The late Harry Browne defines “liquidity” as

[1] the ability to turn an asset into cash quickly without a penalty for haste.

[2] the relationship of a firm’s liquid assets to the liabilities that might have to be paid in the near future.

(BRICs won’t break dollar’s supremacy, for now
Reuters, Thursday June 11 2009
By Mary Angela Rowe and Nick Olivari
http://www.guardian.co.uk/business/feedarticle/8553981

You said also;
When gold is the most liquid of all forex reserves, we will have freegold. Liquidity requires buyers and buyers require CONFIDENCE. unquote

I cannot resist

QUOTE

A SOCIAL CONTRACT
What is money? Economists know that money is defined by the functions it performs, as a means of exchange, a unit of account and a store of value. But, just as importantly, money is also defined by the community for whom it performs these functions. Because it is an economic instrument for each of its users, it is also a political and cultural bond between them. Consider this simple fact: we engage in an exchange of goods and services everyday by using money as the means of exchange; and we offer our labour in exchange for money, which, in itself, has no value. We only do this because we believe that we will, in turn, be able to exchange that money for more goods or services. This fact tells us much about the confidence that we place in money itself. And it tells us much more about the confidence that we place in each other. Hence, money is, in essence, a social contract.

The euro, probably more than any other currency, represents THE MUTUAL CONFIDENCE at the heart of our community. It is the first currency that has not only severed its link to gold, but also its link to the nation-state. It is not backed by the durability of the metal or by the authority of the state. Indeed, what Sir Thomas More said of gold five hundred years ago – that it was made for men and that it had its value by them – applies very well to the euro.
Every currency is a symbol of the community it serves. It is a symbol of the society as a whole, but also represents the political and cultural bonds between the members of that society. Surely this uniting power must have been felt – I am even tempted to say, physically – by those who have travelled from one euro area country to another this year.

International Charlemagne Prize of Aachen for 2002
Acceptance speech by Dr. Willem F. Duisenberg, President of the European Central Bank, Aachen, 9 May 2002
http://www.ecb.eu/press/key/date/2002/html/sp020509.en.html

Ivo;
stupid question: what is liquidity?

Chapter 12 The Drive for Exports
http://jim.com/econ/chap12p1.html
There is no reason to go into the technical details of all this, which can be found in any good textbook on foreign exchange. But it should be pointed out that there is nothing inherently mysterious about it (in spite of the mystery in which it is so often wrapped), and that it does not differ essentially from what happens in domestic trade. Each of us must also sell something, even if for most of us it is our own services rather than goods, in order to get the purchasing power to buy. Domestic trade is also conducted in the main by crossing off checks and other claims against each other through clearing houses.
It is true that under the international gold standard discrepancies in balances of imports and exports were sometimes settled by shipments of gold. But they could just as well have been settled by shipments of cotton, steel, whisky, perfume, or any other commodity. The chief difference is that when a gold standard exists the demand for gold is almost indefinitely expansible (partly because it is thought of and accepted as a residual international “money” rather than as just another commodity), and that nations do not put artificial obstacles in the way of receiving gold as they do in the way of receiving almost everything else. (On the other hand, of late years they have taken to putting more obstacles in the way of exporting gold than in the way of exporting anything else; but that is another story.)

Roland Leuschel and Claus Vogt, “Das Greenspan Dossier, Wie die US-Notenbank das Weltwährungssystem gefährdet. Oder: Inflation um jeden Preis”, http://www.finanzbuchverlag.de, 2006, 3rd ed., p. 299
Banks used to have the right to issue receipts for the gold they held in reserve in warehouse.
This right was taken away from them by the institution of central banks.

Murray N. Rothbard, “Man, Economy, and State – A Treatise on Economics”, Auburn, Alabama: Ludwig von Mises Institute 2001, (originally published 1962)

p. 701 B
The practice by warehouses to issue pseudo-receipts is outright fraud
Someone else’s property is taken by the warehouse and used for its own money-making purposes/

p. 701-702
If spurious receipts are printed, evidences of goods are issued and sold or loaned, without any such goods being in existence.

p. 702
Money is the good most susceptible to the practice.
Since it is convenient to transfer paper in exchange rather than carry gold , money warehouses (or banks) that build up public confidence will find that few people redeem their certificates.
The banks will be particularly subject to the temptation to commit fraud and issue pseudo money certificates to circulate side by side with genuine money certificates as acceptable money-substitutes.
The fact that money is a homogeneous good means that people do not care whether the money they redeem is the original money they deposited.
This makes bank frauds easier to accomplish,
–> it is difficult to see the economic or moral difference between the issuance of pseudo-receipts and the appropriation of someone else’s property or outright embezzlement or, more directly, counterfeiting.
Most present legal systems do not outlaw the practice, In fact, it is considered basic banking procedure

To part with goods or money held in trust to issue spurious warehouse receipts is, of course, dangerous business, even when the law permits it.
If the warehouse once failed to meet its contractual obligations, its fraud would be discovered and a . a general panic “run” on the warehouse or non-central bank would ensue. This would lead to bankruptcy for the non-central bank.

Ivo rewrites p. 702
Most central banks then only continued to issue more receipts for gold than they had gold in reserve. Those fraudulent receipts were dangerous business for the non-central banks because if the warehouse failed to meet its contractual obligations, its fraud would be discovered and a general panic “run” on the warehouse or non-central bank would ensue. This would lead to bankruptcy for the non-central bank.

==
Ivo;
When I write B after a page number, that means bottom of the page.
NCB was National Central Bank.

VERTICAL ONE ownership by the member states or by the NCBs? p. 54

The ECB holds and manages the reserves
==>
not that the NCB are owners of the official reserves of the Member States
nor that the Members States are the owners of the reserves

This was and remains a question of national law

Even if a NCB OWNED the reserves under national law,
these reserves remain, from an economic perspective, the official foreign reserves of the respective member state

p. 54- 55
Ivo turns Badinger and Dutzlet upside down, i.e. first I give p. 55 and then p. 54

It is in the general interest of a country to have a currency with which to PAY
(Ivo: no, to save, to have a store of value
==>
it is not possible to have excessive reserves)
Similarly,
the management of the foreign reserve assets by the central banks
is done in the general interest of the nation

==>
formally, the ownership of the reserves lies with the nation as a whole,
but is vested in the public authorities (state body or central bank)

p. 56
Control, however, is not the same as ownership.
since a precondition for an effective transfer of ownership is the intention to transfer legal property.

Does the ultimate ownership of the reserves by the ember States mean that they could compel the central bank to sell an important fraction of this?

Is a Member State free to sell all or part of the reserves?

VERTICAL TWO limits on ownership rights p. 56

First restriction on the use of the reserves by the Member Stes
=
the independence of the NCBs
==>
this concerns the relationship between the NCB and the government on the national level.

p. 60 summary of THE LEGAL FRAMEWORK which started p. 47

EC law does not prohibit national utilisation of reserves and of proceeds out of the sale of reserves
but the ECB enjoys discretion under art 31 of ESCB Statute
over the usefulness and appropriateness of such a move

CONCLUSION OF THE CHAPTER p. 60

The excess reserves are no “free lunch’ that could be used arbitrarily/

The economic effects of their alternative uses are relevant for an evaluation of therir legal admissibility
==>

the lower the impact of such proposals on the liquidity situation in the euro area and on the ESCB’s monetary policy,
the easier approval without modification in the timing or manner of the proposal will be gained.

It is conditional, of course, on national and international CONSENSUS, that the proposed use of the assets is more economically efficient and in the public interest than if they remain with the NCBs

p. 61
It is for the governing council to decide on a request by a NCB on behalf of a Member State
to proceed to a large sale of reserves
==>
from a political perspective also, the balance of power and alliances in the ECB governing council has to be taken into account.

THE END

art 105 (2) 3rd indent EC Treaty
it is the role of the ESCB to hold and manage the official foreign reserves of the Member States

p. 48
this provision gives rise to a number of interrelated and complicated questions
which could be categorised as matters relating to horizontal and vertical aspects

HORIZONTAL ASPECT
1. the structure of the ESCB
2. distribution of reserves between ECB and NCBS
3. the ECBs share

VERTICAL ASPECT
1. ownership by the member states or by the NCBs p. 54
2. limits on ownership

HORIZONTAL ONE the structure of the ESCB p.48

ESCB manages the foreign reserve assets
but the System is not a legal person and theregore not entitled to acquire or dispose of movable and immovable property

footnote
don’t confuse the ESCB with the Eurosystem
Eurosystem = the inner circle of the 12 participating NCBs
end of footnote

Legal capacity was given exclusively to the ECB, with the NCBs remaining subject to the relevant provisions in their respective national laws
==>
a two level system with the NCBS and ECB as “integral part” of the ESCB

NCBs are subordinatred under the ECB.

p. 48- 49
When carrying out the tasks of the ESCB,
the NCBs which in this capacity are called “OPERATIVE ARMS” of the ECB are bound by instructions and guidelines of the ECB
and can be taqken before the ECJ if they fail to fulfil an obligation under the statute

p. 49
The treaty says it is the NCBs which form the the System
==>
the NCBs are still part of the organisational structure of the Member States.

NCBS may fulfil public authority functions in matters relating to money, credit and banking under the respective laws – for instance, as an agent of the Member State
as long as these tasks do not interfere with the objectives and tasks of the ESCB

HORIZONTAL TWO distribution of reserves between ECB and NCBs p. 49

p. 49-50
Article 31 ESCB Statute is a lex specialis,

Art 31 Foreign reserve assets held by NCBs
Article 31
Foreign reserve assets held by national central banks
31.1. The national central banks shall be allowed to perform transactions in fulfilment of their obligations towards international organizations in accordance with Article 23.
31.2. All other operations in foreign reserve assets remaining with the national central banks after the transfers referred to in Article 30, and Member States’ transactions with their foreign exchange working balances shall, above a certain limit to be established within the framework of Article 31.3, be subject to approval by the ECB in order to ensure consistency with the exchange rate and monetary policies of the Community.
31.3. The Governing Council shall issue guidelines with a view to facilitating such operations.
Article 23
External operations
The ECB and national central banks may:
— establish relations with central banks and financial institutions in other countries and, where appropriate, with international organizations;
— acquire and sell spot and forward all types of foreign exchange assets and precious metals; the term ‘foreign exchange asset’shall include securities and all other assets in the currency of any country or units of account and in whatever form held;
— hold and manage the assets referred to in this Article;
— conduct all types of banking transactions in relations with third countries and international organizations, including borrowing and lending operations.

p. 49
These institutional aspects shed some light on the distribution of competence regarding the official reserves among the component parts of the System

p. 49 -50
Now,
the task to hold and manage the official CURRENCY reserves of the Member states has been transferred to the European SYSTEM Of Central Banks, NOT to the European Central BANK
==>
the remaining competence of the NCBs, as part of the ESCB,
are being determined by the lex spoecialis, article 31, ESCB Statute

http://everything2.com/title/Lex%2520specialis%2520derogat%2520lex%2520generalis
Lex specialis derogat lex generalis
Lex specialis derogat legi generali
When two or more laws contradict, the more specific law has precedence over the general law.

http://answers.yahoo.com/question/index?qid=20070305191215AA5QVWe
“A lex specialis is a special law that supersedes a lex generalis (general law). This special law displaces the general law. This law can result from the fact it governs only a special field, while the general law applies to several fields. For example, the law governing public gatherings is a lex specialis (special law) with respect to the general police law.”
Source(s):
http://de.wikipedia.org/wiki/Lex_special...

the task to hold and manage the official CURRENCY reserves of the Member states has been transferred to the European SYSTEM Of Central Banks, NOT to the European Central BANK
==>
the remaining competence of the NCBs, as part of the ESCB,
are being determined by the lex spoecialis, article 31, ESCB Statute

Still,
the remaining national discretionary power should NOT be OVER estimated.

The NCBs remain subordinated to the ECB in reserve management
==>
except for the right of the NCBs to perform transactions, in fulfilment of their obligations towards international organisations,
all other operations in foreign reserve assets above a certain unpublished threshold are subject to the ECBs approval.

The justification for the ECBs exclusive decisional power of the use of reserves is the need to guarantee the effectivenessd of the exchange rate and monetary policy of the Community as formulated by the ECB.

After all, only a small fraction of the official reserves was transferred to the ECB,

HORIZONTAL THREE the ECBs share p. 51

Article 30. 1 ESCB Statute

Transfer of foreign reserve assets to the ECB

30.1. Without prejudice to Article 28, the ECB shall be provided by the national central banks with foreign reserve assets, other than Member States’ currencies, ECUs, IMF reserve positions and SDRs, up to an amount equivalent to ECU 50 000 million.
The Governing Council shall decide upon the proportion to be called up by the ECB following its establishment and the amounts called up at later dates.
The ECB shall have the full right to hold and manage the foreign reserves that are transferred to it and to use them for the purposes set out in this Statute.

Article 28 Capital of the ECB

p. 51
Art 30.1 ESCB Statute specifies
that the ECB is provided by the NCBS with foreign reserve assets
and
that it has the ”full right to hold and manage” them
and to “use them for the purposes set out in this Statute”

The need for the ESCB to operate as one system in which all legal persons have the same rights, regarding the foreign reserves at their disposal
CAN NOT HAVE THE EFFECT THAT
to give the ECB full rights regarding ALL reserves regardless of whether they are managed by the ECB or the NCBs

This interpretation follows from both a literal and a systemic interpretation of article 30.1

p. 52
The precise legal character of the transfer to the ECB remains an open issuer.

The terms which were agreed upon, “manage and hold’.
are interpreted as avoiding a sign of a transfer of ownership.
It is doubted through, that this fraction of the reserves remain in the ownership of the national entities.

p. 53 B
Although in the last resort, the reserves transferred to the ECB by the NCBs are the official foreign reserves of the Member States,
the NCBS received a corresponding claim denominated in euro,
so that the member States with the transfer to the ECB effectively lost any rights in this regard.

after the formation of a monetary union no reserves are needed anymore to finance trade between EU countries which has become “domestic” trade from a monetary perspective

These are Ivo’s notes from a July 2007 Kuala-Lumpur-Summit on the Islamic gold dinar
presentation by Dr Mahathir bin Mohamad, former prime minister of Malaysia

increased oil prices
strengthen bankers in the west
they operate through proxies

We cannot move gold around to make payment
not good for domestic payments
==>
we use gold as savings

gold dinar will only be used in international trade

What is the amount is big?
The problem of transport
==>
promissory notes that one country is indebted

trade of countries
payments are made through central banks
==>
payment is NOT between buyers and sellers
but between central banks

Occasionally need to transfer the gold
but this will be small

the use will not be easy

we will limit the use to trade between countries and under efficient supervision
less fraud and manipulation
less oppression of the weak by the strong

False wealth will no longer be able to rule the world.

END OF MY NOTES FROM DR MAHATHIR

SECOND ARGUMENT that a substantial reduction in international reserves can take place after the formation of a monetary union – the portfolio effect

if the member states of the currency union are structurally diverse
==>
any balance of payments imbalances may be offsetting
==>
a pooling of reserves should allow the minimum reserve level to be reduced

THIRD ARGUMENT that a substantial reduction in international reserves can take place after the formation of a monetary union – elimination of the need to stabilise the exchange rate vis-à-vis the currencies of other members of the currency union

FOURTH ARGUMENT that a substantial reduction in international reserves can take place after the formation of a monetary union – reduced costs of reserve management after pooling reserves

p. 43
In order to estimate the likely reserve savings as a result of the euro,
we will set up a dynamic panel with fixed effects for reserve DEMAND of the 12 euro area countries.

p. 46 (
In the estimation and simulation, gold is valued at the official price, which clearly understates its actual value.

p. 47
Summary
the current level of international reserves in the Eurosystem could be reduced substantially.
Approximately one third of the existing reserve level can be regarded as excessive and ison the disposal of the Eurosystem.
The not only the question of ECONOMIC OPTIMALITY, but also of LEGAL ADMISSIBILITY.
==>
we will go on to investigate the legal framework in the next section

One of your questions is;
Does the ECB still require 15% gold reserves to join?

Reply:
I am still struggling with this paper:

Harald Badinger and Barbara Dutzler “Excess reserves in the Eurosystem – an economic and legal analysis”
in: Fritz Breuss, Gerhard Fink and Stefan Griller, (eds.),
“Institutional, Legal and Economic Aspects of the EMU”,
Europainstitut Wirtschaftsuniversitat Wien Schriftenreihe /
Europainstitut Wirtschaftsuniversitat Wien, Volume 23,
Vienna and New York, Springer, December 2002. pp. 37 -65

Let me try to give my PRIOVISIONAL reading notes from the paper
which I still have to read again many times.
I don’t know how many messages I will need for that
because I don’t know how long replies can be on this blog.

THERE I GO

The editors Preface
Badinger and Dutzler analyse the economic and legal possibility how to deal with the UNDOUBTEDLY existing EXCESS reserves in the euro system (both capitalisations mine.)

p. 34 (that number is probably wrong)
Most previous studies argue that the introduction of the euro generated a considerable amount of excess reserves.

CONVERSELY
Eichengreen and Mathieson argue that there was a shortage of reserves in the Eurtosystem,
as a result of the elimination of former reser ve assetsa.

footnote p. 39,
The ECU was created by the EMS agreement of 1979 (Article 17) and issued to the central banks of the participating countries through revolving swaps against deposit of 20 per cent of their gold and dollar holdings with the European Monetary Co-operation Fund (later the European Monetary Institute (EMI), and then the European Central Bank (ECB)).
According to Article 23.2 of the EMI Statute and Article 20 of the EMS Agreement the mechanism for the creation of ECUs against gold and US dollars was unwound by the first day of stage three of EMU. [Ivo: that day was 01 January 1999]

p. 39,
The unwinding of ECU [...] led to a considerable increase in gold reserves by approximately 20 per cent in terms of the total (end of) 1998-value and a substantial decrease in foreign exchange reserves by some $37 billion.
The exchange of ECU against gold (valued at market prices), however, can only account for $ 20 billion of this reduction
which indicates that a reduction in reserves took place simultaneously and/or
that gold had been exchanged at a higher price.
The exchange of ECU against dollar led only to a change in the composition of foreign exchange reserves.

p. 40
However,
the reduction in the level of foreign exchange together with the exchange of ECU into US dollar further increased the DOMINATING role of the US dollar as a reserve asset of the European centrals banks.

footnote p. 40
Although the exact currency composition is kept confidentially by central banks, the dollar share at the beginning of 1999 can be approximated.

p. 42 T
The effect of the redefinition of reserves is reflected in the changes from December 1998 to January 1999.
Former reserve assets which were denominated in euro-currencies (e.g.: DM held by Banque de France) are excluded by the new reserve definition, which led to a decrease in foreign exchange reserves by some $ 30 billion\.

p. 42
Economic theory suggests that a substantial reduction in international reserves can take place after the formation of a monetary union,

Four arguments
1. the scale (of foreign trade) effect
2. the portfolio effect
3. elimination of the need to stabilise the exchange rate vis-à-vis the currencies of other members of the currency union
4. reduced costs of reserve management after pooling reserves

Regarding Latvia. WGC reports Latvia has 7.7 tonnes of gold reserves with a current market value of US$236m. With a population of 2.2 million, on a per capita basis, this is a little low. Perhaps it should be 20 tonnes if the CB’s of the world share 60,000 tonnes.

Does the ECB still require 15% gold reserves to join? 7.7 tonnes is only 3.3% of Latvia’s forex reserves per the WGC and IMF. Liquidity is the key. When gold is the most liquid of all forex reserves, we will have freegold. Liquidity requires buyers and buyers require confidence.

The US$ is hard currency? How liquid is the US$ if a sovereign nation-state is reduced to smuggling bearer bonds into Switzerland in order to dump them at sub-par?