[OPE-L:2047] Re: electronic money, etc.

Duncan K Foley (dkf2@columbia.edu)
Tue, 30 Apr 1996 11:33:53 -0700

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On Mon, 29 Apr 1996, Michael Williams wrote:

> Costas asks:
> Is it at all significant that central banks today
> hold more gold than ever, perhaps 500f all the gold that has ever
> been produced? If they are worried that off-loading the gold would
> destroy the valuation of reserves throughout the credit system, what
> is the significance of this for theory?
> To which I await Duncan's answer with interest. But in the meantime, I wonder
> (genuinely - I don't know) which of the money markets' players knows about CBs'
> bullion holdings, and significant it is in supporting their confidence in the
> relevant currency (as compared to commercial evaluations of risk, economic
> performance, the relevant state's monetary policy stance, etc, etc)?

I made a couple of suggestions in a reply to Costas, but I don't think I
have any very well-grounded answer. It might be interesting to look into
the question of how much different governments actually use the gold
reserve to support currencies or make clearing payments. I don't think
the U.S. has done this very much if at all, in part because on they carry
the gold on their books at an artificially low legislated price of $35
per ounce, less than 100f the market price. But I wonder if the
European countries actually are using gold to settle international payments.

If not, I suppose one would have to regard the governments as speculating
on a long-term rise in gold prices.


> Michael W.