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Unless the gold collateral was moved out of the
vaults of the sovereign borrowers vault and into the vaults of the lenders,
this idea would be just another government scam, especially insofar as the
supposed gold of the anticipated borrowers probably already has been sold,
swapped, leased, and hypothecated into oblivion anyway.
* * *
Time for Eurozone to Reach for the Gold Reserves?
By Gillian Tett
Financial Times, London
Thursday, August 30, 2012
http://www.ft.com/intl/cms/s/0/80a239a6-f2c2-11e1-8577-00144feabdc0.html
Is it time for some eurozone governments to start
selling that metaphorical family silver? Or, more specifically look at their
all-too-real gold reserves, to find a solution to Europe's crisis?
That is a question which has recently been buzzing
around in some policy making and investing circles. For as autumn looms, it
is clear that the eurozone remains under profound stress. However, it is also
unclear whether the European Central Bank -- let alone the eurozone
politicians -- will really be able to do anything soon to ease market fears
and lower those borrowing costs.
Thus, as unease builds, the World Gold Council -- or
the body that represents the gold industry -- has recently lobbed a new idea
into the fray: It thinks it is time for eurozone governments to start using
gold in a creative manner, particularly in places such as Italy, to cut those
interest rates.
The
issue at stake revolves around the estimated 10,000 tonnes of gold reserves
that are held by eurozone governments. According to the council, "It is
well known that some of the countries most affected by the crisis, including
Portugal and Italy, are responsible for a significant proportion of these
assets."
Unsurprisingly,
this situation has prompted some to suggest that governments should sell some
of that gold. The value of gold has soared in the last few years, and if
there were ever a time that eurozone countries needed an unexpected windfall
-- say, to pay interest on bonds -- it would be now.
But
the gold council, for its part, insists this would be a mistake. For quite
apart from the fact that a massive dump of gold would dampen the price,
eurozone debt woes are now so large that gold sales would only scratch the
surface of the problem. Or as the council notes: "The gold holdings of
the crisis-hit eurozone countries (Portugal, Spain, Greece, Ireland, and
Italy) represent only 3.3 per cent of the combined outstanding debt of their
central governments."
Thus it favours an alternative idea:
Instead eurozone countries should essentially securitise part of that gold,
by issuing government bonds that are backed by gold. This could be done in a
simple manner; or it could be structured to include tranches of different
risks. Either way, the key point is that gold would be used to provide
additional security for bonds -- and thus reassure investors who do not trust
eurozone government balance sheets anymore.
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