Note 1min 2y as director of Kissinger associates.]


Thursday, February 9, 2012

Burton A. Abrams - How Richard Nixon Pressured Arthur Burns: Evidence from the Nixon Tapes

Journal of Economic Perspectives—Volume 20, Number 4—Fall 2006—Pages 177–188

How Richard Nixon Pressured Arthur Burns: Evidence from the Nixon Tapes
Burton A. Abrams

"...This episode of Richard Nixon and Arthur Burns in the run-up to the 1972 election illustrates the danger of permitting too much discretion in the implementation of monetary policy. It is time to consider an explicit rule for monetary policy, whether that rule targets only inflation or some mixture of inflation and output or unemployment. Monetary policy is too important to be left to the discretion of central bankers, who may be subject to errors in economic judgment or to manipulation by politicians..."


ECB - Economic and monetary union

General Secretariat of the Council of the European Union
European Commission
Economic and monetary union
Legal and political texts
June 2007

"Economic and monetary union (EMU) in general, and the euro in particular, is  designed to create the foundation for sustainable long-term economic growth  by providing macroeconomic stability, while, at the same time, constituting a  natural complement to Europe’s single market. The introduction of the single currency on
1 January 1999 and the introduction of the euro banknotes and coins on 1 January 2002 are two key events in the history of the European  Union. Since the adoption of the euro by Slovenia on 1 January 2007, the  euro area comprises 13 Member States and counts a population of more than 315 million who share the single currency and benefit from the euro.
This is compilation, issued jointly by the General Secretariat of the Council of the  European Union and the European Commission, brings together the core legal and political texts on EMU and the euro.
The concept of this publication is to cover the key provisions governing EMU  in the format of a handy booklet. It was therefore unavoidable to be selective,  despite the fact that numerous other texts are relevant for the functioning of  EMU, for example legal acts relating to institutional and external aspects as  well as to practical aspects of the single currency. They are therefore listed in  the Annex, together with references to the Official Journal."


Monday, February 6, 2012

IMF - Hong Kong Resident Representative Site

Hong Kong Resident Representative Site
Resident Representative Office in Hong Kong Special Administrative Region

"This web page presents information about the work of the IMF in Hong Kong, including the activities of the IMF Resident Representative Office. Additional information can be found on the Hong Kong and IMF country page, including IMF reports and Executive Board documents that deal with Hong Kong..."



[Mrt: Since HK was not part of the IMF at the time Another wrote about BigTrader they (their CB) could go to public market and buy gold.

1984: The Sino-British Joint Declaration – an agreement to transfer sovereignty to the People's Republic of China in 1997 – was signed. It stipulated that Hong Kong would be governed as a special administrative region, retaining its laws and a high degree of autonomy for at least 50 years after the transfer. The Hong Kong Basic Law, which would serve as the constitutional document after the transfer, was ratified in 1990.

1997 July 1: handover of Hong Kong sovereignty

1997 October 9: Another: ...Well a funny thing happened right after the Gulf war ended. What looked like big money before turned out to be little money as some HK people, I'll call them "Big Trader" for short, moved in and started buying all the notes and physical the market offered... From that time, early 1997 LBMA was running full speed just to stay in one spot! In other words paper volume had to increase to the physical volume on a worldwide scale, and that was going to be one hell of a jump. It could not be hidden from the news any longer.
This was not far from the time that "Big Trader" said that "if gold drops below $370 the world would see trading volume like never before seen". The rest is history....

1998 July: Opening of the BIS Representative Office for Asia and the Pacific in Hong Kong SAR; Host Country Agreement with China...]

And from the year 1997 on IMF web page:

"...Resilient financial system is key to stability in Hong Kong, China
Under the Sino-British Joint Declaration of 1984, Hong Kong reverted to Chinese sovereignty on July 1, 1997, becoming the Hong Kong Special Administrative Region governed by the Basic Law of 1990. In monetary and financial affairs, the relationship between mainland China and Hong Kong will follow the principle of “one country, two currencies, two monetary systems, and two monetary authorities.” Article 109 of the Basic Law protects the status of Hong Kong as an international financial center. Article 110 ensures the independent formulation of monetary and financial policies and of regulation and supervision by the government of the Kong Kong Special Administrative Region. Article 111 stipulates that the legal tender will be the Hong Kong dollar, backed by a 100 percent reserve fund. Article 112 states that no foreign exchange controls will be applied. Article 113 specifies that the government of the Hong Kong Special Administrative Region will manage the Exchange Fund, primarily to maintain the value of the Hong Kong dollar.
Current market sentiment suggests that the transfer of sovereignty will not have any adverse effects on the Hong Kong dollar over the medium term. This sentiment reflects the generally positive assessment of the Hong Kong financial system and of the professional financial management practiced by the Hong Kong Monetary Authority.
The cornerstone of the financial system is the currency board linking the Hong Kong dollar to the US dollar. The Hong Kong Monetary Authority has successfully defended this arrangement, most recently in the summer and autumn of 1997. The first line of defense of the linked exchange rate is a large stock of reserves—$64 billion, or 40 percent of 1996 GDP— at the end of April 1997. The second line of defense is the ability of the Hong Kong Monetary Authority to raise short-term interest rates to make it expensive for speculators to obtain Hong Kong dollar credit. The banking system is highly capitalized and liquid, with very low levels of nonperforming loans, and it can tolerate increases in short-term interest rates. In 1996, to ensure the robustness of the financial system, the Hong Kong Monetary Authority established a real-time, gross settlement system and the Mortgage Corporation, which will help to isolate property finance from fluctuations in short-term interest rates.
The People’s Bank of China, which has reiterated its support for the present exchange rate arrangements in Hong Kong, has stated that it is prepared to use its own foreign exchange reserves to defend the Hong Kong dollar. The Hong Kong Monetary Authority has also established a swap facility with the People’s Bank of China to provide liquidity to its reserves in the event of an attack on the exchange rate, as it has with 10 other monetary authorities in the region...."


Sunday, February 5, 2012


Just a side-note:
...updates on this blog ongoing
...some major updates on the second RGGB - timeline blog done.

BIS published: Weathering financial crises: bond markets in Asia and the Pacific
BIS Papers No 63
January 2012

IMF visit to SA: Statement by IMF Managing Director Christine Lagarde at the Conclusion of her Visit to Saudi Arabia
Press Release No. 12/36
February 4, 2012

Saturday, February 4, 2012

BIS - OI - Hayek – currency competition and European monetary union

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.

"...As Hayek himself put it: “If the law makes two kinds of money perfect substitutes for the payment of debts and forces creditors to accept a coin of smaller content of gold in the place of one with a larger content, debtors will, of course, pay only in the former and find a more profitable use for the substance of the latter”.14 And: “(Gresham’s Law) is not false, but it applies only if a fixed rate of exchange between the different forms of money is enforced” (italics in original15). The bad (i.e. overissued and inflation-prone) money would start to drive out the good (i.e. well-managed and maintaining stable purchasing power) money. More of the bad money would be produced at the expense of the good money and inflation would accelerate.
In principle, Hayek’s proposal also works with national currencies produced monopolistically by central banks, provided the currencies in question are convertible and can be freely exchanged against each other on foreign exchange markets. In such settings, good national currencies will tend to increase in importance relative to bad, inflation-prone, national currencies. This naturally constrains the ability of national governments to use “their exclusive power to issue money in order to defraud and plunder the people” (op. cit.). In this context, I think it is fair to say that the widespread use of the Deutschmark, for example, as an international investment currency is symptomatic of the enduring success of the Bundesbank in maintaining, in relative terms, the internal purchasing power of the Deutschmark. However, as long as national currencies remain legal tender only within their own national boundaries, the scope for good national currencies to drive out bad national currencies may not be as complete as in the Hayek world of competing private currencies where none of these currencies has the status of legal tender. In other words, Hayek’s competition between currencies goes beyond the limited competition we have seen on foreign exchange markets between national currencies..."


BIS - OI - Should we have faith in central banks?

Otmar Issing: Should we have faith in central banks?
Speech by Professor Otmar Issing, Member of the Executive Board of the European Central Bank,
held at St Edmund’s College Millennium Year Lecture, Cambridge, on 26 October 2000.

"Ultimately, trust must be earned, it is granted temporarily, it must be checked, and
it must be backed up by hard evidence, not be based purely on faith or belief.

"...A third aspect of faith relates to “keeping a promise” or “engagement” as in “acting in good faith”, in the sense of reflecting “honesty of intention”. For Thomas Hobbes “to have faith”, “to trust” and “to believe a man” are synonymous. One could think of this dimension of faith as representing a twosided relationship, rather than a unilateral act of faith.
From this perspective faith - or here better: trust - is similar to a contract established between two parties. The faith that the public places into the central bank imposes a constant obligation on the central bank to honour this trust and fulfil the promise of stable money. The bond of trust between the public and its central bank can be seen as something like a credit relationship. Indeed, the term “credit” is Latin for “he believes”, i.e. it expresses the hope and expectation that initially one-sided trust will be reciprocated and returned in the future. Trust is given “on credit” but in turn it is based on credibility or trustworthiness..."

"2. Trust: the role of money and the value of price stability
One does not have to look very far in order to find a link between faith and money. In fact, every onedollar bill bears the inscription “In God we trust”. The Euro will be more secular in this respect. In the case of Sterling, the pound notes feature a “promise to pay the bearer” of the note the amount stated. This points to the very nature of money as being built on trust, on a promise. Trust is crucial for money to function as a medium of exchange, as a store of value and as a stable unit of account. Using economic terminology, money - or rather the trust that underpins the use of money - has public good characteristics or confers positive network externalities on all participants in the economy. In this way money economises significantly on the costs of transactions that would be present in a pure barter economy.
If you look more closely at the dollar bill, you will find a further inscription which states “This note is legal tender for all debt, public and private”. This imposes an obligation to accept the note in the settlement of contracts and highlights the fact that money derives its value - whether imposed by a legal tender requirement or not - from the willingness of other economic agents to accept it to settle transactions. Each agent will only accept money, if he can be confident that it will in turn be accepted  by other agents in future transactions. Thus money is a social achievement as has long been recognised by economists for example by Menger. Money is a question of trust, its use requires trust and it reflects trust. This is especially true in the case of fiat money, i.e. the use of printed paper - which has no intrinsic worth - as a medium of exchange and as a store of value. Yet even commodity money requires trust and a well-founded expectation that it will be accepted for a wide range of transactions. Milton Friedman, in his book Money Mischief (1992), reports the well-known story of the monetary system of a small island in Micronesia which at the end of the 19th century used stone wheels as a medium of exchange and as a store of wealth. He recounts an episode when the colonial government imposed “fees” on disobedient district chiefs simply by painting black crosses on these stone wheels. This miraculously and promptly induced them to change their ways just in order to have these marks erased again and thus - in their perception - their wealth restored. Friedman concludes that this example illustrates “how important appearance or illusion or “myth”, given unquestioned belief, becomes in monetary matters. Our own money, the money we have grown up with, the system under which it is controlled, these appear “real” and “rational” to us. Yet the money of other countries often seems to us like paper or worthless metal, even when the purchasing power of individual units is quite high.”.."

"...In order to hold and accept money economic agents must not only be confident that money remains accepted as a medium for exchange, but also be confident that money will retain its value over time, thereby ensuring that price signals can provide accurate guidance for markets to function efficiently. In contrast, if money loses its value, this also undermines its usefulness for exchange...."

"...Can we trust central banks and can we expect them to be credible in making good on their promise of
price stability?
There is today a broad consensus that stable money is too important to be left to the day-to-day political process, which inevitably will always have to balance different objectives, conflicting interests and short-term pressures. If stable money is regarded as a common good for the benefit of all and if it is seen as a precondition for long-term prosperity and social justice then it makes sense for society to create an independent institution that stands above the fray of day-to-day politics and can pursue this objective with minimum distraction. This is the basis for central bank independence....