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Central banks must manage ''dollar overhang'' together, money manager says
1:28a ET Thursday, March 9, 2006
Dear Friend of GATA and Gold:
Alan Greenspan confessed to the gold price suppression
scheme while he was chairman of the Federal Reserve.
He gave his famous testimony to Congress on July 24,
1998: "Central banks stand ready to lease gold in
increasing quantities should the price rise."
http://www.federalreserve.gov/boarddocs/testimony/1998/19980724.htm
The European Central Bank confessed to the gold price
suppression scheme when it entered the Washington
Agreement on Gold on September 26, 1999. The bank's
members acknowledged that they had gotten together
to regulate the gold price through gold sales and
leasing:
http://www.ecb.int/press/pr/date/1999/html/pr990926.en.html
Barrick Gold confessed to the gold price suppression
scheme in U.S. District Court in New Orleans on
February 28, 2003, when it filed a motion to dismiss
Blanchard & Co.'s anti-trust lawsuit charging that
Barrick was doing exactly what its motion admitted.
The motion said that in borrowing gold from central
banks and selling it, Barrick had become the agent
of the central banks in the gold market, and, as the
agent of the central banks, shared their sovereign
immunity and thus could not be sued:
http://www.lemetropolecafe.com/img2003/memoformotiontodis.pdf
The Reserve Bank of Australia confessed to the gold
price suppression scheme in its annual report for
2003. "Foreign currency reserve assets and gold,"
the RBA's report said, "are held primarily to support
intervention in the foreign exchange market. In
investing these assets, priority is therefore given to
liquidity and security, in order to ensure that the
assets are always available for their intended policy
purposes."
http://www.rba.gov.au/PublicationsAndResearch/RBAAnnualReports/2003/P
df/operations_financial_markets.pdf
And now the Bank for International Settlements, the
central bank of the central banks, has confessed to
the gold price suppression scheme.
The confession of the BIS came last June in a fairly
candid speech by the head of the bank's monetary
and economic department, William R. White, to
central bankers and academics gathered at the BIS'
fourth annual conference, held in Basel, Switzerland.
The speech was provided to GATA this week.
White's speech was titled "Past and Future of Central
Bank Cooperation" and he said in part:
"The intermediate objectives of central bank cooperation
are more varied.
"First, better joint decisions, in the relatively rare
circumstances where such coordinated action is called
for.
"Second, a clear understanding of the policy issues as
they affect central banks. Hopefully this would reflect
common beliefs, but even a clear understanding of
differences of views can sometimes be useful.
"Third, the development of robust and effective networks
of contacts.
"Fourth, the efficient international dissemination of both
ideas and information that can improve national policy
making.
"And last, the provision of international credits and joint
efforts to influence asset prices (especially gold and
foreign exchange) in circumstances where this might be
thought useful."
That is, central banks collaborate -- and since they do
so in secret, it may be said that they conspire -- to rig
the gold and currency markets.
To use White's word, the central banks collaborate
"especially" to rig the gold and currency markets.
Thankfully White did not accuse those who read his
speech of being "conspiracy nuts." We still have
Dennis Gartman, Tim Wood, and a few others for
that, even if their band is rapidly diminishing.
Interestingly, among those listed as having attended
the BIS conference on central bank cooperation and
presumably in the audience for White's speech was
Edwin M. Truman, a senior fellow at the Institute for
International Economics and a former Federal
Reserve official who, as assistant secretary of the
U.S. Treasury Department, kept a close eye on
the delegation GATA sent to visit members of
Congress in Washington in May 2000 and who
was in charge of denying to everyone then that
the U.S. government had anything to do with a
scheme to suppress the gold price. Truman
seems to have survived any shock that White's
speech may have caused him:
http://www.iie.com/publications/author_bio.cfm?author_id=122
White's speech confessing to the gold price
suppression scheme on behalf of the BIS is
appended. You can find the entire proceedings
of the BIS conference at the Internet link
included in the speech. It looks like the bankers
had a much nicer time of it than the people who
try to make their living wresting real money from
the earth.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
Fourth Annual BIS Conference
Past and Future of Central Bank Cooperation
Basel, Switzerland, June 27-29, 2005
Past and Future of Central Bank Cooperation / Opening Remarks
By William R. White
Economic Adviser
and Head of Monetary and Economic Department
Bank for International Settlements, Basel, Switzerland
http://www.bis.org/publ/bppdf/bispap27.pdf
Let me begin this meeting by welcoming all of you, both central
bankers and academics, to this conference on the "Past and Future of
Central Bank Cooperation."
This is the fourth in a series of annual conferences, all of which
have been based on the premise that these two communities have a
great deal to learn from each other. In particular, we feel that the
central bankers, who are on the firing line of public policy, have
some comparative advantage in identifying the issues that need
analysis. The academics, in turn, have a similar advantage with
respect to analytical tools, rigour, and sometimes, quite simply,
the time to do the thinking required.
In this spirit, participation in the conference this year does mark
a further step forward. Whereas in the past we primarily invited
academic economists and economic historians, this year we have
extended the writ to a number of political scientists interested in
political and other processes, and the development of institutions
to support such processes. I am pleased about this, in part because
I have felt for a long time (and I think there is evidence to back
this up) that the multidisciplinary approach often leads to big
breakthroughs in terms of understanding. But, more particularly, I
am also pleased because it responds to a specific concern that I
have had for many years here at the BIS. Namely, that, as we were
trying over the years to make the BIS more relevant and useful to
the global community, we were relying too much on the views of
economists, like myself, with no real training in such
organisational matters. As I mentioned to Ethan Kapstein a number of
years ago, I thought we needed help and this conference might be the
first step down that path.
As to the choice of the particular topic for this conference, it was
in a way a "no-brainer" given that this year marks the 75th
anniversary of the founding of the BIS. Since the BIS has been in
the central bank cooperation business since its start, the idea of a
conference to look back at past successes and failures, and what we
could learn from them, had an obvious appeal. Looking forward, there
was also a sense that changes in the structure of international
financial markets had likely made the issue of international
cooperation among central banks of even greater interest than in the
past.
On the one hand, it could be argued that virtually everything has an
international flavour in today's "globalised" world. This might
imply even more work for central banks and regulatory agencies to
resolve problems of mutual interest. On the other hand, however,
with deregulated markets playing a bigger role than ever and
floating exchange rates increasingly the rule, one could also argue
that the need for international cooperation has now been much
reduced.
In a nutshell, if central banks are focused on domestic price
stability, and if domestic financial stability is assured by
adequate governance and regulatory standards (albeit likely to be
internationally negotiated), what further role is there for
international cooperation? Moreover, it could also be posited that
the narrower domestic mandate of central banks will further reduce
the scope for international central bank cooperation as well.
Before turning briefly to an assessment of past efforts and likely
future challenges, it is perhaps worth spending a minute on what is
meant by central bank cooperation.
I think that the terminology developed for domestic monetary policy
might have some uses here; namely, the ultimate objectives, the
intermediate objectives and the operational instruments. The
ultimate objectives have always been monetary and financial
stability, though clearly the focus of attention has often shifted
over the years.
The intermediate objectives of central bank cooperation are more
varied.
First, better joint decisions, in the relatively rare circumstances
where such coordinated action is called for.
Second, a clear understanding of the policy issues as they affect
central banks. Hopefully this would reflect common beliefs, but even
a clear understanding of differences of views can sometimes be
useful.
Third, the development of robust and effective networks of contacts.
Fourth, the efficient international dissemination of both ideas and
information that can improve national policymaking.
And last, the provision of international credits and joint efforts
to influence asset prices (especially gold and foreign exchange) in
circumstances where this might be thought useful.
Talking about the instruments of central bank cooperation brings us
more directly to the services which the BIS has provided to the
international central banking community over the years.
First, I would note the various meetings of central bankers and
regulators which take place in the "Basel community," if not
necessarily in Basel. These now number over 300 a year and involve
governors as well as all types of specialists (IT experts, auditors,
security experts, economists, etc.) within the central banks.
Second, there is research and policy analysis directed to
international issues. This conference is a good example of the
genre.
Third, there is data and information, most notably on international
bank lending, cross-border securities markets, and derivatives
markets.
And finally, there are the BIS banking services to central banks,
which have allowed us to maintain the share of global foreign
exchange reserves deposited at the BIS at around 6 percent of the
global total. Managing this money gives us a particular insight into
how global financial markets actually work.
Well, if that is what central bank cooperation is all about, has it
done any good?
Since I have been in the cooperation business for over 20 years now,
the last 11 at the BIS, it would be strange if I did not say yes.
The fact that our partners in cooperation keep coming back, in ever-
increasing numbers and asking for ever more diverse products, also
points in the same direction. And by the standards of other forums
for international cooperation, the efforts of central banks also
look pretty good.
Consider, for example, the issue of collective action clauses in
international bond contracts to facilitate agreement among creditors
in case of default. These were first suggested by a G-10 central
bank working group in 1995 (also by Eichengreen and Portes),
advocated by the G-10 deputies in 1996, endorsed by the G-10
ministers and governors in 1997, overtaken by the work of the
Willard Group in 1998 and 1999, subsequently forgotten about, and
ultimately introduced on a geographically widespread basis only
dating from 2003, and only partially in terms of content.
Clearly, international cooperation is not always an easy game to
play, so even the relatively modest achievements of the central bank
community must be viewed positively. And I would like to believe
that the contribution of the BIS to this process -- a small staff
focused on customer service and the capacity to see two sides of an
argument -- has also been a useful one.
Yet, for completeness, it must also be noted that central bank
cooperation may not always have been used to good effect. Some have
argued that the efforts made here in Basel to paper over the cracks
in the Bretton Woods system served not so much to buy needed time
but as a means to postpone needed and much more fundamental policy
adjustments. My own personal involvement with bridge loans, directed
via the BIS to many emerging-market countries in the 1980s and early
1990s, led me to conclude that some of the later ones should never
have been made in the first place. Increasingly, they were show
rather than substance and threatened to undermine the credibility of
other, more substantial forms of liquidity support.
Looking ahead, a number of policy challenges might call for more
intensive international cooperation, including among central banks.
The first and biggest has to do with widening external imbalances.
These could catalyse an international crisis at some point, with
potentially disruptive movements in both exchange rates and the
prices of financial assets. At the textbook level, it is reasonably
clear what all the major players should do to reduce these risks.
However, it is equally clear that many of them face other
constraints as well, not least political resistance to following the
required course of action. In this environment, it does not seem
silly to suggest that a cooperative response might be required.
A second challenge for central bank cooperation will be to find ways
to better integrate their cooperative efforts with those of
regulators and supervisors in the pursuit of international financial
stability. Central bankers are increasingly aware that injections of
liquidity to support financial stability may lead to excessive
increases in asset prices as well as moral hazard. Regulators are
also increasingly aware that their domestic efforts also have a
macroeconomic dimension. These are conceptual advances.
Nevertheless, the cross-border aspects of crisis prevention and
crisis management need still greater attention. In particular, how a
large, complex and globally active financial firm might be wound
down while keeping its vital functions intact remains a puzzle at
best.
And a third challenge has to do with regional central bank
cooperation and how this fits into the broader framework of global
cooperation.
The BIS was instrumental in helping Europeans prepare themselves for
monetary union. Today similar interests are being expressed in the
Gulf, parts of Africa, and Central America. In Asia a framework for
greater monetary cooperation seems gradually to be taking shape,
underpinned by increasing trade integration. Everywhere in the
emerging markets there is a keen interest in learning about central
banking issues from those more experienced with liberalised economic
and financial systems.
To conclude, whether looking back or forward, a number of
interesting questions pertaining to central bank cooperation remain
unanswered. I have every confidence that the presentations and the
subsequent discussions will move us a long way toward rectifying
that situation. May I take this opportunity to thank all those who
have prepared papers, to thank the discussants, and to encourage all
members of the audience to participate actively. As I said at the
beginning, we all have a lot to learn from each other. So speak up.
----------------------------------------------------
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