Tuesday, July 12, 2011

Lords of Finance - How to efficiently transfer gold from Britain to France

After 1928, France started accumulating an increasing amount of gold while the rest of the major countries were fighting the start of the Great Depression. The gold standard was showing its weaknesses: to provide credit, bank needed enough gold reserves, but fear led investors to direct capital towards the US and France which already had the largest reserves. Interestingly, capital flows from the US to Europe dried up because of this uncertainty, but also because of the Smoot-Hawley Act of 1930 which imposed huge tariff hikes for US imports. This led to a drop in demand for European goods. In part for that reasons, European countries thus could pay their own imports mainly using gold, and same thing to pay its debt. The flows in Europe were mainly directed to France, which started with reserves of about $1bn in 1928 to triple that in 1932, while the UK, who started in 1928 with a similar amount, saw its own reserves dwindling:
The interesting tidbit in Ahmed's book is about how money was transferred from Britain to France. The reserves of the US, Britain and France were actually mostly held in London, because of the weight of bullion. Therefore:
[C]entral banks had taken to "earmarking" the metal, that is, keeping it in the same vault but simply re-registering its ownership. Thus the decline in Britain's gold reserves and their accumulation in France and the US was accomplished by a group of men descending into the vaults of the Bank of England, loading some bars of bullion onto a low wooden truck with small rubber tires, trundling them thirty feet across the room to the other wall, and offloading them, though not before attaching some white name tags indicating that the gold now belonged to the Banque de France or the Fed.

This is also, by the way, how I was transferring ownership of objects with my brother in our room when we were young.

1 comment:

  1. Visit the vaults of the Fed in New York and you can see the gold bars. The guys who move the bars around have these really awesome shoes in case they crush their toes.