Submitted by cpowell on Sat, 2012-11-10 02:24
9:27p ET Friday, November 9, 2012
Dear Friend of GATA and Gold:
Citing Bank of England records, Zero Hedge reveals tonight that as the London Gold Pool was collapsing in 1968 the Federal Reserve and the Bank of England conspired to conceal from the German Bundesbank the deficient gold content of U.S. gold bars, apparently made from coin melt, that were being transferred to the Bundesbank to conclude gold swaps.
This is, Zero Hedge says, another reason why the Bundesbank might want to cut off inquiry into the security of its foreign-vaulted gold. Zero Hedge's report is headlined "Bank of England to the Fed: 'No Indication Should, of Course, Be Given to the Bundesbank" and it's posted here:
http://www.zerohedge.com/news/2012-11-09/exclusive-bank-england-fed-no-i...
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
MEMORANDUM OF DISCUSSION, December 12, 1967
Pages 1-11 of 107 pgs of pdf file: http://www.federalreserve.gov/monetarypolicy/files/fomcmod19671212.pdf
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| Andrew Brimmer, second from right, is sworn in as a governor of the U.S. Federal Reserve by Fed Chairman William McChesney Martin Jr., left, as his wife Doris Brimmer, daughter Esther and President Lyndon B. Johnson look on. |
A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D. C., on Tuesday, December 12, 1967, at 9:30 a.m.
PRESENT: Mr. Martin, Chairman
Mr. Hayes, Vice Chairman Mr. Brimmer Mr. Francis Mr. Maisel Mr. Mitchell Mr. Robertson Mr. Scanlon Mr. Sherrill 1/ Mr. Swan
Mr. Wayne
Messrs. Ellis, Hickman, Patterson, and Galusha, Alternate Members of the Federal Open Market Committee
Messrs. Bopp, Clay, and Irons, Presidents of the Federal Reserve Banks of Philadelphia, Kansas City, and Dallas, respectively
Mr. Holland, Secretary Mr. Sherman, Assistant Secretary Mr. Kenyon, Assistant Secretary Mr. Broida, Assistant Secretary Mr. Molony, Assistant Secretary Mr. Hackley, General Counsel Mr. Brill, Economist Messrs. Baughman, Hersey, Koch, Partee, Parthemos, and Solomon, Associate Economists
Mr. Holmes, Manager, System Open Market Account
Mr. Cardon, Legislative Counsel, Board of Governors
Mr. Fauver, Assistant to the Board of Governors
1/ Entered the meeting at the point indicated.
12/12/67
Mr. Williams, Adviser, Division of Research
and Statistics, Board of Governors
Mr. Reynolds, Adviser, Division of
International Finance, Board of Governors
Mr. Axilrod, Associate Adviser, Division
of Research and Statistics, Board of Governors
Miss Eaton, General Assistant, Office of the
Secretary, Board of Governors
Miss McWhirter, Analyst, Office of the
Secretary, Board of Governors
Messrs. Eisenmenger, Link, Eastburn, Mann,
Taylor, Andersen, Tow, and Green, Vice Presidents of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Atlanta, St. Louis, Kansas City, and Dallas, respectively
Mr. Lynn, Director of Research, Federal
Reserve Bank of San Francisco
Messrs. MacLaury and Meek, Assistant Vice
Presidents of the Federal Reserve Bank of New York
Mr. Kareken, Consultant, Federal Reserve
Bank of Minneapolis
......
In supplementation of the written reports, Mr. MacLaury said that the announcement on Thursday, December 7, of a $475 million drop in the Treasury's gold stock seemed to have been accepted by the markets as about in line with prior expectations of the costs of the gold rush following sterling's devaluation. What the market did not know, of course, was that only a $250 million purchase of gold from the United Kingdom saved the United States from a still larger loss in the face of some foreign central bank buying, notably the $150 million purchase by Algeria. The actual pool settlement for November took place last Thursday and Friday, December 7 and 8; the U.S. share of the $836 million total was $495 million. The logistical acrobatics of providing sufficient gold in London were performed with a minimum of mishaps, although the accounting niceties were still being ironed out.
Of greater concern, however, was the fact that the drain on the pool was accelerating again, Mr. MacLaury observed. Last
12/12/67 -4
week there was a small net surplus, but yesterday the loss was $56 million and today $95 million; for December to date, the pool was in deficit by $183 million. Some of the demand shortly after devaluation apparently represented large individual purchases by Eastern European countries, Communist China, and possibly Middle Eastern countries, although demand was more general in the last two days.
On the whole, it was Mr. MacLaury's impression that the measures taken by the Swiss commercial banks and by some other continental banks to impede private demand for gold worked quite well, although it was clear from the start that such measures could serve only as a stop-gap until some fundamental change was agreed upon. Persistent newspaper leaks--mainly from Paris--about current discussions on this subject and their reflection in gold market activity Monday and today pointed up the need for speed in reaching a decision. Mr. Hayes was in Basle this past weekend and might want to say a few words about recent developments. So far as the prospect for further declines in the gold stock were concerned, the Stabilization Fund now had on hand about $100 million. He knew of no firm purchase orders at the moment, although there was a distinct possibility that Italy might want to buy $100 million before the end of the year to recoup its losses through the pool. No one could say, of course, how many
12/12/67 -5
orders might be received from other quarters, but it would be surprising if there were not some.
In the exchange markets, Mr. MacLaury continued, sterling unfortunately was again in the spotlight. As he had reported at the previous meeting, covering of short positions in sterling had tapered off considerably by the second week following devaluation, and last week saw the rate bounce around erratically with absolutely no dollar intake by the Bank of England.
In fact, by Friday the authorities had to provide substantial support, as they did again yesterday, at a total cost of nearly $200 million. That renewed pressure probably reflected in part the general nervousness that persisted in the markets despite a surface appearance of calm. But he personally found it difficult to explain except in terms of liquidations by sterling holders, i.e., either British residents-despite exchange restrictions--or members of the sterling area. It certainly seemed that previously taken short positions in sterling were not being closed out, but rather were being extended--with the result that the forward discount, in the absence of official support, was widening. That in turn meant that even with shortterm interest rates in the United Kingdom at crisis levels, there was no incentive to move funds in for investment. In fact, despite an easing in the Euro-dollar market, the incentive on a comparison with local authority rates favored the Euro-dollar market.
12/12/67 -6
Obviously, the situation was highly disturbing and quite unpredictable, adding an unanticipated element of uncertainty to an already unsettled post-devaluation world. In the meantime, the Bank of England had used $600 million of its immediate post-devaluation dollar gains to reduce drawings under its swap arrangement with the System--$300 million in November prior to announcement of November reserve losses of $364 million (not counting the $490 million taken into reserves as a result of the sale of Britain's remaining dollar portfolio), and $300 million on December 4.
On the continent, Mr. MacLaury said, the picture had been mixed but on the whole not too unsatisfactory for the dollar. Since he had last reported to the Committee, only the Swiss had taken in any sizable amount of dollars ($113 million). Although they had not asked for exchange cover on those dollars, the New York Bank was in the process of working out means for dealing with those recent inflows as well as for paying off previous Swiss franc drawings which had just recently passed the six-month mark. One matter of some concern was the fact that although the Swiss authorities had indicated to the market their willingness to take in dollars on a swap basis to provide year-end liquidity, as they had in previous years, so far the market had been reluctant to repurchase dollars for January delivery, preferring to sell the dollars outright. On the other hand, there had not been any
12/12/67 -7
demand for forward Swiss francs, although the Swiss National Bank had offered that facility as agent for the United States.
In contrast, Mr. MacLaury remarked, the German Federal Bank had provided forward cover back into marks at sufficiently attractive rates to induce an outflow of nearly $600 million during the last week of November, reversing previous inflows and providing sizable redeposits in the Euro-dollar market with noticeable effect on rates in that market. The Federal Reserve Bank of New York would draw $300 million on the arrangement with the German Federal Bank, in effect sharing responsibility for the forward cover provided to the market. In addition to the shift of funds from Germany to the Euro-dollar market, the Bank for International Settlements from time to time had drawn on its swap with the Federal Reserve to place Euro-dollar deposits when rates seemed to be firming. The total of such drawings as of yesterday was $245 million.
Mr. MacLaury observed that although the German case was the most striking example of central bank operations following the meeting in Frankfurt, the availability of forward cover into guilders and Belgian francs at reasonable rates had also helped to reassure the market. Federal Reserve forward commitments in guilders and Belgian francs as a result of those operations amounted to $18.8 million and $4.9 million equivalent, respectively, matched by equal commitments by the Treasury.
12/12/67
France seemed to have lost a substantial amount of dollars-approaching $100 million--in the last two weeks, Mr. MacLaury noted, presumably reflecting the conversion of French franc holdings by Algeria, and possibly Iraq, to finance gold purchases from the United States. There were still no firm indications on the prospects for a purchase of gold by France itself, although some rumors implied that a purchase was not a foregone conclusion. Sweden and Canada also had continued to lose reserves, although for reasons quite different from France. In both of those cases the total reserve drain since devaluation amounted to more than $100 million.
Altogether, Mr. MacLaury concluded, the situation remained very fluid. The statements and actions of central banks during the brief period since sterling's devaluation had helped immeasurably to keep the markets under control. In that connection he would note particularly the increases in the System's swap lines announced on November 30. Nevertheless, the weeks ahead might well bring a number of surprises, and on balance they were likely to be unpleasant. Certainly, the last of the fallout from the devaluation of sterling had not been seen.
Mr. Maisel asked why the British had stopped providing forward cover for sterling.
Mr. MacLaury replied that he had no direct information on the Bank of England's reasons for not resuming forward operations
12/12/67 -9
in the period since devaluation. Certainly, he thought, they had anticipated a situation far different from that they had in fact faced. It was clear from their actions that until the last few days, when pressures became very heavy, they had not been prepared to provide support to the spot market so long as the spot rate was above par. It was not inconceivable that they would again undertake forward operations, but a decision to do so evidently had not been made as yet.
In response to another question by Mr. Maisel, Mr. MacLaury said that for the last few months South Africa had been adding to its gold reserves at the rate of about $10 million a week. Accordingly, while some of their newly produced gold had been reaching the London market in that period, the amount was below normal.
Mr. Sherrill entered the meeting at this point.
Mr. Brimmer referred to an article in today's press quoting a French newspaper to the effect that Algeria had bought from France the dollars it had used to acquire gold from the United States, and that France might be encouraging other countries in the French franc zone to do the same. He asked Mr. MacLaury to comment on that report, and also on the likelihood that other franc-zone countries would follow the same route.
Mr. MacLaury replied that he certainly would not rule out the possibility that the French authorities were using the tactic
12/12/67 -10
described, but he had no firm knowledge that they were. He doubted that the Algerians had bought dollars directly from the Bank of France. More likely, they had sold francs for dollars in the market, thereby weakening the franc and leading to market sales of dollars by the Bank of France in support of the rate. The effect of such market operations was, of course, little different from that of a direct transaction. With respect to the second question, while he would not count Iraq among countries in the French franc zone there might have been some French influence in that country's recent purchase of $21 million of gold. There had been a $20 million order for gold from the former Belgian Congo which had now been postponed until January. He had no information concerning possible gold purchases by other countries.
Mr. Hayes said it was his understanding that under the arrangements in effect within the franc zone the French had an obligation to pay out dollars for francs if requested by, say, the Algerians.
In reply to a question by Mr. Robertson, Mr. MacLaury said he would estimate that the Bank of France now held about $800 million in dollars, after allowing for their November accruals and their more recent sales.
Mr. Galusha noted that recent favorable developments in Britain, such as the settlement of the railway strike, had not
12/12/67 -11
seemed to allay the market's fears about sterling. He asked what kind of news might reassure the market.
Mr. MacLaury said he doubted that any further statements would have much effect at this point; the proper statements had already been made. There had also been some statements which, while not necessarily improper, had not been helpful, such as that by Aubrey Jones of the British Prices and Incomes Board to the effect that if Britain's restrictive measures were inadequate he could foresee a second devaluation of sterling together with a devaluation of the dollar within 18 to 24 months. If the distrust of sterling, much of which seemed to have an irrational basis, was to be overcome it would not be by words, but by actions following through on the measures announced simultaneously with the devaluation. Some question had been raised in connection with the discussions of the International Monetary Fund standby credit for the British as to whether the planned cutback of government spending was sufficient.
By unanimous vote, the System
open market transactions in foreign currencies during the period November 27 through December 11, 1967, were approved, ratified, and confirmed.
Source: Zero Hedge: Fed, Bank of England deceived Bundesbank on coin-melt bars in 1968 | Gold Anti-Trust Action Committee
