Honest Money

Gold is Wealth Hiding in Oil

  • Subscribe

  • Alert

    FreeGold versus IMF – June 2008

    When human intelligence is confronted with the highest truths, it is in the same situation as the bat who is dazzled by the light of the sun, writes Aristotle in lines 993b9-11 of his Metaphysics.
    For Thomas Aquinas, in the Preface to his “Commentary on the Book of Causes” (Super Librum De Causis Expositio), this bat becomes an owl whose eye cannot perceive the sunlight well because of the sun’s intense brightness.

    Here’s the consolidation of the papers which I submitted, but did not present, to the GCC Currency Forum 2008, held in Dubai on 15 June 2008. (GCC is the Gulf Co-operation Council.)

    1.
    One of the hot topics the Forum is discussing is:
    Will the banks buy or sell Gold in an unstable market?

    Two of the participants at the Forum, the International Monetary Fund (IMF) and the European Central Bank (ECB), hold diametrically opposed views on the subject.

    Whereas before 15 August 1971, when US President Richard Nixon broke the Bretton Woods system, the US dollar was a Gold derivative, current IMF rules (article IV, section 2, (b), of the IMF Articles of Agreement) prohibit members from linking their currencies to Gold.
    Since that date, the IMF has no more reason of existence.
    If the IMF continues to exist, this is in order to support the bankrupt dollar regime, thereby making of Gold a dollar derivative.

    The ECB wants FreeGold as an alternative to the IMF-supported dollar regime.
    The ECB does this by letting Gold remain an important element of the euro’s reserves, but by severing the euro’s link not only link to Gold, but also its link to the nation-state.

    The ECB views Gold as a wealth reserve.
    The IMF prohibits the linking of a currency to Gold.
    By viewing Gold as a wealth reserve, the ECB has severed the link of the euro to Gold.

    The ECB’s and others’ FreeGold concept, a freely floating price of Gold as an alternative to the dollar regime, makes Gold the natural vehicle to temporarily or eternally store one’s wealth in, in order to be able to later convert it into tangible wealth.
    FreeGold in the central banks’ strong-rooms has the same role to fulfil as the Mona Lisa in the Louvre-museum in Paris, a wealth reserve which would now be in the strong-room (the Louvre) of a monetary union.

    2.
    The ECB was established in 1998.

    On Sunday, 26 September 1999, on the sidelines of an IMF-meeting in Washington D.C., the ECB and the central banks of Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, Switzerland, and England jointly announced, in what has since then become known as the Washington Agreement, that Gold will remain an important element of global monetary reserves. The Agreement, which covered the five years from 27 September 1999 and was renewed for five years on 8 March 2004, went on to limit Gold sales by the signatories. (1) (2)

    In his 09 May 2002 Acceptance speech of the International Charlemagne Prize of Aachen, Germany, for 2002, the ECB’s first President, the late Dr. Willem F. Duisenberg, did however say that the euro is the first currency that has not only severed its link to Gold, but also its link to the nation-state. (3)

    quote:
    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.
    unquote

    3.
    The IMF was established by the Bretton Woods Agreements during the first three weeks of July 1944, says Wikipedia. (4)

    The goal of IMF was to supervise the Bretton Woods system which linked the US dollar to Gold and all other currencies to the said dollar.
    The US dollar was linked to Gold.
    The value of the US dollar could thus be derived from Gold.
    The dollar was a Gold derivative.

    The international supply of two key reserve assets — Gold and the US dollar — proved inadequate for supporting the expansion of world trade and financial development that was taking place. Therefore Special Drawing Rights (SDRs) were created in 1969, says the IMF. (5)

    An SDR is a potential claim on the freely usable currencies of IMF members. It is neither a currency, nor a claim on the IMF. SDRs are defined in terms of a basket of major currencies used in international trade and finance. At present, the currencies in the basket are the euro, the pound sterling, the Japanese yen and the United States dollar.

    SDRs are paper Gold, they eliminate the logistical and security problems of shipping Gold back and forth across borders to settle national accounts.
    A few countries peg their currencies against SDRs, [… but …], the euro is displacing the SDR as a basis to set values of various currencies, continues Wikipedia. (6)

    On 15 August 1971, that is, two years only after the introduction of SDRs, US President Richard Nixon broke the Bretton Woods system. He closed the Gold window, making the dollar inconvertible to gold directly, except on the open market.

    Article IV, section 2 of the IMF Articles of Agreement now provides under (a) and (b) concerning general exchange arrangements:
    (a) Each member shall notify the Fund, within thirty days after the date
    of the second amendment of this Agreement, of the exchange arrangements it intends to apply in fulfillment of its obligations under Section 1 of this Article, and shall notify the Fund promptly of any changes in its exchange arrangements.
    (b) Under an international monetary system of the kind prevailing on January 1, 1976, exchange arrangements may include (i) the maintenance by a
    member of a value for its currency in terms of the special drawing right or another denominator, other than gold, selected by the member, or (ii) cooperative arrangements by which members maintain the value of their currencies in relation to the value of the currency or currencies of other members, or (iii) other exchange arrangements of a member’s choice. [italisations mine] (7)

    Article IV, section 2, (b), (i) of the IMF Articles of Agreement thus mentions Gold and SDRs in the same sentence.

    Nixon did never explicitly say that he severed the link of the US dollar with Gold.

    He only repealed its redeemability, thinking that from the moment you have a claim to Gold, you possess that Gold, even though there is no way in which that debt could be settled by the debtor through a physical transfer of Gold.

    “Monkey see, Monkey do!” So-called Gold bugs then became only interested in paper Gold, that is, contracts embodying wagers as to the price of Gold. They were not interested in the possession of Gold as a wealth reserve, but only in concluding wagers over the price of Gold, paper contracts about the price of Gold, in order to pocket the monetary surplus value.

    With the dollar currently plummeting and Gold slowly rising, we seem to be approaching the day when we shall find out what happens when a non-redeemable currency meets a real demand for redeemability. The so-called Gold bugs are also going to find out that their contracts embodying wagers as to the price of Gold are not even worth the paper they are written on.

    Since 15 August 1971, the USA is in the possession of a blank check to print as much green paper, also known as the US dollar, as it wants.

    Since that date, the present monetary system has no more link to Gold and the IMF has no more reason of existence (the IMF has to maintain the Bretton Woods system which is no longer in force).

    If the IMF continues to exist, this is in order to support the bankrupt dollar regime.

    The IMF thereby makes of Gold a dollar derivative, whereas the Bretton Woods system made of the dollar a Gold derivative.

    The IMF has been described by some as a tool of neo-colonialism. That is too mild, as 19th-century British or European colonialism, however harsh, never managed to accomplish the extent of devastation and destruction of health and living standards the IMF has done since the 1970s. (8)

    THE QUESTION

    4.
    Whereas the 1999 Washington Agreement did say something about re-establishing the link between Gold and the euro, which the IMF prohibits, the 2002 Duisenberg statement says that the link has been severed. The 2004 renewal of the 1999 Agreement confirmed that Gold will remain an important element of global monetary reserves.

    What could have replaced the severed link?

    What is it that actually comes in the place of the severed link (2002), Gold remaining an important element of global monetary reserves (1999 and 2004)?

    That’s the question which must be tackled before the hot topic “Will the banks buy or sell Gold in an unstable market?” can find an answer.

    That question as to what replaced the severed link is so crucial that nobody dares to talk about it in the open because even if one only vaguely refers to it, it may become obvious to intelligent listeners.

    5.
    The answer has to start by clearly distinguishing between Gold as a currency or Gold as a hedge against inflation and other economic and political disorders, on the one hand, and Gold as a wealth reserve, on the other.

    Both views are diametrically opposed and cannot be reconciled.
    Either, one holds the view that Gold is a currency and hedge against inflation and other economic and political disorders.
    Or, one holds the view that Gold is a wealth reserve.
    It is impossible for Gold to be considered at the same time and in the same respect both as a currency and hedge against inflation and other economic and political disorders, on the one hand, and as a wealth reserve, on the other.
    If Gold is to be a wealth reserve, it cannot be any kind of paper-(non-)Gold (hedging) derivative.

    Indeed, since Aristotle, the principle of non-contradiction says that it is impossible to be and not to be at the same time and in the same respect. Contrary to what many authors argue, this principle, or law, is not applicable to reality, only to thought. Thought is submitted to it. Reality is not. (9)

    It may be that in reality Gold is both a hedge/currency and a wealth reserve, but you must make up your mind (thought) as to whether you consider it as either a hedge/currency or a wealth reserve.

    Please be aware that if you make up your mind so as to think that “Gold is money” and thus that gold is a hedge/currency, you are giving bankers full licence to treat it like money, thus throwing open the door to lost purchasing power of the metal, thereby nullifying its value as a wealth reserve.

    6.
    In the old days before 15 August 1971, the dollar/Gold was a currency and a hedge against inflation and other economic and political disorders.
    That was the dollar regime.

    On 15 August 1971, the dollar and Gold have been disjoined.
    The said regime has thus no more link to Gold.
    The regime is however still being supported by the IMF whose sole purpose is precisely to maintain/uphold the link between the dollar and Gold.

    FreeGold is an alternative to the dollar regime. It is the opposite of the absurd IMF paper-SDR situation.

    FreeGold views Gold in possession as wealth, not as currency, nor as hedge.

    FreeGold is the view of the ECB, of many Gold saving individuals in India and other countries, of many oil producers in the Member States of the GCC, and of many others, who have severed the link between Gold and currency and are holding Gold wealth as a constant and reliable store for what they possess as property.

    The accounting standards of the two views differ.
    The IMF-supported dollar regime values Gold reserves at fixed price.
    FreeGold values Gold reserves on a mark-to-market (MTM) basis.

    The ECB is therefore not defining the euro like the old Gold standard as a certain quantity of Gold, but is using Gold as a freely trading financial reserve so that each increase in the price of Gold brings about an increase in the value of the euro’s reserves and thus an increase in the value of the euro itself.

    This FreeGold concept, a freely floating price of Gold as an alternative to the dollar regime, must be wringed out of the dollar regime.

    It makes Gold the natural vehicle to temporarily or eternally store one’s wealth in, in order to be able to later convert it into tangible wealth.

    FreeGold in the central banks’ strong-rooms has the same role to fulfil as the Mona Lisa in the Louvre.
    Just as the Mona Lisa never was the backing of the franc (nor is the Mona Lisa at present the backing of the euro), and just as the French government never was concerned with the Mona Lisa’s actual currency value, so do FreeGold advocates think about Gold.

    FreeGold advocates are therefore not concerned with exchange rates, stock market crashes, interest rates, financial collapses, devaluations, inflations.
    They do not view Gold as a hedge.
    They view Gold as Gold metal, not Gold paper (the wagers about its value).
    They do not view Gold as a derivative, but they re-establish Gold metal in its status as an official and private wealth reserve.
    A wealth reserve which would now be in the strong room (the Louvre) of a monetary union.

    The first view, the view of gold as a currency and a hedge, still has its supporters and Gold can for some people and some central banks continue to be a dollar derivative, because the US Federal Reserve, the central bank of the USA, is able to create as much dollars as it wants and was until very recently thereby able to keep the price of Gold (Gold exchange value) in close connection with the dollar exchange value.

    With the dollar plummeting and Gold slowly rising, things seem recently to have entered into a whirlpool of transition.
    The FreeGold concept is being wringed out of the dollar regime.
    More counter-parties in paper Gold contracts seem to be insisting upon Gold being actually delivered to them.

    FreeGold is thereby gaining more and more respect.

    When will the IMF, the US Treasury, and the rest of the dollar regime (be forced to) surrender?

    When will you, Dear Forum Delegate, realise that in order to permanently consolidate your wealth so that its purchasing power can be maintained, you should invest your wealth in the unified currency which is being used since ages – GOLD?

    Or do you think that’s a four-letter word?

    Or that the GCC is not part of Gold’s optimal currency area?
    Gold is a wealth reserve, not a hedge, nor a … currency, remember?

    Will the banks buy or sell a wealth reserve in an unstable market?

    The euro is the first currency that has not only severed its link to Gold, but also its link to the … nation-state, remember?

    THE PIECES OF THE PUZZLE – Update of 14 June 2008

    7.
    Gulf Arab Central bankers last week reached a (Draft) Agreement concerning the nucleus of a Central Bank. The Agreement will lead to the creation of a Monetary Council, as a precursor to the GCC Central Bank, like the European Monetary Institute was a precursor to the European Central Bank.The Monetary Council will have no monetary policy decision-making power.

    I said [above] that the GCC needs FreeGold, a freely FLOATING price of Gold as an alternative to the dollar regime and must define the GCC single currency not like the old Gold standard as a certain quantity of Gold, but must use Gold as a freely trading financial reserve so that each increase in the price of Gold brings about an increase in the value of the currency’s reserves and thus an increase in the value of that currency itself.

    Reuters India reported on Thursday 12 June 2008 that Qatar Central Bank Governor Sheikh Abdullah told Reuters after Monday’s meeting:
    “We are not talking about the currency, […]” (10)

    Emirates Business 24-7 reported on 13 June 2008 that
    “As for the single GCC currency, it could be linked to a basket or stay with the dollar or could be FLOATED … but this decision is to be taken later,” said Abdul Aziz Al Owaishik, a minister at the GCC Secretariat in Riyadh. “But it is extremely important that the currencies of the GCC countries must have a peg before the creation of the monetary union… it does not matter whether this peg is the dollar or a basket. As for Oman, it has announced that it will not be part of the union but can join it at a later stage,” he said in Jeddah. [italisation mine] (11)

    Everything thus seems to fall into place for FreeGold, for the marking to market of gold (and oil) reserves.

    Advocating the marking of these reserves to market is arguing that the accurate price of these reserves can only be found through the actual price of gold and oil on the gold and oil markets.
    The opposite of marking to market is marking to model. Marking to model is marking on the basis of assumptions, marking on the basis of guesswork.

    There are other Monetary Unions than Monetary Unions which fit into the International Monetary Fund (IMF)-straitjacket.
    I understand that the IMF has not yet severed the link between currency and gold and is still defining the US dollar as a certain quantity of Gold.
    If the GCC marks its Gold reserves to market, whereas the dollar, to which the GCC single currency would remain pegged (in a basket), marks them to the model of $42 or so an ounce, we would have a contradiction in the GCC single-currency system. Does that explain why the launch of the GCC single currency should be postponed until … ?

    Ivo Cerckel
    ivocerckel@siquijor.ws

    Siquijor, 01 June 2008
    Sharjah, 14 June 2008

    ENDNOTES

    (1)
    1999 – The European central banks declare their confidence in Gold
    Press release – joint statement on Gold, 26th September 1999
    http://www.reserveasset.Gold.org/central_bank_agreements/

    (2)
    ECB PRESS RELEASE
    8 March 2004 Joint Statement on Gold
    http://www.ecb.int/press/pr/date/2004/html/pr040308.en.html

    (3)
    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

    (4)
    Bretton Woods system
    From Wikipedia, the free encyclopedia
    http://en.wikipedia.org/wiki/Bretton_Woods_system

    (5)
    A Factsheet – April 2008
    Special Drawing Rights (SDRs)
    http://www.imf.org/external/np/exr/facts/sdr.htm

    (6)
    Special Drawing Rights
    From Wikipedia, the free encyclopedia
    http://en.wikipedia.org/wiki/Special_Drawing_Rights

    (7)
    Articles of Agreement of the International Monetary Fund
    http://www.imf.org/external/pubs/ft/aa/index.htm

    (8)
    F. William Engdahl, How the IMF Props Up the Bankrupt Dollar System
    http://www.serendipity.li/hr/imf_and_dollar_system.htm

    (9)
    Fernand Van Steenberghen, (F.-X. de Guibert, ed.), Philosophie fondamentale , Longueuil, Québec, Editions du Préambule, 1989, footnote p. 296:
    Contrairement à ce qu’affirment beaucoup d’auteurs, ces principes [the principle of non-contradiction, the law of the excluded-middle and the law of identity] sont des lois logiques ou des lois de pensée comme telle et non des lois de l’ordre réel.

    (10)
    UPDATE 1-Gulf FX union deal was finalised this week -UAE
    Thu Jun 12, 2008 4:42pm IS
    http://in.reuters.com/article/asiaCompanyAndMarkets/idINL122465720080612

    (11)
    Monetary union on schedule in 2010
    Emirates Business 24/7, United Arab Emirates – Jun 13, 2008
    http://www.business24-7.ae/Articles/2008/6/Pages/06142008_4a20fb00dd664038bd514200dbbca6e8.aspx

    5 Responses to “FreeGold versus IMF – June 2008”

    1. Honest Money » Blog Archive » Oil Backing and Oil Billing - Update 1 Says:

      […] FreeGold versus IMF […]

    2. Grinners Says:

      “I said [above] that the GCC needs FreeGold, a freely FLOATING price of Gold as an alternative to the dollar regime and must define the GCC single currency not like the old Gold standard as a certain quantity of Gold, but must use Gold as a freely trading financial reserve so that each increase in the price of Gold brings about an increase in the value of the currency’s reserves and thus an increase in the value of that currency itself.”

      Each increase in the PRICE of gold wouldn’t increase the VALUE of the reserves. It would increase the PRICE of the reserves. The ‘value’ of the reserves would still be X ounces of gold, as it was before.

      How could a change in the value of the EURO change the value of gold reserves?

    3. Ivo Cerckel Says:

      How could a change in the value of the EURO change the value of [its] gold reserves?
      https://twitter.com/IvoCerckel/status/244744633710698496

    4. Ivo Cerckel Says:

      The present printing of euro under the name of quantitative easing
      does not seem to be affecting the value of its gold reserves –
      quite to the contrary, I would say.

      Neither does, and this is – for me at least – the great surprise,
      does this printing of euro seem to be affecting
      the value of the euro (– to the extent of the printing).

    5. Ivo Cerckel Says:

      Mismanagement must be disciplined by rising gold-VALUE !

      If you don’t accept freegold-discipline, you agree with more debt-mismanagement of all sorts > Economic-monetary-financial !

      The old gold-standard was not perfect, but at least it disciplined the monetary authorities in some way.

      In order to return to some discipline, the euro has a gold component and a paper component, but puts a “firewall” between the two so that gold’s valuation as a wealth-preserving asset cannot be pulled lower by the inevitable inflation of the paper component of circulating currencies. It is the marking to market (MTM) of the gold reserves of the European System of Central Banksters which providse that wall.

      But “they” are only talking about aa firewall, named a Chinese wall”, between the supervisory and monetary roles of the ECB
      http://www.economist.com/blogs/charlemagne/2012/09/ecb-and-euro

      This diverts the attention of the sheeple.

    Leave a Reply

    XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>