How central banks mislead on gold reserve reporting

by Lawrence Williams, MineWeb

Since writing yesterday’s article on scepticism regarding central bank gold reporting (see: Does any nation hold the gold it says it does?), I have had my attention drawn to the publication by The Gold Anti Trust Action Committee (GATA) around 2 ½ years ago of a leaked IMF confidential document on central bank reporting of gold reserves. I append the GATA article, with a link to the full IMF document, on this below and from it it can be seen how non-transparent such reporting has become – in the interests of protection of bank-sensitive data – when it comes to central banks hiding leasing and swap agreements for their gold in their overall reserve figures. This can, as my earlier article pointed out, mean that what is actually reported as being a nation’s physical gold reserve at a specific point in time may, in fact, be an extremely misleading figure given the amount of gold swap and leasing activity which may have been being undertaken.

Admittedly the IMF document referred to is now 16 years old, but there is no reason to believe reporting by the individual banks of their gold reserve figures to the IMF are any more transparent now than then – indeed they may even be less so.

The GATA note of December 2012 reads as follows and the comments are theirs and do not necessarily express the opinions of Mineweb:

Western central banks conceal their gold loans and swaps because information about them is “highly market-sensitive” and accountability about them would hinder secret currency market interventions by central banks, according to a confidential report by the International Monetary Fund obtained by GATA.

The report was written in March 1999 as the IMF staff proposed to strengthen financial reporting standards for central banks. The report shows that the objections by gold-lending central banks were instead decisive in weakening the standards. While the first draft of the new reporting rules would have required disclosing central bank gold loans and swaps, the revised rules, later adopted, allowed central banks to hide their gold loans and swaps within their gold reserves and even not to disclose the amount of their monetary gold at all, just the value assigned to it.

That is, the explicit but secret policy of Western central banking toward gold is to deceive and manipulate markets, as GATA long has complained.

The confidential IMF report says that to strengthen its financial reporting standards for central banks — its Special Data Dissemination Standard reserves template — IMF staff members consulted top officials of the organization as well as the Bank for International Settlements, the European Central Bank, the Bank of England, the German Bundesbank, the Bank of France, and other European central banks.

“Central bank officials,” the confidential report says, “indicated that they considered information on gold loans and swaps to be highly market-sensitive, in view of the limited number of participants in such transactions. Thus, they considered that the Special Data Dissemination Standard reserves template should not require the separate disclosure of such information but should instead treat all monetary gold assets, including gold on loan or subject to swap agreements, as a single data item. They also confirmed a view, taken by a number of countries (both inside and outside the G-10) at the December board meeting that the disclosure of the composition of reserves by individual currencies would be market-sensitive but that they would have no objection to disclosure of such information by groups of currencies. …” (Page 6, Paragraph 15.)

“Conversations with a few executive directors confirmed the reluctance of their authorities at present to disclose information on their international reserve positions on a highly frequent and timely basis, as a matter of policy. The motivations underlying this position were: (a) a desire to preserve the confidentiality of foreign exchange market intervention for a period, in order to enhance its effectiveness; b) a reluctance by some monetary authorities to reveal information on their official transactions in exchange markets on a more frequent and timely basis than the disclosure of transactions by major international investors; and c) a concern by some countries that weekly reserves data could be inherently more volatile than monthly data, which could be misleading and potentially destabilizing to exchange markets. This position had stimulated, during the December board meeting, a lively discussion of the costs and benefits of increased transparency under various circumstances and the information requirements for well-functioning international financial markets.” (Page 8, Paragraph 20.)

Specifying changes to be made in the reporting standards proposed by the IMF staff, the confidential report says: “On the assets side of the template, the major changes are: a) the elimination of any requirement to disclose the amount of gold loans, and of the explicit requirement to disclose the volume of monetary gold. The revised template would require only that the total value of monetary gold (including gold loans) be disclosed.” (Page 8, Paragraph 23.)

The confidential IMF report confirms and elaborates on the Bank of England’s admission to GATA a year ago that the bank’s gold swap and leasing information is “market sensitive” and its disclosure “would allow enquirers to find out what gold transactions have been taking place.” Such knowledge of what the bank was doing in the gold market, a spokesman for the bank said, would harm the interests of both the British government and the bank’s “private customers,” to whom the bank “owes a duty of confidentiality”:

http://www.gata.org/node/10635

While disclosure of the confidential IMF report is unlikely to prompt any acknowledgment from the most determined purveyors of misinformation in gold market analysis and the mainstream financial news media — nothing is likely to get them to be truthful — it will enable individual investors and citizens to confront their central bank and elected officials and ask more authoritatively for an accounting and explanation of the purposes of secret central bank gold loans and swaps, transactions in which even the U.S. Federal Reserve is participating, according to a statement extracted by GATA from a member of the Fed’s Board of Governors in 2009:

http://www.gata.org/node/9917

The confidential IMF report on the authorization of secrecy for gold loans and swaps is posted in PDF format at GATA’s Internet site here:

http://www.gata.org/files/IMFGoldDataMemo–3-10-1999.pdf

So there you have it in detail. A consultation exercise intended to strengthen the data reported to, and subsequently disseminated by, the IMF actually ended up making the data provided even more obscure than it had been before.

This does not, of course, take into account any other possible misreporting of size of reserves at source by the central banks, but one suspects that most will abide by the principles set out in the IMF consultation. That would still seem to give them more than enough scope for obfuscation of their gold swap and gold loan activities which could seriously affect the actual amounts of accessible physical gold they retain in their vaults, or are held elsewhere on their behalf.

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