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Greeks give new meaning to 'sovereign' wealth
By John Carr
The Times, London
Tuesday, May 25, 2010
http://business.timesonline.co.uk/tol/business/economics/article7135543.ece
They were parachuted in during the Second World War to fund local resistance to the Germans and now, with a population mired deep in another -- if very different -- crisis, British gold sovereigns once again are the foreign currency of choice in Greece.
Once again, too, they are offering a tangible sense of security amid turbulent uncertainty. In the 1940s, as the only reliable currency available, much of it was hoarded in trunks, under floorboards, and buried in gardens. Any respectable girl's dowry included a cache of sovereigns.
Now they are being used as a physical hedge against fears that Greece may leave the eurozone. For weeks buyers have been queuing patiently in the central bank's main downtown Athens office, prepared to shell out nearly E273 per piece, up from E243 at the start of May and E180 last July. Persistent worries that Greece could default at least partly on its debts are emptying the Bank of Greece's vaults of at least 700 gold coins a day, giving a whole new meaning to the term sovereign debt.
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"The public’s renewed interest in sovereigns as an asset started with the collapse of Lehman Brothers," the daily Kathimerini wrote. Central bank officials estimate that while Greek demand for the distinctive bullion has been rising by 10 per cent a year since 2008, its price has been soaring by more than 50 per cent.
Greeks' uncertainty about their future has manifested itself more dramatically in a series of strikes and riots. The markets have been jittery too, something unlikely to have been eased by remarks yesterday by Olivier Blanchard, chief economist of the International Monetary Fund, who said: "The markets are wondering if Greece will be able to repay its debt or not. Given the behaviour of Greek governments in the past, their uncertainties are understandable."
Sovereigns remained legal tender amid an unstable drachma until 1965, when the Greek Government placed restrictions on their trading. Many hoarders cashed in their stocks, although street vendors near the Athens Stock Exchange continued to do a brisk trade in the coins.
The growing run on the bullion sovereign has spawned a thriving black market: In addition to about 50,000 sold legally by the Bank of Greece in the first four months of this year, officials estimate that at least 100,000 have changed hands on the black market at prices of up to E300.
Trading offers have invaded the Greek blogosphere, where buyers are sometimes confused at the variety of sovereigns on offer. Some expect the head of George V, standard on most of the 1930s coins flown into wartime Greece. Others want Elizabeth II, whose likeness is on a batch of several million pounds' worth of sovereigns that Greece bought in the 1970s.
More than one billion gold sovereigns are estimated to have been minted since the first of them was created for Henry VII in 1489.
Through the centuries, the coins have been a favoured store of value, not only for the Greeks but for Australians, Indians, Canadians, and South Africans -- and, of course, the British.
Slightly larger than a 1p piece, sovereigns are still churned out to this day by the Royal Mint in Llantrisant, South Wales, which sells them by mail order for L232.95.
The original 15th-century sovereigns were bigger, heavier, and, at 23-carat, more packed with pure gold than the present-day coins, which are 22-carat.
The first sovereigns were illustrated with pictures of the king on one side and the Tudor rose on the other, hence the name. The St. George and Dragon motif was introduced in 1871.
Since 1817, sovereigns have been produced to a standard specification. Each is 1.52mm thick with a diameter of 22.05mm and a weight of 7.9881 grams (shown below, life size).The actual gold content is 7.3224 grams.
Based on yesterday's spot dollar price for gold and the prevailing exchange rate, the precious metal value of a sovereign is about L193. However, the common ones are sold for between L210 and L230 retail, with rarer versions in good condition commanding much higher prices.
The price of sovereigns and other gold coins has inevitably rocketed alongside the price of the precious metal, which has quadrupled in the past 10 years.
Although they are legal tender with a nominal value of L1, the coins ceased being used for normal transactions during the First World War. Today they are prized as gifts to mark weddings and births. In 2005, the most recent year for figures, more than 45,000 new sovereigns were minted.
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