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By Paul Cleary
The Australian, Sydney
Tuesday, January 11, 2011
http://www.theaustralian.com.au/news/nation/reserve-banks-gold-sale-cost...
The Reserve Bank [of Australia] sold most of the
nation's gold reserves more than a decade ago because the board believed its
price would remain flat.
They believed also that the commodity would not play
a role in a future financial crisis.
The decision to sell 167 tonnes
of the bank's reserves has cost the nation about $5 billion based on today's
soaring price of almost $1,400 an ounce.
A board paper recommending the decision to sell
conceded that gold served as "insurance against a breakdown in the
international financial system", but it then dismissed the need for
holding this valuable asset. The paper has been obtained by The Australian
under freedom-of-information laws.
The paper also said Australia need not worry about
selling the assets because it had vast reserves of the commodity, yet the
latest figures from Geoscience Australia show that
known reserves will be exhausted with 30 years.
The RBA revealed in July 1997 that over
a six-month period, it had sold 167 tonnes,
reducing Australia's reserves to just 80 tonnes. At
this time, the value of its gold assets fell from $3.6 billion to about $1.1
billion.
The RBA's sales pushed the world gold price down to
an 11-year low, returning just $2.4 billion for the gold that was sold via a
single broker engaged without a tender.
The same amount of gold would be worth about $7.4
billion today.
The decision to sell the reserves was approved by
then-RBA Governor Ian Macfarlane and then-Treasurer Peter Costello.
The paper justified the decision to dramatically
reduce the bank's holdings by arguing that gold had been a poor investment,
and that Australia need not worry about access to financial markets during
another economic crisis.
Since this decision, the world financial system has
suffered severe stress, first with the dotcom bust
in 2000, then the 9/11 attack the following year, and, more recently, the
near-collapse of the global financial system in 2008.
The spectacular rise in the price of gold in recent
years shows that it is clearly playing a role in the GFC and its aftermath.
The RBA's public statement was co-signed by Ric Battellino, who is now
deputy governor of the bank. At the time, he served as assistant governor for
financial markets.
The RBA paper noted at the time that gold holdings
in the US and Europe remained high, with the US holding 75 per cent of its
reserve assets in gold.
"Central banks traditionally hold gold because
of its ability to be used in the event of a crisis in the international
financial system; it is the only reserve asset that is not a claim on some
other government, international institution or bank. However, over the past
two or three decades, the world has experienced a number of economic
'crises,' but gold played no part in coping with them," the paper said.
The paper argued that continuing development of
financial system meant that circumstances which would require Australia to
call upon our gold holdings for economic reasons looked increasingly remote.
Chris
Powell
Secretary/Treasurer
GATA.org
Gold
Anti-Trust Action Committee Inc.
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