Guest Post: "Discussing The London Gold Pool and SWIFT", by James Gibson

24
Thu, Sep 14, 2017 - 10:52am

Longtime TFMR member James Gibson volunteered this information in the hope of answering some questions on The London Gold Pool of the 1960s and the current SWIFT system of international payments.

Thanks to James for all his efforts in documenting this information and putting it out to the masses through his great book, "From East To West".

TF

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Recently, I noted that a Turdite requested the story of The London Gold Pool and several Turdites have been discussing the USA’s threat to expel China from SWIFT.

So, I thought that it might be appreciated if I quoted some extracts on these subjects from my book.

FROM WEST TO EAST
The Greatest Transfer of Power and Wealth in the History of Mankind

The London Gold Pool

Amongst the many initiatives agreed on at the Bretton Woods Conference was the intention to introduce a system described by many as a gold exchange standard, which was, in essence, a diluted variation of the classic gold standard.

Under this new Bretton Woods gold exchange standard, most countries fixed, or pegged, their currency’s exchange rate to that of the US dollar. National central banks could, if they so wished, exchange their US dollar holdings into gold at the official fixed rate of US $35 per ounce. However, that option was not available to corporations or individuals. Under this Bretton Woods system, all currencies pegged to the US dollar also had a de facto fixed value in terms of gold.

The gold exchange standard did not affect the independent global or regional markets in which gold was freely traded as a precious metal commodity. For the Bretton Woods system to have been effective on a sustainable basis, the fix of the US dollar to the price of gold should have been adjustable. Failing that, the free market price of gold would have to be maintained near the official Bretton Woods’s fixed price of $35 per ounce.

The larger the gap, known as the gold window, between the free market gold price and the official fixed price, the more tempting it was for nations dealing with internal economic or financial problems to buy gold at the Bretton Woods price and sell it in the open gold markets for the higher floating free price, which was dictated by supply and demand.

With post war economic activity picking up, international trade and foreign exchange reserves rose. However, there was only a marginal increase in global gold mine production. The result was that the gold window was experiencing upward pressure. The situation was not helped by the United States suffering from persistent trade imbalances. This begs the question: Why was gold not revalued to a suitable price so as to eliminate the pressure on the gold window?

US oil import quotas and restrictions on trade inflows proved insufficient to arrest the outflow of gold from its reserves. Things came to a head during the 1960 presidential election debates, when panic gold buying led to a surge in the open gold free market price to USD$40 per ounce. The US Federal Reserve and the Bank of England reached an agreement to stabilise the open market gold price at, or near, the official price, thus ending the drain on the United States’ gold reserves. They would do this by allocating a substantial tonnage of gold to be held by the Bank of England for sale; ergo, they sought to flood the market with sufficient gold to depress the free market price and discourage investment demand.

In November 1961, a total of eight nations entered into an agreement on a system to depress the free market price of gold back down to the official fixed price of USD$35 per ounce and thereafter defend that price by means of targeted gold sales and purchases on the free gold market.

This cartel of governments, and their creation, became known as the London Gold Pool.

As part of the agreement, each of the eight participating nations made a contribution of gold bullion to the London Gold Pool, led by the United States pledging to match all other contributions on a one-to-one basis, thus contributing 50 percent of the pool.

By 1965 the London Gold Pool was increasingly unable to balance the outflow of gold. Excessive inflation of the US money supply, in part to fund the costs of the Vietnam War, resulted in the United States no longer being able to redeem other nations’ US dollar holdings into gold, simply because the world’s gold reserves had not grown fast enough to keep pace with the United States’ trade deficit, which had grown to US$3 billion.

The London Gold Pool came under ever-increasing pressure of failure, causing France to announce its withdrawal from the agreement in June 1967 and physically remove a large amount of its gold bullion from New York to Paris.

Another 1967 run on gold and an attack on the British pound accelerated the rate of collapse of the London Gold Pool’s arrangements. By spring 1968, the international financial system was moving toward a crisis more dangerous than any since 1931.

Despite policy support and market efforts by the United States, the 1967 attack on the British pound, coupled with the run on gold, forced the British government to devalue the pound by 14.3 percent on 18 November 1967.

Additional measures were taken in the United States in an attempt to avoid a continuation of the run on gold and the attacks on the US dollar. On 14 March 1968, due to heavy gold demand, the US government requested the British government to close the London gold market. The British government petitioned the queen, who declared a bank holiday on Friday, 15 March.

A conference scheduled for that weekend in Washington served as the vehicle for emergency discussions on the international monetary situation and to reach a decision with regards to future policy on gold. The events of that weekend led the US Congress to repeal the requirement for a gold reserve to back US currency as of Monday, 18 March 1968.

The London Gold market remained closed for two weeks, whilst gold markets in other countries continued trading with increasing gold prices. These events led to the closure of the London Gold Pool.

With the temporary closure of the London gold market in March 1968 and the resulting instability of the gold markets and the international financial system in general, Swiss banks took urgent action to minimise effects on the Swiss banking system and currency. They did so by establishing a gold trading organization, called the Zurich Gold Pool, which helped establish Zurich as a major trading location for gold bullion.

The collapse of the London Gold Pool forced an official policy of a two-tiered gold market system by:

(1) Maintaining the official fixed price of gold at USD$35 per ounce

(2) Allowing free open market gold transactions

It was agreed that the London Gold Pool member nations would refuse to trade gold with corporations or private persons. In an attempt to minimize the gold window, the United States pledged to suspend gold sales to any government that traded in the free gold markets.

Amidst accelerating inflation in the United States, this unsustainable situation collapsed in May 1971, when West Germany was the first nation to withdraw support for the US dollar and officially abandon the Bretton Woods accords, precipitating a quick decline in the value of the US dollar. Under pressure from currency speculators, Switzerland also withdrew support in August 1971 with USD$50 million in gold purchases; France followed suit with gold purchases of USD$191 million. This brought the US gold reserves down to approximately eight thousand one hundred tonnes, from an all-time high at the end of World War II in excess of twenty thousand tonnes!

It is worth noting that there has been no independent audit of the United States of America’s official gold reserves since 1953.

There is an old saying that goes “He who owns the gold, makes the rules.”

One cannot help but wonder how much of the gold sold during through the London Gold Pool ended up in the vaults of the Puppeteers.


Nixon Opts Out of the Gold Exchange Standard in Favour of Fiat Currency

The significant and rapid depletion of the United States’ national gold reserves was clearly unsustainable. President Nixon was faced with two choices:

  • significantly devalue the US dollar against the price of gold

or

  • terminate the Bretton Woods gold exchange standard

Nixon, like most politicians, did not wish to be fiscally restrained by gold, so, on 15 August 1971, he chose the easy option and temporarily suspended the gold exchange standard. As with all “temporary” government measures, it became permanent in March 1973.

Effective from 1 January 1975, it once again became legal for US citizens to own gold. The events of 1971 ignited a bull market


SWIFT

In 2012, under pressure from the United States, Iran was expelled from the world’s international banking transfer system (SWIFT), which had a profoundly adverse impact on Iran’s economy. This US-driven action only served to galvanise China to develop and introduce, as a matter of great urgency, an international transfer system capable of operating independently of the US dollar and SWIFT, as it was obviously critical to China’s national and economic security.

By the fall of 2016, China had very substantially put in place the essential financial infrastructure required to operate an international financial system independent of the US dollar, should that need become imperative. Detailed below are the principal building blocks of that system:

  • An alternative international payment system to SWIFT, called CIPS (China International Payment System), is now operational.
  • Foreign central banks are now able to participate in the Chinese interbank bond market.
  • China has granted permission for twelve foreign central banks to participate in the Chinese onshore foreign exchange market, with further approvals expected.
  • Precious metals markets are open to international participation through the Shanghai International Gold Exchange.
  • Some commodity markets are now open to international participation by commodity trading and brokerage firms.
  • Stock markets are open to international participation through the Hong Kong-Shanghai stock connect programme.
  • The BRICS New Development Bank has been established, which will provide similar services as the World Bank.
  • The Asian Infrastructure Investment Bank (AIIB) has been established to focus on supporting the rapid infrastructural development in Eurasian (Silk Route), BRICS, and affiliated nations.
  • A gold fund with a seed capital of yuan 100 billion (~USD$16 billion) has been established, with the specific objective of building up the sovereign gold reserves of the BRICS and SCO countries, through acquiring/building gold mines along the new Silk Route.
  • Chinese and Russian credit card systems, which are settled in yuan and rubles, are operational and handle very substantial settlement volumes. *
  • Multiple bilateral currency swap agreements for the settlement of trade in yuan have been signed with over thirty countries, including the United Kingdom, Germany, France, Switzerland, and Australia. This enables settlement of international trade without using the US dollar.
  • The introduction and development of yuan bond markets in key major financial centres around the world is progressing steadily, in line with China’s plans to internationalise the yuan.
  • The introduction of a Chinese twice-a-day gold fix in yuan became operational on 19 April 2016.
  • The establishment of an oil futures market priced in yuan, open to international participation, is expected to open in the second half of 2017.
  • The yuan became one of the basket of major currencies that make up the IMF’s SDR (Special Drawing Rights) on 1 October 2016, which de facto makes the yuan one of the world’s secondary reserve currencies.
  • Russia is in the final stages of preparation for the launch of its own oil futures market priced in rubles in the second half of 2017.

*In 1999, China had just one supercomputer, whilst the United States of America had some 250. Today China has 168 supercomputers, whilst the United States is down to only 165, but China’s supercomputers, being more modern, include many of the fastest.

It is not widely appreciated, but supercomputers have enabled China to become the number-one processor of credit and debit card payments worldwide. The Chinese state-owned China Union Pay has issued more debit and credit cards than Visa and MasterCard combined, and its cards are used in approximately 150 countries.

Supercomputers have also been instrumental in China becoming a world leader in virtual cyber currencies, such as Bitcoin, using blockchain technology. Cyber currencies require exceptionally complex and sophisticated software for their creation and use, only made possible by using supercomputers. Supercomputers also provide the processing power and capabilities necessary to handle and keep track of financial transactions in a highly secure, decentralized environment that minimizes the possibility of hacking.

The bottom line is, that if the USA expels China from SWIFT that would very likely provide the necessary trigger for China and Russia to launch their own international financial system operating independently from the current US Dollar dominated international financial system. Under those circumstances both China and Russia would very likely also launch their separate oil futures markets, as well as providing the facility to switch the proceeds of oil sales denominated in yuan and rubles into physical gold bullion. That would be the last thing that the USA would wish to see happen, as it would lead to the death of the US Petrodollar.

About the Author

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turd [at] tfmetalsreport [dot] com ()

  24 Comments

4 oz
Sep 14, 2017 - 10:58am

Nice read, thank you!

Nice read, thank you!

jaba
Sep 14, 2017 - 11:22am

I will be out for 4 hours

But will be happy to answer any queries to the best of my ability upon my return.

Dogbone
Sep 14, 2017 - 2:43pm

Thanks

You know, if you look at the timeline between Bretton Woods and the gold pool, the time necessary for the gold pool to roll over and die, and then the time for the U.S. closure of the gold window, it is absolutely amazing that the petrodollar has functionally outlasted its predecessor and by so, so much. Other than Koos Janssen, whom do you reference to see if the new "Gold Brokers" in China are as honest/transparent as thery would want us to think? How do we know the whole new gold transacting edifice isn't just another gold-plated petrodollar-type scam? Strong work, now I really need to buy your book (maybe some copies for distribution).

Dogbone

flipper22
Sep 14, 2017 - 4:22pm

Very Informative

Thank you!

AGXIIK
Sep 14, 2017 - 5:13pm

Print this Frame it

Hang it on the wall

And buy some gold and silver

jaba
Sep 14, 2017 - 6:23pm

@ Dogbone

The probity of any financial, economic and political systems will always be limited by the extent of the honesty and integrity of the political and financial leaders.

From my research conducted in the writing of this book, I am of the opinion that both Xi Jinping of China and Putin of Russia are sadly the world's only true statesmen left at this point in time. I believe that their intentions to re-introduce gold into their financial systems are genuine, and I believe that both nations have very significantly more sovereign gold reserves than is publicly stated.

Both Jinping and Putin have been lobbying the G20 for years to draw up and implement sweeping financial reforms that address not only the symptoms, but the root causes of the problems confronting the international financial system, but to no avail. When the next financial crisis hits, and if the G20 are unable to agree upon timely and sweeping reforms, then I expect that will be the trigger to cause the Chinese-Russian bloc to go their own way and launch their own financial system as outlined in my post.

Dogbone
Sep 14, 2017 - 6:41pm

@jaba

Thanks for the response. Ordered a couple copies of your book. Will study them closely and then circulate to the few people I know awake enough to get it. Thanks for your hard work. I hope you get the same platform and audience as Willem Middlekoop found. Kudos to you, sir

Dogbone

jaba
Sep 14, 2017 - 7:00pm

@ Dogbone

Thank you for the kind words.

I hope that you find the book both interesting and thought provoking.

viking-analytics.com
Sep 15, 2017 - 8:04am

NWO

Thanks, James! I am glad to have a copy of your excellent book. It will remain a great reference for years to come.

I saw a video recently from the Corbett Report:

China's New World Order: Gold-backed oil benchmark on the way

In this update, Mr. Corbett gives an overview of the yuan-oil contract and provides some context and background. While he isn't a financial author or participant (like you), he does a good job.

Mr. Corbett believes that China/Russia shouldn't be viewed as monetary saviors; they are just putting pressure on the U.S. to "get a better seat" at the NWO table. He further implies that China/Russia might be viewed as the anti-thesis in the Hegelian dialectic. I for one, have been "picking sides" (rooting for the end of the petro-dollar), but if Mr. Corbett is correct, then I have been duped/misled, once again (like when I voted for Trump because he was going to "drain the swamp" - what a sad joke).

I just want to be free! And I believe that a classic gold standard (or something like it) could liberate humanity from the shackles of endless debt. Mr. Corbett's pessimistic view is therefore a big discouragement, but unfortunately makes a lot of sense to me. If he is right, then perhaps the only thing I have left to hope in is the glorious re-appearing of Christ.

I would be interested to hear your take on this. If the petrodollar collapses only to be replaced by the NWO fiat SDR, then it seems that we will not become free, just have different masters. Is there hope for humanity (other than spiritual)?

jaba
Sep 15, 2017 - 12:51pm

@VikingKing6

First, let me thank you for your kind words regarding my book.

You are not the first person to ask me that question. The research that I conducted during my writing of the book led me to believe that Jinping of China and Putin of Russia are the real deal. They share a common vision for the development of Eurasia into a new vast free trade zone. They also wish to see sweeping reforms that address not only the symptoms , but the root causes of the core problems facing the international financial system.

Are they part of the NWO? IMO the answer is no! If they are then we are truly f**ked.

Do they put their nations interests first? IMO the answer is yes.

Do they want to co-operate and live and trade amicably with the West? IMO the answer is undoubtedly yes, but their efforts in that regard have been repeatedly rebuffed because they refuse to be subjugated by the USA into becoming vassal states.

As I mentioned to Dogbone in an earlier comment in this thread "The probity of any financial, economic and political systems will always be limited by the extent of the honesty and integrity of the political and financial leaders." I believe that Jinping and Putin have shown by their actions that their intentions appear to be genuine, but only time will tell.

Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

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Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

Key Economic Events Week of 10/7

10/8 8:30 ET Producer Price Index
10/9 10:00 ET Job Openings
10/9 10:00 ET Wholesale Inventories
10/9 2:00 ET September FOMC minutes
10/10 8:30 ET Consumer Price Index
10/11 10:00 ET Consumer Sentiment

Key Economic Events Week of 9/30

9/30 9:45 ET Chicago PMI
10/1 9:45 ET Markit Manu PMI
10/1 10:00 ET ISM Manu PMI
10/1 10:00 ET Construction Spending
10/2 China Golden Week Begins
10/2 8:15 ET ADP jobs report
10/3 9:45 ET Markit Service PMI
10/3 10:00 ET ISM Service PMI
10/3 10:00 ET Factory Orders
10/4 8:30 ET BLSBS
10/4 8:30 ET US Trade Deficit

Key Economic Events Week of 9/23

9/23 9:45 ET Markit flash PMIs
9/24 10:00 ET Consumer Confidence
9/26 8:30 ET Q2 GDP third guess
9/27 8:30 ET Durable Goods
9/27 8:30 ET Pers Inc and Cons Spend
9/27 8:30 ET Core Inflation

Key Economic Events Week of 9/16

9/17 9:15 ET Cap Ute & Ind Prod
9/18 8:30 ET Housing Starts & Bldg Perm.
9/18 2:00 ET Fedlines
9/18 2:30 ET CGP presser
9/19 8:30 ET Philly Fed
9/19 10:00 ET Existing Home Sales

Key Economic Events Week of 9/9

9/10 10:00 ET Job openings
9/11 8:30 ET PPI
9/11 10:00 ET Wholesale Inv.
9/12 8:30 ET CPI
9/13 8:30 ET Retail Sales
9/13 10:00 ET Consumer Sentiment
9/13 10:00 ET Business Inv.

Key Economic Events Week of 9/3

9/3 9:45 ET Markit Manu PMI
9/3 10:00 ET ISM Manu PMI
9/3 10:00 ET Construction Spending
9/4 8:30 ET Foreign Trade Deficit
9/5 9:45 ET Markit Svc PMI
9/5 10:00 ET ISM Svc PMI
9/5 10:00 ET Factory Orders
9/6 8:30 ET BLSBS

Key Economic Events Week of 8/26

8/26 8:30 ET Durable Goods
8/27 9:00 ET Case-Shiller Home Price Idx
8/27 10:00 ET Consumer Confidence
8/29 8:30 ET Q2 GDP 2nd guess
8/29 8:30 ET Advance Trade in Goods
8/30 8:30 ET Pers. Inc. and Cons. Spend.
8/30 8:30 ET Core Inflation
8/30 9:45 ET Chicago PMI

Key Economic Events Week of 8/19

8/21 10:00 ET Existing home sales
8/21 2:00 ET July FOMC minutes
8/22 9:45 ET Markit Manu and Svc PMIs
8/22 Jackson Holedown begins
8/23 10:00 ET Chief Goon Powell speaks

Key Economic Events Week of 8/12

8/13 8:30 ET Consumer Price Index
8/14 8:30 ET Retail Sales
8/14 8:30 ET Productivity & Labor Costs
8/14 8:30 ET Philly Fed
8/14 9:15 ET Ind Prod and Cap Ute
8/14 10:00 ET Business Inventories
8/15 8:30 ET Housing Starts & Bldg Permits

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