C. Cormier - Ormetal Inc. wrote:
>
> On 4 Apr 2001, at 5:40, Bob wrote:
>
> > The question in my mind is what does the ECB mean when they
> use
> > the word "backed". Does that mean that somebody can exchange
> > upon demand a Euro for 15% gold and 85% non-Euro currency or
> > 85% something else? If not, then I don't understand the 15%
> > backing point.
>
> Bob, The Euro is not yet a paper currency so it cannot be
> converted yet. The commitment by the ECB is to have 15% of its
> monetary reserves in gold. This is to insure help the stability of the
> reserve. It does not imply that the Euro will be convertible into gold
> and paper currencies.
>
> Simply said, they don't put all their eggs in the same basket.
> Including gold in their reserves helps stability. The international
> reserve currency is the USD. Gold is sort of a mirror image of the
> USD. If the USD falls, gold goes up. Holding gold as part of their
> monetary reserves will help stability of the reserves.
>
> Claude
Well, I suppose, to some extent. I should think it would be small
though, and mostly phsycological, although I don't know how long
that will last as the FX(foreign exchange) market decides the value
of the Euro as it's not backed by anything. If it's the European
bureaucrat that's using the word "backed", they're running a con.
I don't know what % reserves are as a % of liabilities in the EU
banking system currently or later when the transition is complete.
One way to look at it is to substitute the US for the EU.
The reserve assets to liabilities ratio in the US banking system
is about 1 to 108. Loans making up most of the other assets (107/108).
If gold was 15% of reserves, it would be 15/100 ths of one
of those 108 liabilities.
Big deal.
1.) Still no backing (redeemability)
2.) still the Fed can increase or decrease credit as much or
as little as they think they can politically get away with
3.) still the FX values the USD. What changed that makes a
difference? Not much that I can see. I can't see it amounting
to even a hill of beans.
Bob
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