Archive for November, 2009

The extraordinary properties of gold explained by Ian Fleming.

Thursday, November 5th, 2009

There are no Swiss banks in Goldfinger although “Goldfinger, in ready money, is the richest man in England. In Zürich, in Naussau, in Panama, in New York, he has twenty million pounds’ worth of gold bars on safe deposit.” But Goldfinger uses Switzerland as the hub of his gold trafficking (which was illegal at the time in some European countries). There he has a discreet plant where he melts down car parts made of solid gold to then discreetly bank them or ship them on. Switzerland never had capital controls that prevented the free flow of gold or other precious metals, and this makes it even today the world’s first market for gold. In the movie, Goldfinger uses this Swiss freedoom to his advantage.

Colonel Smithers explains the British secret service’s interest for Mr Goldfinger operations during the dinner at the Bank of England:

‘The great thing to remember about gold is that it’s the most valuable and most easily marketable commodity in the world. You can go to any town in the world, almost to any village, and hand over a piece of gold and get goods or services in exchange. Right?’ Colonel Smithers’s voice had taken on a new briskness. His eyes were alight. He had his lecture pat. Bond sat back. He was prepared to listen to anyone who was master of his subject, any subject. ‘And the next thing to remember,’ Colonel Smithers held up his pipe in warning, ‘is that gold is virtually untraceable. Sovereigns have no serial numbers. If gold bars have Mint marks stamped on them the marks can be shaved off or the bar can be melted down and made into a new bar. That makes it almost impossible to check on the whereabouts of gold, or its origins, or its movements round the world. In England, for instance, we at the Bank can only count the gold in our own vaults, in the vaults of others banks and at the Mint, and make a rough guess at the amounts held by the jewellery trade and the pawn-roking fraternity.’

‘Why are you so anxious to know how much gold there is in England?’ [How much gold is there in England today?]

‘Because gold and currencies backed by gold are the foundation of our international credit. We can only tell what the true strength of the pound is, and other countries can only tell it, by knowing the amount of valuta we have behind our currency [valuta = the value of a currency expressed in terms of its rate of exchange with gold (or some other currency)]. And my main job, Mr Bond-’Colonel Smithers’s bland eyes had become unexpectedly sharp – ‘is to watch for any leakage of gold out of England – out of anywhere in the sterling area. And when I spot a leakage, an escape of gold towards some country where it can be exchanged more profitably than at our official buying price, it is my job to put the CID Gold Squad on to the fugitive gold and try get it back into our vaults, plug the leak and arrest the people responsible. And the trouble is, Mr Bond-’Colonel Smithers gave a forlorn shrug of the shoulders-’that gold attracts the biggest, the most ingenious criminals. They are very hard, very hard indeed, to catch.’

‘Isn’t all this only a temporary phase? Why should this shortage of gold go on? They seem to be digging it out of Africa fast enough. Isn’t there enough to go round? Isn’t it just like any other black market that disappears when the supplies are stepped up, like the penicillin traffic after the war?’

‘I’m afraid not, Mr Bond. It isn’t quite as easy as that. The population of the world is increasing at the rate of five thousand four hundred every hour of the day. A small percentage of those people become gold hoarders, people who are frightened of currencies, who like to bury some sovereigns in the garden or under the bed. Another percentage needs gold fillings for their teeth. Others need gold-rimmed spectacles, jewellery, engagement rings. All these new people will be taking tons of gold off the market every year. New industries need gold wire, gold plating, amalgams of gold. Gold has extraordinary properties which are being put to new uses every day. It is brilliant, malleable, ductile, almost unalterable and more dense than any of the common metals except platinum. There’s no end to its uses. But it has two defects. It isn’t hard enough. It wears out quickly, leaves itself on the linings of our pockets and in the sweat of our skins. Every year, the world’s stock is invisibly reduced by friction. I said that gold has two defects.’ Colonel Smithers looked sad. ‘The other and by far the major defect is that it is the talisman of fear. Fear, Mr Bond, takes gold out of circulation and hoards it against the evil day. In a period of history when every tomorrow may be the evil day, it is fair enough to say that a fat proportion of the gold that is dug out of one corner of the earth is at once buried again in another corner.’

Ian Fleming – “Goldfinger”

The last country to still use gold as a currency

Monday, November 2nd, 2009

The local shop is run by two Chinese who get by in Taki-Taki, the local language. They sell almost everything; food of course but also tools, shovels, generator spare parts, big hoses, a sort of thick plastic carpet, like a hair mat. The prices are displayed: 0.2 or 0.5 or 0.8. I ask Dwight what currency it is in Euros, Surinam or US Dollars and Dwight looks at me as if I was an idiot, laughs again, as is his way when he has not eaten and a Parbo beer is just a miserable starter, irrespective of whether it is a Sissi (250 ml), Decent (500 ml) or Olson Beast (1,5 l), and starts tapping his thigh; “good grief, you don’t know, it’s gold, we pay for everything with gold here!”

Extraction from the book: J’Aurai de l’Or by Olivier Weber, taken from the film: La Fièvre de l’Or

The virtues of a reliable currency when all the others have disappeared

Monday, November 2nd, 2009

Could eggs be a useful currency?

Let’s imagine it’s 2018. The western world has gone through years of deflation then the flame returns as massive inflation repeating what happened in Germany in 1923.

John was still selling luxury yachts on the Côte d’Azur in 2008. Following the financial crash and the economic crisis that followed it, he now rears a few chickens on a farm on the outskirts of a small town in the Auvergne. In this article, he talks to us about his most recent discovery in a world where every day brings its new rules. He explains to us the characteristics of a good currency.

I arrive in the village square which is already full of people and a lay out my farm produce at my feet: pairs of chickens with their feet tied together and baskets of pats of butter wrapped in leaves, lying on a base of fresh and smooth eggs. I have some concerns because the Euros, which we usually use in the country, they have been refused by everyone since the State started issuing them willy-nilly. The screens where you enter the amount for a credit card transaction are no longer big enough to display the amounts that have to be paid for our everyday requirements. We are now a country without currency. What’s going to happen?

I have set up next to a pottery stall because I want a few of the multicoloured bowls that he has lined up on a wooden trestle. A neighbour joins us carrying shawls and scarves on his shoulders and I would like to choose one or two of them for my wife. We start talking. We realise that each of us wants something that the other owns. This is a good thing. However, after only a few moments of negotiation, we are completely engrossed on our butter-pottery, chicken-shawl, shawl-pottery, shawl-eggs, etc. exchanges that we don’t know where we are. It is at this point that I suggest we use an egg as a unit. Everything becomes clear: we agree on an estimated value for my butter, my chickens, their shawls and their bowls expressed in eggs. We negotiate a bit more but eventually the deals are struck.

My eggs have not been touched but they served as a common denominator as the retired London trader, who now rears snails, explained, they satisfied the first requirement of a currency: that of measuring value. They have become an accounting currency and I started looking at them differently.

An osteopath that I know comes by: he’s a good man and had quickly replaced my shoulder when it became dislocated the previous week. “I am not ungrateful” I said to him, “and every service merits its reward. Take something from my wares that you think is appropriate.” He thanks me but hesitates because he already has plenty of what I have available. “Give me some of your eggs anyway” he says, “Eggs can always be swapped for other things.” This means my eggs have now obtained a new quality, they have become a trading currency, they satisfy a second requirement of a currency: they are an instrument of exchange; They are really being honoured.

An hour later, as I left the Café du Commerce where I had ended the morning, I met the osteopath. “I’ve kept a dozen of your eggs” he told me, “I am going to use them to buy some pasta tomorrow; the store has sold out today.” My eggs are going to satisfy a third requirement of a currency, that of being a reserve of value, an investment instrument. They have become a true currency.

Would it not be helpful given this if I gave my eggs a higher value than I had up until now? Does this flattering choice not justify that I increase their price? They have acquired a monetary value that is in addition to their commercial value and I am delighted. However, two days later, my neighbour visits me and inadvertently provides the answers to the questions I have been asking myself: “I have heard that the osteopath, even though a careful man, has tripped on a stone and fallen, his basket overturned and his eggs have become an omelette – to the great pleasure of the children who were watching all of this.” I concluded from this that my arguments are correct for a good currency but unfortunately eggs are not a good currency and all their glory disappears before my eyes…

I think I will get the old Sovereigns out from their hiding place behind the bookcase, tomorrow…