BNR governor's adviser, explanations on the gold repatriation scandal in London: what are the disadvantages – News sources


BNR Governor Mugur Is─ârescu, Cristian Bichi, says bringing the gold reserves to Romania as voted in Parliament entails long-term risks and does not insignificantly reduce the storage cost of the reserve.

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"The recent legislative proposal that almost repatriated the Romanian gold stock deposited abroad generated numerous questions and opinions for and against. In recent years, issues similar to those that Romanian citizens are currently asking about the role of gold as a reserve asset have also been formulated in other countries, followed by a series of explanations given to the public by central banks and government authorities around the world on the national policy of official gold management.

How much gold has been mined in the world? How much gold can be extracted?

"The latest analysis estimates that up to now, about 183,600 tonnes of gold (the source of the World Gold Council) have been mined, which in volumetric terms would be equivalent to a 21-meter cube, while still being mined. with the US Geological Survey). "

Why do countries need gold reserves?

Italy: "Gold is an effective tool to cover adverse events." The price of precious metal tends to increase when financial operators perceive a high level of risk, such as military escalations or, more frequently, financial crises.In these scenarios, financial instruments, especially those characterized by a high level of risk (eg stocks), are experiencing considerable reductions, while gold tends to record price increases. The presence of a suitable gold level in the financial portfolios guarantees protection against scenarios considered very risky, though unlikely. "

Switzerland: "In the event of a serious crisis, especially if Switzerland lacks liquidity, it may be useful to use the gold reserves, especially if it has no other means at its disposal. the Federal Constitution obliges the National Bank to hold some of its reserves in gold. "(Questions and answers, Gold Initiative, September 2014, Federal Finance, Switzerland)

Austria: Reserve assets and gold holdings are key elements of a central bank's crisis management and prevention strategy and have in fact proved to strengthen public confidence in difficult times. (Oesterreichische Nationalbank, Annual Report 2017)

The gold reserve can serve as collateral for obtaining loans

Italy: "In a currency crisis, a central bank may have gold as well as official reserves in foreign currency in order to maintain confidence in the national currency, using gold as collateral to obtain loans or, finally, court selling a significant level of gold gives the central bank greater ability to maintain confidence in the domestic financial system. "

Foreign gold is useful in case of invasion or military occupation of a country

Switzerland: "Gold serves mainly as a guarantee in case of unlikely or unpredictable events. Gold abroad is only useful in the event of an invasion, but can be quickly sold or promised in a gold bargaining market." (Opinion of the Federal Council, respond to the arguments of the Save the Gold Swiss Initiative, September 2014)

The disadvantage of the gold reserve is that it involves financial costs

Italy: "Gold is costing its preservation in terms of security and custody. Moreover, it does not guarantee any interest and therefore ownership of a consistent amount involves waiver of interest on debt securities with similar hedging properties."

A country without official gold reserves

Canada: "Some countries continue to hold reserve gold reserves, sometimes for symbolic reasons." Canada does not do this.In 1980, the government implemented a policy of selling gold at a gradual and controlled pace …. Gold is not considered to be liquid, such as US Treasury bonds and, to the extent that physical delivery is involved, can lead to significant costs for safe transportation and storage … Gold revenues were invested in foreign currency assets , with interest and high interest rates.Though these assets can not have the reusable physical weight of a gold ingot, we believe that they are better suited to the purpose for which we hold reserves.The last gold ingot was sold in 2003. remaining gold reserves were the coins that have been sold since. "(Timothy Lane, deputy governor of the Bank of Canada, Observations at the Peterson Institute for International Economics, Washington, DC, February 6. (2019)

Is Gold Safer Placing Than The Dollar Or The Euro?

Switzerland: "Gold is part of the currency reserves, together with the exchange rate, and may contribute to risk mitigation." But, by itself, it is among the riskiest investments due to high volatility. The NBS assets denominated in foreign currencies, such as the euro and the dollar, are composed, in large part, of the foreign currency denominated in foreign currencies, for safe and interest-bearing securities. "(Questions and answers, Gold Initiative, September 2014, Federal Department of Finance, Switzerland)

The external location of gold reserves leads to a better distribution of risk

Italy: "The choice of storing a little more than half of the metal in several central banks derives both from historical reasons related to the locations where gold was purchased and from a risk diversification strategy. importance of these financial markets for the international gold market. "(Bank of Italy)

Switzerland: "… there is good reason to deposit a portion of the gold reserves abroad." Decentralized storage allows better risk distribution. Geographical diversification of storage sites allows better protection of gold from serious crises that may have an impact in other regions (environmental catastrophe, nuclear accident, armed conflict, etc.) (Questions and answers, Gold Initiative, 7 October 2014), The National Bank of Switzerland)

Almost integral repatriation or rebalancing of gold reserves?

Germany: "In 2012, the Bundesbak (central bank) decided that half of Germany's gold would be deposited in its own treasury rooms by 2020." (Deutsche Bundesbank, Annual Report for 2016). "Germany's gold reserves are around 3,374 tonnes at the end of 2017. Following the transfer of 674 tonnes in total from New York and Paris to Frankfurt am Main, half of Germany's gold was deposited in treasury in Frankfurt am Main 2017. "

Austria: "… by the end of 2014, OeNB (nn: the central bank) held about 80% of its gold reserves in the United Kingdom, about 17% in Austria and about 3% in Switzerland … The OeNB has adopted a new gold storage policy in 2014. By 2020 a maximum of half of OeNB's total gold reserves (280 tonnes) will be deposited in Austria by 2020. The 140 tonnes that will remain in overseas custody will be divided between the The United Kingdom (about 84 tonnes) and Switzerland (around 58 tonnes). "Along with other strategic considerations, this policy is a great compromise between diversification and liquidity." (Peter Mooslechner, Member of the Board of Directors, Franz Partsch-Director , OeNB Gold Strategy in the context of comprehensive reserve management, Alchemist, Issue 92, January 2019, page 6)

Netherlands: "The Nederlandsche Bank (DNB) has adjusted its policy of locating its gold stock and has sent US gold to the Netherlands to diversify its gold stock in a more balanced way. Gold was located in the Netherlands, 51% in the USA, the remainder in Canada (20%) and the United Kingdom (18%). Under the new policy, placements are as follows: 31% in Amsterdam, 31% in New York , Ottawa and London remain unchanged at 20% and 18%, respectively. "(Press release: DNB adjusts its policy to locate the gold stock, De Nederlandsche Bank, November 21, 2014)

Countries that hold a significant part of London's gold reserves

Australia: "The physical reserves of the Reserve Bank of Australia (RBA) are held almost entirely (99.99%) in the United Kingdom in the Bank of England (BoE) .The BoE holds RBA gold as depositary; remains with the RBA. "(About our Gold Holdings, p.1, Reserve Bank of Australia).

Belgium: "Most of the gold assets are preserved in the Bank of England, a more modest part of which is held in the Bank of Canada and the Bank of International Regimes. P. 91, National Bank of Belgium)

What are the storage costs out? Would not a store in the country save money?

Switzerland: "The costs of storing gold abroad are comparable to the costs of storage in Switzerland. The exclusive storage economy in Switzerland would be relatively insignificant." (Gold Initiative, Swiss National Bank, October 7, 2014)

Are we sure that gold stored abroad is still available?

Switzerland: "The partner central banks store identifiable binders as NBS Each bullion deposited abroad is identified by an identification number, it remains permanently in the stock of the national bank and the property of the national bank. were largely related to stocks found abroad. "They showed that gold stocks are available at all times." (Swiss National Bank – NBS, Gold Initiative – Questions and Answers, October 7, 2014)

The gold is not in safety, but in national territory. That's true?

Switzerland: "No. The National Bank currently holds 70% of its reserves in Switzerland and 30% abroad … This geographic diversification serves to share the potential risks and guarantees in the event of a crisis, access to more gold markets. during the crisis, it is important that the National Bank can sell gold quickly in Switzerland's interest. "(Questions and answers, Gold Initiative, September 2014, Federal Department of Finance, Switzerland)

Why are gold countries in London? What are the other major gold trading centers?

Gold storage at the Bank of England allows the RBA (Reserve Bank of Australia) to easily access this market, as many gold market participants prefer The Bank of England only accepts gold that meets the "Good Delivery" standard of the London Bullion Market Association (LBMA). ) The RBA Gold is held in the Bank of England in an allocated account, so the individual binders (with the number of ingots specified) are attributable to the RBA. "(About our holdings in gold, page 1, Reserve Bank of Australia .

Austria: "Together with smaller trading venues such as Zurich, London remains the most important physical gold trading center. When it comes to trading non-physical gold, the US Commodity Exchange Inc. is of particular relevance to gold futures and gold options.The main trading platforms in China are the Shanghai Gold Exchange and the Shanghai Future Market.The main shopping centers are located in Dubai, India, Japan and Hong Kong. "(Oesterreichische Nationalbank, Annual Report 2017 )

Italy: "The main gold market is represented by the London market … Twice a day is determined … at 10:30 and 15:00 GMT the fixing of gold (LBMA gold price). particularly since gold most international contracts refer to this fixation. The London market is changing around 500 tonnes per day, equivalent to one-fifth of the annual global output. "

The "good London delivery"

Italy: "The stock of London Good Delivery (LGD) meets the characteristics defined by the London Bullion Market Association (LBMA), an association that brings together specialized operators in the sector. LBMA was established in 1987 by the Bank of England, then the gold market regulator, which was established in 1987 by the Bank of England. at the same time, set the Good Delivery standard to increase the transparency and liquidity of the gold market. The pattern spread rapidly among traditional operators until it became a fundamental requirement for gold trading and was one of the reasons behind the rise of gold market in London. "

Advantages of the London Good Delivery standard

Italy: "Good delivery characteristics that guarantee specific and identifiable qualitative requirements allow professional buyers to accept new bars without further verifying the actual quantity of precious metals contained in the ingot. As a consequence, the LGD standard allows for easier and gold in financial operations. "

Does gold generate regular income? What are the gold loans?

Australia: "Gold holdings in a treasury room do not earn interest.To earn any current income, the Reserve Bank of Australia can borrow money." (About our Gold Holdings, page 2, Reserve Bank of Australia) .

Austria: "… in addition to maintaining physical stocks of gold, central banks also make gold lending operations, depending on the market situation. In a gold loan transaction, gold is invested in exchange for interest Due to current market conditions, OENB is not currently involved in gold lending operations. "(OeNB, Annual Report 2016)

Why have lending operations declined in recent years?

Austria: "… a significant change in recent years, with moderate rates of gold borrowing, led to a gradual reduction and a temporary suspension of this type of transaction due to risk-benefit considerations." (Peter Mooslechner, Member of the Board of Directors, Franz Partsch-Director, OeNB Gold Strategy in the context of full reserve management, Alchemist, edition 92, p.7)

Australia: "For more than 30 years, the RBA has been involved in the gold lending market, borrowing almost all of the gold it holds, and in the last decade the RBA's gold lending activity has been lower. gold, along with a greater willingness of other investors to borrow their gold, reduced the returns available for gold loans.In the early 2000s, the RBA earned about $ 15 to 20 million per year of gold loans. Earnings declined dramatically after 2006 due to lower lending activity and lower lending rates.In fiscal year 2017/18, gold borrowing revenue totaled $ 0.7 million. "(On our gold holdings, p.3, Reserve Bank of Australia)

A state that wants to develop its gold loan market

France: "In order to allow its clients to make transactions with their gold assets deposited with the Bank of France, gold accounts were also opened for the main participants in the international gold market who are counterparties to these operations, the Bank of France not using for this purpose gold in the Bank of England, these operations can now be done in Paris, strengthening their historical role in the gold market.These financial transactions are in line with the best standards in terms of market practice and asset segregation. "(Press Release, Gold Reserve and Paris Gold Market Project, Bank of France, Paris, February 4, 2019), says Cristian Bichi, for OpinionsBNR.


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