Europe Economics white paper - Gold as Collateral...

Published 5th October 2012

Categories: Reserve asset management

Download (pdf, 33.14 KB)

World gold council proposals on gold as collateral for eurozone member states offer considerable advantages over omt, argues new white paper

The World Gold Council has today made available a paper by Europe Economics, The use of Gold as Collateral for Eurozone Sovereign Debt, written by Dr. Andrew Lilico. The paper assesses the Council’s proposals on gold as collateral for Eurozone sovereign debt, especially in the case of Italy and Portugal, relative to current policies such as the Outright Monetary Transactions (OMT) scheme recently proposed by Mario Draghi (the “Draghi plan”).

Europe Economics was commissioned by the World Gold Council to challenge and assess the merits of its proposals relative to other suggested monetary policy tools, such as the European Central Bank’s (ECB) OMT programme.
The World Gold Council’s proposals state that Eurozone Member States with significant gold holdings relative to their medium-term financing requirements (in particular Italy and Portugal) should consider gold as collateral for sovereign debt issuance to reduce bond yields.

  • National central bank-held gold reserves can address key market failures in the Eurozone, without the drawbacks that have made certain current ECB policies controversial.
  • Unlike alternative non-conventional monetary policy measures, such as the proposed OMT, the use of gold as collateral would not create fiscal transfers between Eurozone members.
  • The use of gold as collateral does not pose a medium-term inflation risk.
  • Using gold holdings in this way maintains strong incentives for relevant Member States to reform, and does so without those States submitting themselves to oversight from other countries or international agencies such as the IMF.

Dr. Andrew Lilico is a Director of Europe Economics and is a member of the IES/Sunday Times Shadow Monetary Policy Committee. Europe Economics is an independent economics consultancy, specialising in the application of economics to public policy and business issues.

For more information and to download the white paper please go to: http://www.gold.org/government_affairs/new_financial_architecture/

For further information please contact:

Brenda Bates
World Gold Council
T: +44 20 7826 4706
E: brenda.bates@gold.org

Claire Maloney

Capital MSL
T: +44 20 7307 5341
E: claire.maloney@capitalmsl.com