Washington Agreement on Gold
Encyclopedia
The Washington Agreement on Gold was signed of 26 September 1999 in Washington, D.C.
during the International Monetary Fund
(IMF) annual meeting, and the US Secretary of the Treasury, Lawrence Summers
, and the Chairman of the Federal Reserve, Alan Greenspan
, were present.
(ECB), the 11 national central banks of nations then participating in the new European currency, plus those of Sweden, Switzerland and the United Kingdom, agreed that gold should remain an important element of global monetary reserves and to limit their sales to no more than 400 tonnes (12.9 million oz) annually over the five years September 1999 to September 2004, being 2,000 tonnes (64.5 million oz) in all."
auctions, coupled with the prospect of significant sales by the Swiss National Bank
and the possibility of on-going sales by Austria and the Netherlands, plus proposals of sales by the IMF. The UK announcement, in particular, had greatly unsettled the market because, unlike most other European sales by central banks in recent years, it was announced in advance. Sales by such countries as Belgium and the Netherlands had always been discreet and announced after the event. So the Washington/European Agreement was at least perceived as putting a cap on European sales."
According to GATA, central banks throughout the 1990s, had been leasing out their gold to privileged bullion banks, in order to suppress the price of gold, and bolster the value of their national currencies. Through the mechanism of the Washington Agreement, central banks were able to account for the sale of gold which they no longer had possession of. Therefore, bullion banks weren't required to return their leased gold by purchases of gold on the open market, which would have driven up its price, and would have caused the value of national currencies to fall. Therefore according to GATA, the Washington Agreement simply allowed central banks to sell their gold to the bullion banks which had in fact, already leased it. This was documented in an article written by GATA. http://www.gata.org/node/4279
, from an October 6, 1999 address to The 12th Nikkei Gold Conference :
"Central bank independence is enshrined in law in many countries, and central bankers tend to be independent thinkers. It is worth asking why such a large group of them decided to associate themselves with this highly unusual agreement...At the same time, through our close contacts with central banks, the Council has been aware that some of the biggest holders have for some time been concerned about the impact on the gold price—and thus on the value of their gold reserves—of unfounded rumours, and about the use of official gold for speculative purposes.
"Several of the central bankers involved had said repeatedly they had no intention of selling any of their gold, but they had been saying that as individuals—and no-one had taken any notice. I think that is what Mr. Duisenberg meant when he said they were making this statement to clarify their intentions."
Gold will remain an important element of global monetary reserves.
The gold sales already decided and to be decided by the undersigned institutions will be achieved through a concerted programme of sales over a period of five years, starting on 27 September 2004, just after the end of the previous agreement. Annual sales will not exceed 500 tons and total sales over this period will not exceed 2,500 tons.
Over this period, the signatories to this agreement have agreed that the total amount of their gold leasings and the total amount of their use of gold futures and options will not exceed the amounts prevailing at the date of the signature of the previous agreement.
This agreement will be reviewed after five years.
did not sign this agreement.
Washington, D.C.
Washington, D.C., formally the District of Columbia and commonly referred to as Washington, "the District", or simply D.C., is the capital of the United States. On July 16, 1790, the United States Congress approved the creation of a permanent national capital as permitted by the U.S. Constitution....
during the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(IMF) annual meeting, and the US Secretary of the Treasury, Lawrence Summers
Lawrence Summers
Lawrence Henry Summers is an American economist. He served as the 71st United States Secretary of the Treasury from 1999 to 2001 under President Bill Clinton. He was Director of the White House United States National Economic Council for President Barack Obama until November 2010.Summers is the...
, and the Chairman of the Federal Reserve, Alan Greenspan
Alan Greenspan
Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...
, were present.
Scope
"Under the agreement, the European Central BankEuropean Central Bank
The European Central Bank is the institution of the European Union that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt,...
(ECB), the 11 national central banks of nations then participating in the new European currency, plus those of Sweden, Switzerland and the United Kingdom, agreed that gold should remain an important element of global monetary reserves and to limit their sales to no more than 400 tonnes (12.9 million oz) annually over the five years September 1999 to September 2004, being 2,000 tonnes (64.5 million oz) in all."
Reason
"The agreement came in response to concerns in the gold market after the United Kingdom treasury announced that it was proposing to sell 58% of UK gold reserves through Bank of EnglandBank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
auctions, coupled with the prospect of significant sales by the Swiss National Bank
Swiss National Bank
The Swiss National Bank is the central bank of Switzerland. It is responsible for Swiss monetary policy and for issuing Swiss franc banknotes.The names of the institution in the four official languages of the country are: ; ; ; ....
and the possibility of on-going sales by Austria and the Netherlands, plus proposals of sales by the IMF. The UK announcement, in particular, had greatly unsettled the market because, unlike most other European sales by central banks in recent years, it was announced in advance. Sales by such countries as Belgium and the Netherlands had always been discreet and announced after the event. So the Washington/European Agreement was at least perceived as putting a cap on European sales."
Purpose
Some critics such as the Gold Anti-Trust Action Committee (GATA) maintain that the purpose of the Washington Agreement was not to limit central bank gold sales at all:According to GATA, central banks throughout the 1990s, had been leasing out their gold to privileged bullion banks, in order to suppress the price of gold, and bolster the value of their national currencies. Through the mechanism of the Washington Agreement, central banks were able to account for the sale of gold which they no longer had possession of. Therefore, bullion banks weren't required to return their leased gold by purchases of gold on the open market, which would have driven up its price, and would have caused the value of national currencies to fall. Therefore according to GATA, the Washington Agreement simply allowed central banks to sell their gold to the bullion banks which had in fact, already leased it. This was documented in an article written by GATA. http://www.gata.org/node/4279
Legal status
- The agreement is not an international treatyTreatyA treaty is an express agreement under international law entered into by actors in international law, namely sovereign states and international organizations. A treaty may also be known as an agreement, protocol, covenant, convention or exchange of letters, among other terms...
, as defined and governed by international lawInternational lawPublic international law concerns the structure and conduct of sovereign states; analogous entities, such as the Holy See; and intergovernmental organizations. To a lesser degree, international law also may affect multinational corporations and individuals, an impact increasingly evolving beyond...
. - The agreement is a sui generisSui generisSui generis is a Latin expression, literally meaning of its own kind/genus or unique in its characteristics. The expression is often used in analytic philosophy to indicate an idea, an entity, or a reality which cannot be included in a wider concept....
, gentlemen’s agreement among Central Bankers, of doubtful legality given the objectives and public law nature of Central Banks. - The agreement resembles a cartelCartelA cartel is a formal agreement among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production. Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve homogeneous products...
that materially affects the supply of gold in the global market. In this regard, the agreement stretches the borders of antitrust legislationCompetition lawCompetition law, known in the United States as antitrust law, is law that promotes or maintains market competition by regulating anti-competitive conduct by companies....
.
Public participation
- The agreement was negotiated behind closed doors. Information was not provided to the public and relevant stakeholders were not afforded the opportunity to comment.
- The agreement does not contain formal mechanisms for re-negotiation. Trends in international law regarding public participation and access to information should inform the re-negotiation process, scheduled for 2004.
Analysis
The following remarks are from George Milling-Stanley, Manager, Gold Market Analysis--World Gold CouncilWorld Gold Council
The World Gold Council is a non-profit association of the world's leading gold mining companies, established in 1987 to promote the use of gold. It aims to stimulate demand for gold from industry, consumers, and investors. The Council's Chief Executive Officer is Aram Shishmanian, former head of...
, from an October 6, 1999 address to The 12th Nikkei Gold Conference :
"Central bank independence is enshrined in law in many countries, and central bankers tend to be independent thinkers. It is worth asking why such a large group of them decided to associate themselves with this highly unusual agreement...At the same time, through our close contacts with central banks, the Council has been aware that some of the biggest holders have for some time been concerned about the impact on the gold price—and thus on the value of their gold reserves—of unfounded rumours, and about the use of official gold for speculative purposes.
"Several of the central bankers involved had said repeatedly they had no intention of selling any of their gold, but they had been saying that as individuals—and no-one had taken any notice. I think that is what Mr. Duisenberg meant when he said they were making this statement to clarify their intentions."
First version (1999)
The first version, the Central Bank Gold Agreement (CBGA) was signed on 26 September 1999.Full text
In the interest of clarifying their intentions with respect to their gold holdings, the above institutions make the following statement:- Gold will remain an important element of global monetary reserves.
- The above institutions will not enter the market as sellers, with the exception of already decided sales.
- The gold sales already decided will be achieved through a concerted programme of sales over the next five years. Annual sales will not exceed approximately 400 tonnes and total sales over this period will not exceed 2,000 tonnes.
- The signatories to this agreement have agreed not to expand their gold leasings and their use of gold futures and options over this period.
- This agreement will be reviewed after five years
Signatories
- Österreichische Nationalbank
- Banca d'ItaliaBanca d'ItaliaBanca d'Italia is the central bank of Italy and part of the European System of Central Banks. It is located in Palazzo Koch, Roma, via Nazionale...
- Banque de FranceBanque de FranceThe Banque de France is the central bank of France; it is linked to the European Central Bank . Its main charge is to implement the interest rate policy of the European System of Central Banks...
- Banco de PortugalBanco de PortugalThe Banco de Portugal is the central bank of the Republic of Portugal. Established by a royal charter of 19 November 1846 to act as a commercial bank and issuing bank, it came about as the result of a merger of the Banco de Lisboa and the Companhia de Confiança Nacional, an investment company...
- Schweizerische Nationalbank
- Banque Nationale de Belgique
- Banque Centrale du LuxembourgBanque Centrale du LuxembourgThe Central Bank of Luxembourg is the central bank of Luxembourg. It was founded in 1998, at the same time the European Central Bank was created, by laws dated 22 April and 23 December...
- Deutsche BundesbankDeutsche BundesbankThe Deutsche Bundesbank is the central bank of the Federal Republic of Germany and as such part of the European System of Central Banks . Due to its strength and former size, the Bundesbank is the most influential member of the ESCB. Both the Deutsche Bundesbank and the European Central Bank are...
- Banco de EspañaBanco de EspañaThe Bank of Spain , is the national central bank of Spain. Established in Madrid in 1782 by Charles III, today the bank is a member of the European System of Central Banks.-History:...
- Bank of EnglandBank of EnglandThe Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
- Suomen Pankki
- De Nederlandsche BankDe Nederlandsche BankDe Nederlandsche Bank is the central bank of the Netherlands. It is part of the European System of Central Banks .-History:...
- Central Bank of Ireland
- Sveriges RiksbankSveriges RiksbankSveriges Riksbank, or simply Riksbanken, is the central bank of Sweden and the world's oldest central bank. It is sometimes called the Swedish National Bank or the Bank of Sweden .-History:...
- European Central BankEuropean Central BankThe European Central Bank is the institution of the European Union that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt,...
Second version (2004)
The second version, Joint Statement on Gold, was signed on 8 March 2004.Full text
In the interest of clarifying their intentions with respect to their gold holdings, the undersigned institutions make the following statement:Gold will remain an important element of global monetary reserves.
The gold sales already decided and to be decided by the undersigned institutions will be achieved through a concerted programme of sales over a period of five years, starting on 27 September 2004, just after the end of the previous agreement. Annual sales will not exceed 500 tons and total sales over this period will not exceed 2,500 tons.
Over this period, the signatories to this agreement have agreed that the total amount of their gold leasings and the total amount of their use of gold futures and options will not exceed the amounts prevailing at the date of the signature of the previous agreement.
This agreement will be reviewed after five years.
Signatories
- European Central Bank
- Banca d'Italia
- Banco de España
- Banco de Portugal
- Bank of GreeceBank of GreeceThe Bank of Greece is the nationalcentral bank of Greece, located in Athens on Panepistimiou Street, with several branches across the country. Founded in 1927...
- Banque Centrale du Luxembourg
- Banque de France
- Banque Nationale de Belgique
- Central Bank & Financial Services Authority of Ireland
- De Nederlandsche Bank
- Deutsche Bundesbank
- Österreichische Nationalbank
- Suomen Pankki
- Schweizerische Nationalbank
- Sveriges Riksbank
2009 agreement
In August 2009, 19 banks extended the agreement and committed to selling no more than a combined 400 millions ounces of gold through September 2014. The International Monetary FundInternational Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
did not sign this agreement.
External links
- Gold and the Modern World Economy
- http://www.gold.org/assets/file/pr_archive/html/Wr991006.htm
- http://www.authenticmoney.com/part1.htm
- http://www.authenticmoney.com/part2.htm