Paper Gold vs the Dollar? Interview with James Rickards

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Johnny Oxygen
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Paper Gold vs the Dollar? Interview with James Rickards

Paper Gold vs the Dollar? Interview with James Rickards

http://us1.institutionalriskanalytics.com/pub/IRAMain.asp

To give you a sense of how much interest there is in financial matters in the national security community, I recently headed a panel at a program sponsored by the Johns Hopkins Applied Physics Laboratory, one of the premier private research centers in the U.S. for developing everything from new weapons to nuclear strategy. The topic of my paper was a hypothetical press release issued by the Russian central bank announcing the creation of a new, gold-back currency. In the hypothetical, the Russians also announce that exports of energy and other natural resources will have to be made in this new "gold ruble." The Russians would become a market maker in gold and effectively control the marginal price of gold transactions. This is basically a plan for taking down the dollar.

We have been operating in a dollar world for decades. Notwithstanding the demise of Bretton Woods in 1971, it's still a dollar system. All of the world's expectations, all of its productive capacity, all of its allocations of capital are built around that system. When the caretakers of that system allow weeds in the garden and for the system to disintegrate and fall apart, which is what I see happening in the U.S., the immediate reaction is first confusion, then panic and then self help. This gets to the heart of the national security implications of the financial crisis. Initially other nations were content to wait for the U.S. response, but now I see nations like China, Russia and Germany increasingly willing to act on their own.

 

 

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SteveW
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Re: Paper Gold vs the Dollar? Interview with James Rickards

These ideas and others were presented in Feb 2009 by Mr Rickards at the "Unrestricted Warfare Symposium". Its a 42 page large type paper for a 45 min presentation but certainly an interesting read, particularly the realistic details of a new paper gold.

http://www.jhuapl.edu/urw_symposium/proceedings/2009/Authors/Rickards.pdf

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Re: Paper Gold vs the Dollar? Interview with James Rickards

Thanks for the interesting article Johnny Oxygen.

I wonder where the gold would come from?  Russia only holds 706.38 tons of gold in reserves which is valued at around $28 billion.  Not nearly enough to have a gold backed system of any magnitude.   

The biggest individual holders of gold - Central banks, International entities and governments - are believed to account for approximately 20.5 percent of the world's gold, holding about 29,787 tons.

The other problem is that since it is a paper currency, how do you know if it fully backed in gold?  Gold backed paper currencies have all failed because there is never enough gold to back the money.  It's an old scam passed down by the goldsmiths. 

Larry

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Johnny Oxygen
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Re: Paper Gold vs the Dollar? Interview with James Rickards

Thanks for the link Steve

 

DrKrbyLuv wrote: 

The other problem is that since it is a paper currency, how do you know if it fully backed in gold?  Gold backed paper currencies have all failed because there is never enough gold to back the money.  It's an old scam passed down by the goldsmiths. 

Yeah I know.  I don't think Russia would be hesitant at all to run the old goldsmith scam but I gathered from the article that it was more about a worldwide market than a local currency issue. Basically unhitch any ties with the US Dollar and drive it into the ground.

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Re: Paper Gold vs the Dollar? Interview with James Rickards
DrKrbyLuv wrote:

I wonder where the gold would come from?  Russia only holds 706.38 tons of gold in reserves which is valued at around $28 billion.  Not nearly enough to have a gold backed system of any magnitude.

This was addressed by Mr Rickards. He envisioned a gold backed currency where 1 unit equalled 1 kilogram of gold that would be used solely for international trade. This has the interesting effect that the international balance of payments would once again be regulated by gold while domestic economies would be shielded. However it would no longer be possible for the huge international imbalance (China/USA) to reoccur.

http://www.jhuapl.edu/urw_symposium/proceedings/2009/Authors/Rickards.pdf

Quote:

The following example hypothesizes a single country, Russia, acting unilaterally to require that all of its exports (principally oil and natural gas) henceforth be paid for in a new gold-backed currency issued by a newly formed fiscal agent of the Central Bank of Russia based in London. However, variations on this plan can easily be imagined including a joint announcement to similar effect by Russia and China or an even larger group under the auspices of the Shanghai Cooperation Organization and in affiliation with Iran. The following invented press release (Figure 3) from the Central Bank of Russia illustrates how quickly and easily a dollar Pearl Harbor-style attack might be executed. This press release addresses numerous technical issues including acceptable rule of law, enforceability, settlement and clearance facilities, lending and credit facilities, etc., all of which would be subject to further analysis and the articulation of detailed policies and procedures in a real-word implementation. However, there is nothing new or particularly daunting in any of this. The point here is to show how easily this could be done.

 

Figure 3 Fictional Press Release

The Central Bank of the Russian Federation (Bank of Russia)

Press Release, Moscow, May 13, 2010

The Central Bank of the Russian Federation (CBR) hereby announces the following

facilities and processes which are in place and available for counterparty inquiry

immediately:

Point 1. CBR has arranged long-term use of vaults in Zurich and Singapore capable of

holding up to 10,000 metric tonnes of gold. Security is provided by G4S and is state-of-theart

including multiple security perimeters, biometric scanning, advanced encryption standard

264-bit encryption of communications channels, blast proof construction and redundant

power supplies. CBR has moved the gold component of the Russian Federation international

reserves to these vaults amounting to approximately 500 metric tonnes.

Point 2. CBR announces the issuance of the Gold Reserve Dolar (GRD) to be issued in

book-entry form by the Global Dolar Bank plc in London (SWIFT: GDBAGB) acting as fiscal

agent of CBR. One GRD is equal to one kilogram of pure gold (the Fixed Conversion Rate

(FC Rate)). The GRD is freely convertible into gold at the FC Rate and is freely transferable

to any designated party on the books of the Global Dolar Bank or any other approved

bank maintaining GRD accounts. CBR invites creditworthy and prudently regulated banks

worldwide to open GRD accounts and facilities on their books which can be cleared on a

real-time gross settlements basis via Global Dolar Bank. The Global Dolar Bank clearance,

settlement and accounts systems are operated on IBM Blade Servers using Logica CAS++

payments solution software.

Point 3. The Gold Reserve Dolar may be acquired in any quantity by delivery of the

appropriate amount of gold at the FC Rate to any one of the vaults noted in Point 1. Upon

receipt of good delivery, the pertinent number of GRD’s will be credited to the delivering

party’s account at Global Dolar Bank. Gold Reserve Dolars are freely redeemable into gold

in any quantity by instruction to Global Dolar Bank and by providing delivery instructions

to one of the vaults.

Point 4. All matters pertaining to title, transfer and operation of GRD’s and Global Dolar

Bank plc are determined solely under English law and heard exclusively in English courts. All

matters pertaining to physical possession, delivery and receipt of gold in the vaults will also

be determined solely under English law and may be heard either in English courts or courts

located in Switzerland and Singapore respectively. Opinions of law from Queen’s Counsel

and leading counsel in Switzerland and Singapore respectively are available for inspection.

Point 5. Effective immediately, all sales of Russian exports may be negotiated,

denominated and paid for in GRD’s only. The existing Russian Ruble will continue to be legal

tender for domestic transactions conducted solely by parties within the Russian Federation.

Point 6. Effective immediately CBR announces a tender for unlimited quantities of gold.

Any gold tendered under this facility will be paid for by delivery to the seller of U. S. Treasury

bills, notes or bonds at an exchange value calculated by reference to the market value of

securities determined in USD closing prices on Bloomberg and the market value of gold

determined in USD by the London fixing, both for the average of the three business days

immediately proceeding the settlement date of the exchange.

Point 7. CBR will provide GRD lending facilities and GRD swap lines via Global

Dolar Bank plc for approved counterparties with eligible collateral as determined in the sole

discretion of CBR.

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DrKrbyLuv
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Re: Paper Gold vs the Dollar? Interview with James Rickards

Thanks for the response SteveW.  It looks like another attempt for a Bretton Woods style agreement that attempts to have a currency sanctioned as the international trade currency.  If it is gold that is desired to act as the medium of exchange, then why not simply use gold to balance international trade accounts instead of trusting a currency?  Don't forget the U.S. defaulted on it's redemption obligations back in the early 70's.

"CBR has arranged long-term use of vaults in Zurich and Singapore capable of holding up to 10,000 metric tonnes of gold."

10,000 metric tonnes of gold at $1,200 /.oz would be valued at around $385 billion, not nearly enough to support a small amount of international trade.  The largest trader (imports + exports) is the EU with $3.2 trillion.  Together, China and Japan own 40% ($1.9 trillion) of total World international reserves ($5 trillion). The U.S. share is just 1%.  They could and probably would quickly buy the entire $385 billion of the new "gold backed" currency to replace some of their reserves with the net result of devaluing most currencies.

The biggest problem with using gold as a medium of exchange is that it is too scarce.  Why should we limit production and trade by artificially basing it on the scarcity of gold?  

Larry 

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Re: Paper Gold vs the Dollar? Interview with James Rickards

Interesting article, Johnny Oxygen; thanks for posting!

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Re: Paper Gold vs the Dollar? Interview with James Rickards

Video

The price will snap like a pencil.

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Re: Paper Gold vs the Dollar? Interview with James Rickards

Davos good find on the video on CNBS.....at least Maria Barterterwhatever was not on it LOL. When you see smart deflationist & smart inflationist both agree on one thing that 1 ounce of Gold will be trading 1 to 1 with the DOW Jones average something BIG has to give. It has done this 2 times. Once in 1929 & in 1980. Sounds like 2 pencils snapping to me LOL.

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Re: Paper Gold vs the Dollar? Interview with James Rickards
idoctor wrote:

Maria Barterterwhatever 

Maria "I Can't Stand Her Voice" Barterterwhatever.Yell

LOL!

Yup. I could be wrong but I expect a currency crisis, a re-valuation/a new currency where 10,000 dollars gets one new currency. 

No matter what asset prices do they have to wipe clean the debt/deficit. By default or by a new currency I see no other way for them to do this. I see one bridge.

Take care. 

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pinecarr
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Re: Paper Gold vs the Dollar? Interview with James Rickards

Davos, I'm with idoctor; great find on the video with Ben Davies, CEO of Hinde Capital! Thanks for sharing! 

 I wholeheartedly agree with the commentary that goes with the video on Jesse's Cafe Americain:

"I cannot help but note that the level of discussion in CNBC Europe and Bloomberg Asia is much more serious than that of Bloomberg and CNBC USA. I wonder why this is, given the global character of the financial markets."

Amen!  I would be very surprised to hear any such mainstream outlet in the US discussing the problems with fiat currency, manipulation of the paper gold market, etc., so openly!

You know what also struck me?  Ben Davies' troubled demeanor.  There is a person who is obviously disturbed about these issues and their implications.  So different than the B.S. that we're fed in the US!

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