ECB PRESS RELEASE

Joint Statement on Gold

8 March 2004

European Central Bank
Banca d'Italia
Banco de España
Banco de Portugal
Bank of Greece
Banque Centrale du Luxembourg
Banque de France
Banque Nationale de Belgique
Central Bank & Financial Services Authority of Ireland
De Nederlandsche Bank
Deutsche Bundesbank
Oesterreichische Nationalbank
Suomen Pankki
Schweizerische Nationalbank
Sveriges Riksbank

In the interest of clarifying their intentions with respect to their gold holdings, the undersigned institutions make the following statement:

1. Gold will remain an important element of global monetary reserves.
2. The gold sales already decided and to be decided by the undersigned institutions will be achieved through a concerted programme of sales over a period of five years, starting on 27 September 2004, just after the end of the previous agreement. Annual sales will not exceed 500 tons and total sales over this period will not exceed 2,500 tons.
3. Over this period, the signatories to this agreement have agreed that the total amount of their gold leasings and the total amount of their use of gold futures and options will not exceed the amounts prevailing at the date of the signature of the previous agreement.
4. This agreement will be reviewed after five years.

***

European Central Bank
Press and Information Division
Kaiserstrasse 29, D-60311 Frankfurt am Main
Tel.: +49 69 1344 7455, Fax: +49 69 1344 7404
Internet: http://www.ecb.int
Reproduction is permitted provided that the source is acknowledged.

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ECB - European Central Bank

So, the Washington Agreement will be reconducted, although with a limit of gold sales upped to 500 tons/year.

The Bank of England did not care to sign this one: the Basle Accord is signed by the twelve national central banks of the Euro, plus the Swiss central bank.

I was wrong when expecting less gold sales, original article is below.

Joint statement on gold

26 September 1999

European Central Bank
Oesterreichische Nationalbank
Banque Nationale de Belgique
Suomen Pankki
Banque de France
Deutsche Bundesbank
Central Bank of Ireland
Banca d´Italia
Banque centrale du Luxembourg
De Nederlandsche Bank 
Banco de Portugal
Banco de España
Sveriges Riksbank
Schweizerische Nationalbank
Bank of England

 

In the interest of clarifying their intentions with respect to their gold holdings, the undersigned institutions make the following statement:

1. Gold will remain an important element of global monetary reserves.
2. The undersigned institutions will not enter the market as sellers, with the exception of already decided sales.
3. The gold sales already decided will be achieved through a concerted programme of sales over the next five years. Annual sales will not exceed approximately 400 tons and total sales over this period will not exceed 2,000 tons.
4. The signatories to this agreement have agreed not to expand their gold leasings and their use of gold futures and options over this period.
5. This agreement will be reviewed after five years.

***

European Central Bank
Press Division
Kaiserstrasse 29, D-60311 Frankfurt am Main
Tel.: 0049 69 1344 7455, Fax: 0049 69 1344 7404
Internet: http://www.ecb.int
Reproduction is permitted provided that the source is acknowledged

ECB - European Central Bank

A (very brief) history.

The Joint Statement on Gold (a.k.a. the Washington Agreement or WAG) was initiated by 3 European countries holding large reserves: France, Italy and Germany.
The agreement gained support among other CB's of the European Union plus Switzerland.

The Bank of England was invited to sign that agreement the very morning of the announcement.
(UK is more British and allied of the US than European, the signatories did not want the agreement to be torpedoed but the US central bank <ng>).

The Swiss Central bank had a more serious problem: by law, since 1971 the Swiss Franc was set at CHF 142.9/troy oz.
On 1 May 2000 a constitutional amendment removed the mandatory link to the weight of gold. The SNB then was authorized to sell gold. (PR of 2000-05-02)
The SNB then had an excess reserve of 1300 Tons of gold, which made the majority of the Washington Agreement.

 
The table shows the ventilation of the "not to exceed 2 000 tons".
Each WAG year runs from the end of September to the end of the following September.

The 400 Tons /year for a total sales of 2000 Tons were made in majority of 2 special situations: an amendment to the Swiss constitution, and the (foolish) sale of the Bank of England. The remaining sales are pure adjustments.
 

First quick conclusions:

• Swissie ain't ole Swissie anymore: since May 2000, the excessive coverage (CHF 142.9/oz.) cease existing. Any study comparing the Swissie to the POG is irrelevant for the data after May 2000).
• The Bank of England has to BUY BACK (120 to 160?) Tons of gold if UK is ever to join the Euro: the entry ticket is 15% of monetary mass transferred in gold to the ECB.  This is why I called it foolish some sentences ago.
• New candidate Central Banks also have to buy some yellah if they are to join the Euro.
• Sales of gold in order to cover one country's deficit is explicitly prohibited by several European treaties.
• The Central Bank of Greece recently sold a pack (12.5 Tons?) before signing into a renewed agreement. You never are too early. <g>
• The IMF has NOTHING to do with the WA, not part of it. Never been the initiator, in fact, the WA is a pain in their a$$.

Where do I want to lead?

1. Speculation: 400 Tons sales per year was a special situation. A renegotiated agreement could be for far less, say 20 to 50 Tons/year.
2. Speculation: UK will never join the Euro.
3. Speculation: Central Bankers have been know to buy high and sell low. (Proven with the Swiss CB and England CB sales). The risk for the Euro is more ECB sales (as the gold reserve are 15% of total reserves in gold, higher POS can lead to CB sales, lower POG to a loss of confidence as I don't believe the ECB would buy gold back).
4. Speculation: Other CBs, not signatories of the WA might sign the next version.
5. Speculation: The US will be a signatory of such an agreement when the Dollar devaluation will have run it's course. (aka suppression of the 46% debt held by foreign nations). Better said, there will not sign as they will initiate a new financial system.
6. Speculation: the US Dollar will be at the bottom before the next joint statement on gold will expire.

I could speculate till the end of the woild ! LOL.

Remains that, I consider articles calling for an increase of gold sales, or historic comparison to the Swissie as rubbish and unfounded noise.

My question is: 1999-Washington Agreement 400 tons per year having been a special situation and the (to be?) 2004-Washington Agreement expected to be far less, who will be selling what gold?

...Lastly, on the subject of central banks and gold, there’s been no decision yet on whether to dismantle the so-called Washington Agreement, which limits gold sales by its members (15 European central banks, plus the United States, Japan, Australia, the Bank for International Settlements and the International Monetary Fund) to about 400 to 500 tons a year. ...

My comment: some Central Banks un-formally joined the spirit of the Joined Statement on Gold. As time passes, the FED, BIS and IMF will be given the paternity. Tsssk! Tsssk!
Remains that it could be possible that more central banks would join the agreement thereby pulling the World's total CBs sales to some 400-500 tons. Still, I doubt it.

My comment: Julian has a broader list of conclusions and speculations than I have. I mostly agree with them except for a return of a financial system backed with gold. My opinion is that the next financial system will be based on the capacity of a borrower to service the debt and forget about the principal.

IEF Working Paper Nr. 44

II

Excess Reserves in the Eurosystem:

An Economic and Legal Analysis*

Harald Badinger                               Barabara Dutzler
Institut für Europafragen
Wirtschaftsuniversität Wien
Althanstraße 39-45/2/3, A-1090 Wien
Tel.: 0043 (0)1 31336-4133, Fax: 0043 (0)1 31336-758
harald.badinger@wu-wien.ac.at, barbara.dutzler@wu-wien.ac.at

September 2002

Abstract: Estimates suggest that international reserves of the Eurosystem could be reduced by one third to half ($130-$170 bill.) of its existing level after the introduction of the Euro. While the ultimate decision, whether and how to use these excessive reserves (public debt repayment, financing of a fund, financing of a tax cut) is a political one, some general results can be stated: First, since reserves earn interest revenue, a large part of which is transferred to the government anyway, moderate (but still positive) economic gains can be expected from a reserve reduction. Second, reserve reductions exceeding a certain threshold require the ECB’s approval, which could, however, only be rejected if the envisaged measures were inconsistent with the ECB’s monetary and exchange rate policy. Given that unintended macroeconomic effects can easily be avoided by a carefully planned and coordinated reserve reduction, such a rejection by the ECB – which is subject to the review by the European Court of Justice – is only hard to justify. Equally important from a legal point of view is that reserve reductions, effected as transfer of an extraordinary gain to the government, do not constitute monetary financing as prohibited under Art. 101 EC Treaty. Finally, reducing reserves to an adequate level would also eliminate incompatibilities and conflicts of interest between monetary and investment policy by the central banks and reduce their field of operation to their core task: the conduct of monetary policy. Thus, a carefully planned and coordinated reserve reduction can be supported from both an economic as well as legal point of view.

Keywords: alternative uses, excess, Euro, international reserves
JEL classification: F150, F310

* We wish to thank Fritz Breuss and Stefan Griller for their guidance and assistance. The usual disclaimer applies.
Financial Support by the Austrian Science Fund (FWF) – project number P15256 – is gratefully acknowledged.

snipped from page 31:
On 1 May 2000 a constitutional amendment came into force, which removed the mandatory link of the Swiss France with gold (Article 99 BV, which replaced the former Articles 38 and 39). This should allow for a more realistic valuation of the SNBquot;s gold reserves and greater flexibility in their use. A preparatory report of an expert group suggested an “adequate” reserve level of some SFr40 billion, one third of which should be made up by gold. It also
suggested an upward revaluation of the existing gold stock (at roughly two third of the then prevailing market price) and concluded that some 1300 tonnes of the Swiss gold reserves could be regarded as excessive.

BV ... Bundesverfassung der Schweizerischen Eidgenossenschaft
For an English version of Art 99 see http://www.swissemb.org/legal/const.pdf: Federal Constitution Art 99(3):
"The SNB shall create sufficient monetary reserves from its earnings; a part of these reserves shall be held in gold."

• Restructuring the UK's Reserve Holdings: Gold Auctions (PR Bank of England 1999-05-07)

See also:

• What gold? (own, 2003-10-01)
• ole Swissie ain't no Swissie anymore (own, 2003-10-01)
• Gold Fields mMineral Services, Gold Survey sample (of year 2000, figure 6 is a diagram around the WAG)