DENVER: Monday, 18 October
1999
- Gold back at centre stage:
Washington Agreement has restored gold's
role in the official sector
Gold is back at the centre of international financial thinking, Miss
Haruko Fukuda, chief executive of the World Gold Council said today.
In a keynote
speech at the annual investment conference of the Denver Gold Group,
Miss Fukuda said that the agreement approved by the world's leading central
bankers in Washington three weeks ago had returned gold to centre stage.
"Gold is back with its customary charisma. What greater affirmation
can there be for gold as a monetary asset than the declaration by 15 of
the world's largest gold holders that 'gold will remain an important element
of global monetary reserves'?" she asked.
The Washington Agreement was agreed on September 26 by the Group of Ten
central bank governors, with the US Secretary of the Treasury, Lawrence
Summers, and the Chairman of the Federal Reserve, Alan Greenspan, also
present.
"It is a remarkable achievement. It is extremely rare for independently-minded
central banks to agree to co-ordination of this magnitude on reserve management,"she
said. " This is not just a one-off joint intervention in foreign
exchange markets of the kind we see from time to time, but an agreement
to last at least five years."
Miss Fukuda said the Washington Agreement marked the first time in 28
years that the governments with the largest gold holdings had made a positive
joint statement on gold.
"Those three decades have been a period in which gold was persistently
sidelined by the official sector attempting to demonetise gold. Yet the
amount of gold held in reserve by the official sector has barely declined
during that period - a decline of a mere 6% in three decades. The attempt
to replace gold with SDRs as a reserve asset was an abject failure,"
said Miss Fukuda.
"Far from gold being marginalised and finished as a monetary asset,
the latest IMF proposal uses gold as money to pay back debt! What happened
to SDRs, once thought to be the answer to external payment problems?"
Miss Fukuda added that the Washington Agreement was significant in several
respects and it raised some questions for the future. Although it did
not have the force of an international treaty, it was signed by each central
bank governor and had a broader dimension as the US and Japan, although
not signatories, were in accord with the spirit of the Agreement and both
countries had stated they were not sellers of gold. The Agreement will
also be monitored by the Bank for International Settlements.
The Agreement covered nearly 50% of the world's official gold holdings
and with the addition of the US, Japan, the IMF and BIS, and Australia
who were also non-sellers and South Africa, which was not expected to
sell given its opposition to UK sales, over 85% of the official sector
gold holdings "are now out of the market."
Miss Fukuda also pointed out that by 2005 when the agreement is to be
"reviewed" both the UK and Sweden might be either in or preparing
to be in the Euro, thus bringing their reserves under ECB control.
"How strongly politically motivated this agreement has been amongst
the European nations is one of the questions that will be answered in
time. But it is now certain, whether by default or intent, that the Euro
has equal if not greater gold "backing" than the US dollar,"
she said.
"Perhaps the most interesting and far-reaching question for the
future that comes to my mind is whether this agreement will end up as
a forerunner in some form to a return to an official price for gold. Though
that is unlikely and was certainly in no way intended to lead to this,
at least one of the triggers for the agreement was the price falling to
a level not seen since 1978.
"What level of price would be appropriate and acceptable by the
major official holders for valuing their gold reserves? Will any of this
imply central bank intervention in the conventional sense in the gold
market and will BIS continue its co-ordinating function in future to encompass
all the G10 countries?" she asked.
"It opens up ultimately a whole host of philosophical as well as
practical questions about the role, nature, and the "value"
of gold as a monetary asset. In any event, the world's largest holders
of gold have now said that they will be keeping their chestnuts in their
bag; what will other central banks do?" said Miss Fukuda.
- Ends -
Contact:
Keith Irons, Bankside Consultants, London 0207 220 7477 |