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Bookmarkhad the chance a few days ago to speak with Dr. Mario Draghi, former Governor of the Bank of Italy & President of the European Central Bank(ECB).
During an open forum at Harvard’s Kennedy School of Government, Dr. Draghi was kind enough to address one of my questions on gold, as well as comment on the intertwining relationship between central banking and host-government legislature.
Larry Summers, also in attendance, expressed his belief in Draghi’s having“saved the European continent in 2012.”
According to Summers,
“Churchill famously made an observation about never have so many owed so much to so few. Roughly in the same spirit, I would say that never in the history of banking, have so few words and so little action been as remarkably efficacious in saving a continent, as when Mario Draghi, add-libbed into a speech a little more than a year ago, these words, ‘Within our mandate the ECB is ready to do whatever it takes to preserve the Euro, and belive me, it will be enough’. Those are not the words of a foggy central banker…those are the words of a determined and clear minded public servant, who Europe has been fortunate to have at the helm of its monetary affairs.”
Following Summers’ introduction, Draghi took open-forum questions, to which I asked his official thoughts on gold (audio recording below):
Tekoa Da Silva: “Dr. Draghi, what are your thoughts on gold as a reserve asset? You have central banks like China, Russia, increasing their reserves, especially over the last ten years. Germany for example asking for some of their holdings back from New York. It [gold] doesn’t produce any income unless it’s leased. So why do you think they would want that, and what value does it offer in your opinion?”
Dr. Mario Draghi: “Well you’re also asking this to the former Governor of the Bank of Italy, and the Bank of Italy is the fourth largest owner of gold reserves in the world, which is out of all proportion to the size of the country. But I never thought it wise to sell it, because for central banks this is a reserve of safety, it’s viewed by the country as such. In the case of non-dollar countries it gives you a value-protection against fluctuations against the dollar, so there are several reasons, risk diversification and so on. So that’s why central banks which have started a program for selling gold a few years ago, substantially I think stopped…most of the experiences of central banks that have leased or sold the stock of gold about
ten years ago, were not considered to be terribly successful from a purely money viewpoint.”
Concluding with an admission on the interlocking relationships between central banks and legislators, Draghi noted that, “Central bankers are very powerful…They are also not elected…so how would we square this from a democratic legitimacy viewpoint? The answer is this: central banks are very powerful, but they have to act within a mandate…very often people forget…the mandate is typicallywritten and legislated by the legislators, not by central banks. That’s why I really never answer questions when they ask me, ‘Do you prefer a dual mandate rather than a price stability mandate?’ I say it’s not my task to decide this.”
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Bottom Line: A key takeaway from Draghi’s commentary should be the point that while many still debate the value of gold as an asset class, and whether or not it remains in a bull market—central banks are quietly accumulating the metal in ton-sized increments, and as Draghi implied, with plans of never selling it.
When the president of a banking organization which arguably controls trillions of dollars (or euros in this case), indicates it to be “unwise” to sell core gold holdings—what more needs to be said for the individual? Can we not all, “Be our own central bank”, as economist Marc Faber is known for having stated?
It’s understood that in our hard money circles, “central bankers” are believed to be the equivalent of the George Lucas inspired “dark side”, but as precious metals investors—we may have more in common with central bankers than one might otherwise think.
And on the issue of governments legislating ultimate economic control over their countries to the central banks through the form of mandates—that is truly the elephant in the room which very few people apparently notice.
