Bron Suchecki: Fractional-reserve bullion banking, Part 3

11:53a ET Wednesday, September 23, 2015

Dear Friend of GATA and Gold:

In the third installment of his series on fractional-reserve gold banking, Perth Mint research director Bron Suchecki describes how the association formed by London-based bullion banks, London Precious Metals Clearing Ltd., reduces risk among bullion banks and regulates their credit with each other.

Suchecki writes that in some ways the London bullion banking system resembles a "free banking" system, in which financial institutions issue their own competing forms of money. But, he adds, the analogy is far from complete because of the involvement of central banks in gold lending.

The credit extended by bullion banks to each other, Suchecki writes, in effect increases what is perceived as the gold supply and thus tends to suppress gold's price in terms of government currencies. He adds that gold lending by central banks tends to do this as well.

Suchecki writes: "So in our semi-free bullion banking system, the lending of gold to the bullion banks by a central bank increases the bullion banks' reserves and thus increases the bullion banks' ability to create more gold credit (unallocated). This inflation in gold supply naturally results in its fiat price falling. If so, why then would a central bank actually sell its precious physical gold if it wanted to manipulate the gold price when it can do so via reserve expansion instead? An answer to this rhetorical question tomorrow."

Suchecki's analysis is headlined "Fractional-Reserve Bullion Banking, Part 3," and it's posted at the Perth Mint's Internet site here:

http://research.perthmint.com.au/2015/09/23/fractional-reserve-bullion-b...

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org