Monetary economics with a vengeance

John McClaneOn wednesday morning, Bundesbank, Germany’s central bank, announced that it would move 674 tonnes of its gold reserves (currently worth about €30 billion) from vaults in NYC and Paris to its home base in Frankfurt. That night, HBO2, American premium television channel, aired -Die Hard with a Vengeance. These 2 events may not have been planned to coincide, but it is fortunate that they did. They Both help teach us something about central bank gold reserves, and maybe even the future of the euro area. For those who do not know, the film is about an attempt to steal hundreds of billions of dollars worth of gold bullion from the vaults underneath New York Fed, which provides custodial services for many of world’s central banks. Plan relied on a continuous series of diversions meant to confuse the police. Towards the end, the villains pretended to dump gold into the Hudson River while posing as Marxist revolutionaries. (They had actually loaded bullion onto trucks headed for Canada.) In a recorded message left for the Coast Guard, the leader declares that he raided the vaults to “level the playing field” between the poor and rich worlds. Ostensibly, leaving the gold at bottom of the river would cripple rich nations that depended on bullion reserves to support their financial systems. This makes no sense. To understand why the threat to destroy the gold was meaningless, it helps to understand what the inert metal was doing before it was stolen (basically nothing). Yesterday’s statement from Bundesbank tells you all you need to know: “With this new storage plan, the Bundesbank is focusing on the two primary functions of the gold reserves: to build trust and confidence domestically, the ability to exchange gold for foreign currencies at the gold trading centres abroad within a short space of time”. Gold reserves are a relatively convenient nice way to maintain access to foreign currency in a pinch, but their value is mostly symbolic. Better or worse, contemporary fiat currency systems do not require bullion in order to function. What they do require is faith. “Credit” and “credible” come from the same root word, after all. Bundesbank’s decision suggests that some in Germany are worried about public’s continued trust in the euro as a currency suitable for conducting transactions and making investments. That would be a serious problem, to put it mildly. Moving hundreds of tonnes of shiny, rust-resistant metal from a vault in Paris to a vault in Frankfurt could be a worthwhile decision if it helps secure German acquiescence to Mario Draghi’s monetary policies. (source: The Economist – 18/01/2013)

Acerca de ignaciocovelo
Consultor Internacional

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