Europe Has Been Preparing a Global Gold Standard Since the 1970s. Part 2
Europe Has Been Preparing a Global Gold Standard Since the 1970s. Part 2
Uncovering the secret agreements and strategic gold reserve balancing that may signal Europe's preparation for a monetary system reset
Introduction
There is more evidence of how European central banks are equalizing their monetary gold reserves proportionally to Gross Domestic Product (GDP). Secret agreements make countries sell or buy gold to balance gold reserves within Europe, and relative to large economies abroad. Evenly distributed gold reserves are a requirement for a stable transition towards a gold standard whereby concurrently the debt overhang can be extinguished. Europe has been preparing for this reset.
Confidential Information
The fact that so little is known about Europe's balancing project is because central bankers are not allowed to openly discuss it. When questioned about secret agreements, central banks cite professional secrecy and confidentiality clauses.
Table of Contents
- Quick recap of Part 1: Europe's gold strategy origins
- Why equalize gold reserves across nations?
- Evidence of the Eurozone's gold balancing project
- Secret agreements and confidential policies
- Data analysis reveals coordinated strategy
- What about the rest of the European Union?
- Implications for the future monetary system
Quick recap of Part 1: Europe's gold strategy origins
If you haven't read part one recently, here's the essential background for understanding Europe's long-term gold strategy.
European Gold Strategy Timeline
Nixon Shock
Nixon unilaterally suspended the last vestige of the gold standard. Europe was not amused and began countering dollar dominance.
ECC Declaration
European Economic Community publicly stated in the New York Times: "Europe will promote agreement on international monetary reform to achieve an equitable and durable system taking into account the interests of the developing countries."
Gold Sales Begin
Several Western European central banks started selling gold to equalize their gold reserves among each other and large economies outside Europe.
Central Bank Gold Agreements
Official "concerted programme of sales" through the Central Bank Gold Agreements (CBGA) to systematically redistribute gold reserves.
Key Strategic Goals
Europe didn't envisage a dollar standard for the long haul, as it isn't equitable nor durable. Since the 1960s Europe was holding most of the world's monetary gold and needed to redistribute it strategically.
- Counter dollar dominance through coordinated European action
- Create an alternative to the dollar (the euro)
- Facilitate monetary gold to be spread more evenly globally
- Prepare for an "equitable and durable" monetary system
Why equalize gold reserves across nations?
Gold reserves evenly spread across nations, proportionally to their GDP, allows a smooth transition towards a global gold standard. In 1971, Europe was holding the largest share of the world's gold reserves. What is now the eurozone was then holding 45% of all monetary gold, while contributing for 24% to world GDP.
Economic Imbalance Problem
Switching to a global gold standard with such imbalances would have pushed the world into steep deflation.
- Countries with zero or too little gold would have to buy in to participate
- Resulting upward pressure on gold prices
- Deflationary effects when gold is the unit of account
- Economic instability during transition
Geopolitical Constraints
There were other reasons for Europe not to switch to a gold standard at the time.
- United States opposed going back to gold
- US was defending Europe against the Soviets
- Germany was threatened to be left to its own devices
- Strategic patience required for long-term plan
Debt Reset Strategy
European central bankers realized the inevitability of a debt spiral when the world went from gold to paper standard in 1971.
- Central banks buy up excessive debt in the economy
- Revalue gold to create unrealized gains
- Use gains to cancel assets (bonds) on balance sheets
- Comply with rules of economic scarcity
Mark-to-Market Innovation
European central banks were the first to value gold on their balance sheets "mark-to-market" beginning in the late 1970s. The U.S. pressed for continuation of valuing monetary gold at its statutory price set under Bretton Woods ($42.22 per troy ounce), effectively trying to demonetize gold to protect dollar hegemony.
Evidence of the Eurozone's gold balancing project
There is an important statement on the website of the Austrian central bank (OeNB) about its aim to hold gold reserves as a percentage of GDP equal to its peers.
From the OeNB website: "In terms of the Eurosystem's overall gold reserves, OeNB's current gold holdings roughly correspond to OeNB's share of the ECB's capital... the volume of gold held by OeNB is deemed to be appropriate relative to the size of both its total reserve assets and the Austrian economy [GDP]."
Eurozone Gold Strategy Framework
The Eurosystem consists of the European Central Bank (ECB) and all national central banks (NCBs) in the eurozone. NCBs own a share of the ECB based on their "capital key" calculated from GDP and population.
The average (GDP weighted) gold to GDP ratio in the eurozone is 4%. Major countries are converging on this target.
French Central Bank Confirmation
Not as explicit, though worth mentioning, is a statement from the French central bank that reinforces this strategy:
"The Banque de France stores 2,435 tonnes of gold... These are France's national gold reserves, valued at around EUR 80 billion. France's gross domestic product (GDP) or annual income is over EUR 2 trillion... The national gold reserves are thus equivalent to 4% of GDP..."
France is on par with the eurozone average of 4% gold-to-GDP ratio.
Strategic Coordination
Seemingly there are guidelines in the eurozone for NCBs to hold an appropriate amount of gold relative to GDP, and also relative to total international reserves. This coordination suggests a deliberate, long-term strategy.
Secret agreements and confidential policies
When directly questioned about gold coordination policies, European central banks consistently cite confidentiality and professional secrecy. This pattern of responses itself provides evidence of coordinated but undisclosed policies.
Belgian Central Bank Response
When asked about gold sales requirements for eurozone entry, Belgium's central bank revealed:
"The sales took place in the context of a more balanced composition of NBB's reserves with regard to its integration into the European System of Central Banks, although it was not the result of a legal obligation."
When pressed for details about agreements: "The aspects of management constitute confidential information that shall not be disclosed on grounds of professional secrecy."
German Central Bank Response
When asked about revaluing gold to cancel debt, Germany's Bundesbank replied:
"We prefer not to speculate about any decisions that might or might not be taken in the future."
Instead of saying no, they communicated they don't rule out this possibility.
Dutch Finance Minister Admission
In 2011, the Dutch Finance Minister was asked in parliament about gold sales:
"Through gold sales in the past, DNB brought its relative gold holdings more in line with other important gold holding nations... At the time it was established that DNB held a relatively large amount of gold internationally."
Insider Confirmation
When writing part one of this series, the author asked an ex-central banker in Europe if he was aware of a gold balancing policy during his tenure in the 1990s.
"Yes," he answered, "but I can't talk about it; part of my duty of confidentiality."
The fact that so little is known about Europe's balancing project is because central bankers are not allowed to openly discuss it. The Austrian central bank is gently breaking the silence.
Data analysis reveals coordinated strategy
In lack of legal transparency, the data tells the story. Analysis of gold reserves, total reserves, and GDP ratios across eurozone countries reveals unmistakable patterns of coordination.
Gold-to-Total Reserves Pattern
- All medium/large economies above 50% in 1980
- All below 50% in 1999 (euro launch)
- Currently around 50% across the board
- France, Germany, Italy hardly sold any gold during this period
Austria, Belgium, Netherlands, and Portugal sold most of their gold while maintaining ratios near their bigger peers.
Total Reserves-to-GDP Harmonization
- Indisputable harmonization across entire eurozone
- All countries maintain similar ratios
- Coordinated adjustments over time
- Even small economies included in strategy
This level of coordination requires deliberate policy coordination despite denials of formal agreements.
Fine-Tuning Mechanism
- Some small economies have too little gold
- Imbalances can be fine-tuned within seconds
- Example: Portugal sells to Malta, France to Estonia
- All central banks have sufficient reserves for adjustments
The prerequisite for fine-tuning is adequate international reserves relative to GDP, which all countries maintain.
| Country | Gold Sales Period | Strategic Reason | Current Status |
|---|---|---|---|
| Netherlands | 1993-2008 | 1,100 tonnes sold to "align with other nations" | On target ratio |
| Belgium | 1996-2008 | 203 tonnes for "balanced composition" | Eurozone compliant |
| Austria | 1990s-2000s | Adjust for ECB capital key alignment | Appropriate to GDP |
| Switzerland | 2000-2005 | 1,300 tonnes - "extreme position among G10" | Normalized holdings |
Strategic Implications
After putting everything together, the eurozone's gold strategy appears to be a comprehensive plan to stand ready for a monetary reset while maintaining the ability to precisely equalize all gold-to-GDP ratios when needed.
What about the rest of the European Union?
The purpose of the European Union is that eventually all member states will adopt the euro—except for Denmark that has an opt-out. If countries like Belgium had to adjust their reserves before joining the eurozone in 1999, non-eurozone countries must do the same now.
Recent Gold Purchases
- Hungary: Bought 91 tonnes from 2018-2021, now on par with eurozone countries
- Poland: Bought 99 tonnes in 2019, announced another 100 tonnes for 2022
- Czech Republic: Announced plans to buy 90 tonnes in near future
- Romania: Total reserves align with EU patterns despite denying agreements
Official Justifications
These central banks mention various reasons for gold purchases, but the true reason—equalize reserves—remains concealed.
Hungary's central bank: Gold "may play a stabilising role in times of structural changes in the international financial system."
As clear as can be when put in context.
EU Gold Strategy Implementation
Analysis shows the gold strategy of the eurozone and EU are one and the same:
Central Bank Denials vs. Reality
When asked directly about reserve coordination requirements, EU central banks uniformly deny any agreements. Yet the data shows unmistakable coordination patterns.
Romania's National Bank: "We are not aware of any such requirements."
Germany's Bundesbank: "There is no statutory obligation in Union law for NCBs to hold certain amounts of international reserves."
Despite these denials, Romania's total reserves versus GDP align perfectly with the rest of the EU. The parallels cannot be a coincidence.
Implications for the future monetary system
It seems all countries in the EU have secretly agreed to the gold strategy outlined above. If this analysis is correct, and the trend of equalizing reserves continues, we can expect specific actions from various countries.
Expected Actions
- Czech Republic: Buy gold to reach target ratios
- Denmark: Increase foreign exchange reserves
- Croatia: Sell foreign exchange to optimize balance
- Non-EU countries: Continue buying gold to come on par
Except, of course, the United States, which maintains gold at $42.22/oz statutory pricing.
Reset Timing
- Reset happens when all large economies are in insurmountable crisis
- Revaluing gold to cancel debt - one window of opportunity
- Premature action by one country could spoil smooth transition
- Coordination essential for global implementation
The strategy requires precise timing and global coordination.
Gold Standard Type
- More likely gold price targeting than classical gold standard
- People exchange gold in free market at stabilized price
- Central bank monetary policy stabilizes gold price
- Different from fixed convertibility system
Europe aims to equalize gold-to-GDP ratios, not gold-to-monetary base ratios.
Evolutionary Strategy
European politicians and central bankers in the 1970s probably didn't have a long-term gold strategy written in stone. Things developed along the way, with views and decisions shaped by central bankers at meetings at European clubs or the Bank for International Settlements.
Risk Sharing Challenge
The gold is evenly distributed in the eurozone, but the debt that needs to be cancelled is not. For example:
- Italy: Public debt-to-GDP ratio of 150%
- Germany: Public debt-to-GDP ratio of 70%
- Need mechanisms to transfer debt between countries
- Maximize use of all NCBs' revaluation accounts
Part 3 of this series will explore risk sharing options to transfer debt from high-debt to low-debt countries, making optimal use of all national central banks' revaluation accounts created by gold revaluation.
Strategic Patience
Some countries outside the EU play a comparable gold strategy. Switzerland's central bank completed its gold selling program in 2005, stating: "Before these sales, Switzerland's relative position with respect to gold holdings was extreme among the G10 countries."
Disclaimer: This analysis represents research and interpretation of publicly available data and statements. The conclusions drawn are analytical opinions and should not be considered financial advice. Central banking policies involve complex factors beyond those discussed here.