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Bank Of England Boss: China’s Renminbi Will Rival The Dollar As Global Reserve Currency

The past year was full of events that inevitably split the global geopolitical space into two camps: those who still support using US currency as a universal financial tool, and those who are turning their back on the greenback.

Global tensions caused by economic sanctions and trade conflicts triggered by Washington have forced targeted countries to take a fresh look at alternative payment systems currently dominated by the US dollar.

So far, China, India, Turkey, Iran, and Russia have all taken steps towards eliminating their reliance on the greenback, and the reasons behind their decision.

But while those nations could be conceived by many as “enemies” that could be forgiven for daring to question the hegemon, we must admit we were a little surprised at just how frank Bank of England Governor Mark Carney was during a lengthy Q&A this morning

One of the first questions asked was:

“Does he envisage one of the types of IMF SDRs to become a global currency in his lifetime? If so, will it be crypto/blockchain/gold ‘backed’?”

Carney’s response was oddly honest and open…

“The IMF’s SDRs are designed for a specific purpose – to supplement IMF member countries’ official reserves and so help them to address balance of payments problems. So they are not intended to become a widely accepted means of exchange – what most people understand ‘currency’ to mean.

OK, so definitely got the message – Don’t look over here at the SDRs

What about other currencies?

“That said, I think it is likely that we will ultimately have reserve currencies other than the USD. The evolution of the global financial system is currently lagging behind that of the global economy, and there are asymmetric concentrations of financial assets in advanced economies relative to economic activity.

Venezuela’s gold in limbo amid tug-of-war at the Bank of England

Venezuela’s gold in limbo amid tug-of-war at the Bank of England

In early November news was placed into the British media (Reuters and The Times) revealing that the Bank of England in London, one of the world’s largest custodians of gold bars on behalf of other central banks, was refusing to allow the withdrawal and repatriation of 14 tonnes of gold belonging to Venezuela’s central bank, the Banco Central de Venezuela (BCV).

According to these media reports, the delays / refusals by the Bank of England to allow the Venezuelan gold repatriation ranged from excuses about the prohibitive cost of transport insurance to concerns about future money laundering. In all cases, these excuses were bogus, as I explained in the article “Bank of England refuses to return 14 tonnes of gold to Venezuela” on the BullionStar website, dated 15 November, and that the real reasons for the Bank of England’s refusal were political. As I stated at the time in my conclusion:

The reasons put forward by official sources in the Reuters and Times articles for why Venezuela can’t withdraw its gold from the Bank of England are clearly bogus. The more logical and likely explanation is that the US, through the White House, US Treasury and State Department have been liaising with the British Foreign office, HM Treasury to put pressure on the Bank of England to delay and push back on Venezuela’s gold withdrawal request.”

According to the Reuters report dated 5 November, the Venezuelan central bank gold withdrawal plan had “been held up for nearly two months”, which would put the original withdrawal request by the BCV to the Bank of England at a date in at least September and probably earlier. So the BCV had been looking for its gold back for sometime, and the Bank of England was stalling.

…click on the above link to read the rest of the article…

The Bank of England and the Manipulation of Sterling

The Bank of England and the Manipulation of Sterling

In a recent article where I discussed the Bank of England being at the heart of the Brexit process, I mentioned how the fall in the value of sterling following the 2016 referendum was pigeonholed by the bank as being the sole cause for inflation breaching their 2% target.

After the article was re-posted by Zero Hedge, a reader commented on something I did not make specific mention of, which was that six weeks after the referendum the BOE halved interest rates to 0.25%, prompting the pound to drop further in value. The reader pointed out that cutting interest rates usually results in currencies depreciating, and that the bank’s actions were the cause of a subsequent rise in inflation and not Brexit itself. Essentially, the premise here is that the BOE were responsible for devaluing the pound and creating the conditions to eventually raise interest rates a year later.

A similar comment from another reader in October last year spoke of how the BOE extending quantitative easing by £60 billion, as well as lowering rates, were ‘two sure fire things to lower the value of the pound.’

Whilst I have touched upon this in previous articles, it is a subject that deserves more attention and fresh context.

Let’s start by first going back to December 2007 when the Bank of England cut interest rates from 5.75% to 5.5%. At the time sterling was valued at $1.96. Two more rate cuts followed in February and April 2008, taking rates down to 5%. The pound remained stable around $1.97. So far the bank lowering rates had not prompted a fall in sterling.

Five months later Lehman Brothers collapsed, and so began a violent downward trend in interest rates. The next cut came in October, down to 4.5%. The chaos within financial markets had fed through to sterling – the $1.97 from five months ago was now $1.72.

…click on the above link to read the rest of the article…

Irish Central Bank Refuses To Discuss If Gold Reserves Are In Bank of England Vaults

– As Brexit looms, the Central Bank of Ireland has refused to discuss the location and value of Irish gold reserves
– No date given for removal of “commercially sensitive” gold reserves from Bank of England vaults

– Bank of England vaults in London believed to hold almost €200 million of Irish gold
– Ireland’s financial system & economy is hugely exposed to a Brexit downturn

via Irish Independent:

IRELAND’S Central Bank has refused to say if it plans to move almost €200m worth of gold bars from the vaults of the Bank of England as a result of Brexit, insisting that any such move would be “commercially sensitive”.

The gold reserves have been held by its UK counterpart for a number of years, and the Central Bank has traditionally been coy on the precise details of the reserves, and the terms of the arrangement it has with the Bank of England.

It refused to be drawn yesterday on whether the reserves would be removed from the Bank of England either before or after the Brexit deadline of next March.

“It is for the Central Bank to determine how Ireland’s gold reserves ought to be managed,” a spokeswoman told the Irish Independent.

“The Central Bank’s portfolio is managed in line with approved parameters, which are kept under regular review and we report on key activities and developments in our annual report,” she added.

“The Central Bank’s transactions in gold are commercially sensitive and no further comment can be made at this time,” she said.

The latest Central Bank annual report shows that it had €209.3m worth of gold and gold receivables on its books at the end of 2017.

…click on the above link to read the rest of the article…

Ann Pettifor: If I governed the Bank of England, here’s what I do

Ann Pettifor: If I governed the Bank of England, here’s what I do

The radical economist outlines how she’d overhaul the UK’s broken economy.

If such an implausible appointment were ever to be made by a Labour chancellor, I would regard it as a great honour. The Bank of England stands at the pinnacle of Britain’s monetary system, which I regard as one of Britain’s great public goods. It is as vital to our economic health as the sanitation system is to public health. The development of the monetary system and the founding of the Bank of England in 1694 represented – despite all its flaws – a great civilisational advance. As the £1,000 billion bailout of the banking sector in 2007-9 proved, thanks to our monetary system, there need never be a shortage of money. We need never lack the money for all that society regards as vital to economic, social, political and ecological stability. I write that with feeling, having worked in countries that lack a developed monetary system, and therefore have no money.

The Bank of England, explained the governor Mark Carney recently, is ‘the only game in town’. The bank’s power – or at least the power of its civil servants and monetary policy committee members – was greatly enhanced during the Blair government. Under Gordon Brown’s watch one of the most important economic tools available to any government – the power to determine the rate of interest (bank rate) – was delegated to a committee of unelected men (and the occasional woman) at the Bank of England. Brown made clear in 1997 that the monetary policy committee was expected to wield this great power independently of parliament’s scrutiny.

…click on the above link to read the rest of the article…

Bank of England refuses to return 14 tonnes of gold to Venezuela

Bank of England refuses to return 14 tonnes of gold to Venezuela 

The Bank of England claims to be one of the largest physical gold custodians in the world, holding gold bars in vault storage on behalf of more than 70 central banks and a number of commercial (bullion) banks.

As a long-standing and well-known gold custodian, it should therefore be a simple matter operationally and logistically for any central bank customer from around the world to withdraw gold bars from the Bank of England and to have those gold bars sent overseas. These types of shipments have been happening at the Bank of England for hundreds of years.

Such an event would normally not generate any media interest nor even be known about in the public domain such is the secrecy and opacity of central bank gold transactions. For these reasons, the current case involving the Bank of England’s refusal to deliver Venezuela’s gold stored in London, and the way its been publicized, raises some questions and deserves comment.

HM Treasury and Fleet Street

So what exactly is the issue? On 5 November, the London headquartered Reuters news agency reported that the Venezuelan state, fearing sanctions, is attempting to repatriate 14 tonnes of gold from the Bank of England in London, but that this gold withdrawal and transport operation has not yet been actioned despite the withdrawal request being made by Venezuela nearly two months ago.

According to Reuters’ sources which were two unnamed “public officials with direct knowledge of the operation“, Venezuela’s gold bar withdrawal delay is being caused by the difficulty and cost in obtaining insurance for the gold shipment, and also because the Bank of England wants to know what Venezuela plans to do with its gold once it receives it.

…click on the above link to read the rest of the article…

 

Steen Jakobsen: The Four Horsemen Portend A Painful Reckoning

Steen Jakobsen: The Four Horsemen Portend A Painful Reckoning

Even the US is now ‘swimming naked’

Steen Jacobsen, Chief Economist and Chief Investment Officer of Saxo Bank sees economic slowdown ahead.

Specifically, his “Four Horseman” indicators: the drivers of economic growth, are all flashing red.

Jacobsen believes that the central banks will continue their liquidity tightening efforts for as long as they can get away with (i.e., until the financial markets start toppling over). In his opinion, they eased way too much for way too long; and the malinvestment and zombification that resulted needs to clear the system — and it will likely do so more violently and painful than the central banks will like:

I like to make things simple. Right now we have the Four Horsemen: the four drivers of the global economy. They are the quantity of money, which is falling; the price of money, which is rising; the price of energy,which is a tax on consumers and is rising; and globalization/productivity, which is falling.

So, if you look at the economy as a black box, I really don’t know what happens inside of it. But I can observe what goes into the black box: it’s these four things.

Globalization / productivity, we know that’s all about Trump, trade war and the likes. It’s not exactly improving; it’s actually worsening.

As for the quantity of money, a lot of people argue with me that the Central Banks are still expanding their balance sheets, but the fact of the matter is that the QT in terms of the U.S has been reducing the Federal Reserve balance sheet. And we have a stealth reduction of the balance sheet in terms of the Bank of Japan. The EBC would love to cut and is publicly committed to doing so. The Bank of England is doing its first hike. So the quantity of money is falling.

…click on the above link to read the rest of the article…

Venezuela is Painfully Reminded of the Golden Rule

Venezuela is Painfully Reminded of the Golden Rule- Nathan McDonald (09/11/2018)

He who holds the gold, makes the rules.

This is a motto that you will hear espoused by gold bugs, precious metals advocates, or anyone that has studied financial history in any meaningful way.

The fact is, if you don’t hold it, then you don’t own it.

This is something that I have warned about for years, as people continue to pile into “paper” precious metals assets, most specifically, those that do not guarantee to hold the precious metals in physical reserve, accounting for every oz that they own via regularly scheduled audits.

As Central Banks around the world continue to race into gold, a trend I have been noting throughout the course of this year, some, are being painfully reminded of the golden rule and are ruing the day they ever gave up physical ownership of their most valuable, real asset.

Venezuela, who is currently led by a failing socialist government, with President Nicolas Maduro at its head, is one such country that is learning this valuable lesson.

Venezuela, for months has been attempting to repatriate their gold holdings from the Bank of England, the latter of whom “allegedly” holds a large percentage of the worlds gold reserves since the ending of World War 2.

The reasoning for this, was one of the greatest cons in history, and one that continues to unfold. Western Central Banksters convinced many of the Worlds Nations that it would be “safer” to hold their reserves within the United States and England.

Ironically, over the last few decades, this has been just about the worst place in the world to hold your gold bullion, as these nations have rehypothecated this gold to near infinity. But don’t worry, they claim their “good” for it.

…click on the above link to read the rest of the article…

UK Blatantly Violates Norms of Decent Behavior

UK Blatantly Violates Norms of Decent Behavior

UK Blatantly Violates Norms of Decent Behavior

Russia and Venezuela are among the countries the EU, including Great Britain, has imposed sanctions on. Both nations have been targets of London’s vigorous attacks, being blamed for numerous nefarious things they have allegedly done. The UK insists that everyone play by the rules. Meanwhile, London is making mockery of commonly accepted norms in the international relations.

The government of Venezuela is seeking to eventually repatriate at least 14 tons of gold held at the Bank of England (BOE). It has recently asked to release the gold bars worth about £420 million or $550 million. This is the right and timely move as the new round of punitive measures recently imposed on Caracas by Washington showed. The Bank has refused to do so!

UK officials have reportedly insisted that Venezuela clarify its intentions for the gold. Venezuelan President Maduro is suspected by London of harboring plans to sell the national treasure for personal gains. There is also a subterfuge used to explain why the Venezuelan property has not been returned to the owner. The UK says it’s very hard to obtain insurance for the shipment to move the large cargo. Even if Venezuela gets the gold back, it’ll be a large order to use it for raising hard currency because of the new round of US sanctions announced on Nov.1. With the penalties in place, it’s impossible to sell the gold straight from the Bank of England.

The UK knows better who should be suspected of what and who can be trusted to have one’s own property returned. If it’s not theft, then what is? The rules of civilized behavior, you say? Forget about it, it’s up to London, faithfully complying with the instructions coming from Washington, to decide what’s civilized and what’s not.

…click on the above link to read the rest of the article…

“Peak QE”: This Is What Share Of The Market Central Banks Now Own

After a decade of unprecedented liquidity injections by central banks to preserve the western financial system, global QE has peaked.

First, the aggregate balance sheet of major central banks started to shrink earlier in the year, a reversal that took investors many months to notice but judging by recent market volatility, it is finally being fully appreciated.

Second, beginning this month the Fed’s bond portfolio run-offs as part of its QT are roughly offsetting the combined tapered net QE purchases by the ECB and BoJ. Worse, QT is now set to dominate.

Some facts: between mid-2008 and early 2018, the “Big-6” central banks expanded their balance sheets by nearly $15tn, most of it due to explicit targeted purchases of domestic assets (QE) in addition to other forms of liquidity injections (collateralised lending such as the ECB’s TLTROs or FX interventions equivalent to foreign-asset QE).

According to Deutsche Bank estimates, the four major central banks involved in QE (Fed, ECB, BoJ and BoE) are now collectively holding $11.3tn of securities accumulated through their asset purchase programs.

Why is the above important? Because as Deutsche strategist Michal Jezek, now that liquidity is contracting makes for a timely moment for looking at the proportion of relevant asset classes owned by central banks and putting the ECB’s corporate bond holdings into a wider context.

To begin, as Jezek confirms what we have been saying since the start of 2009, “clearly, QE matters.” As central banks reduced the free float of some securities and QE has worked its magic on confidence and growth, asset valuations reached unprecedented levels while volatility became suppressed. A couple of years ago, a quarter of the global bond market was trading with a negative yield. With global QE fading, this proportion has now fallen by half but remains significant.

…click on the above link to read the rest of the article…

Gold Reserves Surge 1,000% In Hungary As It Joins Poland, Russia, China and Other Central Banks Buying Gold

Gold Reserves Surge 1,000% In Hungary As It Joins Poland, Russia, China and Other Central Banks Buying Gold

News, Commentary, Charts and Special Podcast on Direct Access Gold

Here is our Friday digest of the important news, commentary, charts and videos we were informed by this week including our special podcast on Direct Access Gold.

From our perspective, the most important developments were the IMF’s financial warnings and the escalation in central bank gold buying with Hungary increasing its gold reserves by a whopping 1,000% due to increasing “safety concerns.”

For the first time since 1986, Hungary’s central bank is buying gold bullion – a lot of gold bullion.

The Eastern-European country announced that it had boosted its gold reserves ten-fold, up to 31.5 tons. It not only dramatically increased its reserves but also repatriated the gold from the Bank of England to Budapest due to concerns about “financial stability”.

Central banks in Europe are diversifying into gold or moving to repatriate and take “possession in country.”

Hungary and Poland are the most recent central banks to do this but they follow in the footsteps of Austria, Netherlands and the powerful German Bundesbank all of which have been repatriating their gold from the Bank of England and the Federal Reserve in recent months and years.


Source: Bloomberg

“Gold is still considered to be one of the world’s safest assets,” in the words of the Hungarian central bank.

This view is shared by the President of the ECB Mario Draghi who in February 2013 spoke about how “gold is a reserve of safety” which “gives you a value-protection against fluctuations against the dollar.”

Central bank gold reserves remain very small versus the scale of their massive foreign exchange holdings and their significant exposure to the vulnerable dollar in particular but also the euro and other fiat reserve currencies.

…click on the above link to read the rest of the article…

Next Central Bank Puts QE Unwind on the Calendar

Next Central Bank Puts QE Unwind on the Calendar

The end of an era spreads.

Markets were surprised today when the Bank of England took a “hawkish” turn and announced that three out of nine members of its Monetary Policy Committee – including influential Chief Economist Andrew Haldane, who’d been considered dovish – voted to raise the Bank Rate to 0.75%, thus dissenting from the majority who kept it at 0.5%. This dissension, particularly by Haldane, communicated to the markets that a rate hike at the next meeting in August is likely. The beaten-down UK pound jumped.

But less prominent was the announcement about the QE unwind. Like other central banks, the BoE heavily engaged in QE and maintains a balance sheet of £435 billion ($577 billion) of British government bonds and £10 billion ($13 billion) in UK corporate bonds that it had acquired during the Brexit kerfuffle.

Before it starts shedding assets on its balance sheet, however, the BoE wants to raise the Bank Rate enough to where it can cut it “materially” if needed, “reflecting the Committee’s preference to use Bank Rate as the primary instrument for monetary policy,” as it said.

In this, it parallels the Fed. The Fed started its QE unwind in October 2017, after it had already raised its target range for the federal funds rate four times.

The BoE’s previous guidance was that the QE unwind would start when the Bank Rate is “around 2%.” Back in the day when this guidance was given, NIRP had broken out all over Europe, and pundits assumed that the BoE would never be able to raise its rate to anywhere near 2%, and so the QE unwind could never happen.

Today the BoE moved down its guidance about the beginning of the QE unwind to a time when the Bank Rate is “around 1.5%.”

…click on the above link to read the rest of the article…

Central Banking: It’s Alive!!

In his recent posting on Linked In, entitled, ‘The death of macro-prudential’, Stuart Trow of the EBRD delivered a well-aimed broadside at the pitiable conduct of the Bank of England and elaborated on some of the malign consequences of its catalogue of errors. Without wishing to single him out unduly for criticism for a piece with whose broad outlines I concur,  I see it as a prime example of where even those who are not wholly in thrall to the cult of ‘Whatever it Takes’ often miss the critical features of that cult’s essential evil. Left unaddressed, therefore, I fear this lack can only leave the intellectual soil fertile for a continued harvest of malign outcomes on the part of our clay-footed idols in the central banks.

Where better to start than with the following bold assertion of the author, viz., that ‘…if only policymakers had been allowed to exercise their judgement, crises could have been anticipated and avoided…’?

In my eyes, that heroic presumption of policymakers’ qualities of ‘judgement’ almost vitiates the argument from the off. Irrespective of whether one can be persuaded that Mario Draghi, Jerome Powell, Divus Marcus Carney and the like are the most intelligent, most far-sighted – most impartially Olympian – beings on the planet, the reality is that neither their fervid number-crunching of rows of abstracted, statistical time-series nor the GIGO output of their horribly over-specified macroeconomic ‘models’ can possibly substitute for the particular judgement and uniquely individual preferences of untold millions of men and women interacting, every minute of every day, every where in the market.

No, the best the central bankers can hope to achieve – in finest Hippocratic fashion – is that their own meddling does not send too any wrong signals, conjure up too many wrong incentives, or encourage too many, ultimately self-defeating behaviours among the innocent millions over whom they have been almost divinely-appointed to hold sway and over whom they hold seemingly limitless power.

…click on the above link to read the rest of the article…

The Relevance of Hayek’s Triangle Today

Most of us are aware of the inflationary pressures in the major economies, that so far are proving somewhat latent in the non-financial sector. But some central banks are on the alert as well, notably the Federal Reserve Board, which has taken the lead in trying to normalise interest rates. Others, such as the European Central Bank, the Bank of Japan and the Bank of England are yet to be convinced that price inflation is a potential problem.

Virtually no one in the central banks, government treasury departments, or independent analysts see the real inflationary danger. There is a lone exception perhaps in Dr Zhang Weiying, the top economist at Beijing University and formally in charge of China’s economic policy, who quoted Hayek’s business cycle theory to point out the dangers of excessive deficits.[i] Whether he is listened to by his colleagues, we shall doubtless find out in due course. Otherwise, a sudden acceleration of price inflation will come as a complete surprise to our financially sophisticated markets.

This article explains why the danger lies in the structure of production, which in the West at least is seriously out of whack. The follies of post-crisis central bank monetary reflation are likely to drive us rapidly into the next credit crisis as a consequence. To understand why this is so requires us to revisit the 1930s writings of an Austrian-born economist, who was tasked by the London School of Economics with explaining to advanced students the disruption to the production process from changes in consumer demand.

Friedrich von Hayek was famously reported as the economic guru of both Margaret Thatcher and Ronald Reagan. This distinction owes its origin to his market-based approach to economics, which was in stark contrast with the statist approach that was predominant in political circles at that time, and still is today. It was simple shorthand for the media writing for a mass audience.

…click on the above link to read the rest of the article…

The Central Bank Bubble: It Will Be Ugly

The Central Bank Bubble: It Will Be Ugly

The global economy has been living through a period of central bank insanity, thanks to a little-understood expansion strategy known as quantitative easing, which has destroyed main-street and benefitted wall street.

Central Banks over the last decade simply created credit out of thin air. Snap a finger, and credit magically appears. Only central banks can perform this type of credit magic. It’s called printing money and they have gone on the record saying they are magic people. 

Increasing the money supply lowers interest rates, which makes it easier for banks to offer loans. Easy loans allow businesses to expand and provides consumers with more credit to buy goods and increase their debt. As a country’s debt increases, its currency eventually debases, and the world is currently at historic global debt levels. 

Simply put, the world’s central banks are playing a game of monopoly.

With securities being bought by a currency that is backed by debt rather than actual value, we have recently seen $9.7 trillion in bonds with a negative yield. At maturity, the bond holders will actually lose money, thanks to the global central banks’ strategies. The Federal Reserve has already hinted that negative interest rates will be coming in the next recession.

These massive bond purchases have kept volatility relatively stable, but that can change quickly. High inflation is becoming a real possibility. China, which is planning to dethrone the dollar by backing the Yuan with gold, may survive the coming central banking bubble. Many other countries will be left scrambling. Some central banks are attempting to turn the current expansion policies around. Both the Federal Reserve, the Bank of Canada, and the Bank of England have plans to hike interest rates. The European Central Bank is planning to reduce its purchases of bonds. Is this too little, too late?

…click on the above link to read the rest of the article…

 

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