When the music stops, a dollar collapse?

Brad Setser's analysis is that Americans have been repatriating their dollars even faster than foreigners have been getting rid of theirs:

"Words cannot really capture the sheer violence of the swings in private capital flows that somehow produced a a rise (net) private demand for US financial assets."

At some point, the balance of these cross-currents will change, and then? Maybe the turning point will come when Americans are forced to sell financial assets to meet living expenses and medical costs.

Meanwhile, Tim Iacono comments on a proposal to substitute the dollar as the world's reserve currency, with drawing rights from the IMF, i.e. a mixed bag of currencies. China's central bank seems terribly keen.

I have a sense of something being held up, but not for ever.

What Bank of England?

Further to yesterday's piece on the licence to the European Central Bank to seize the Bank of England's assets, here are two relevant articles from the Maastricht Treaty. The Campaign for an Independent Britain was stating no more than the truth. (In the extracts, red highlighting is mine.)

ARTICLE 30

Transfer of foreign reserve assets to the ECB

30.1. Without prejudice to Article 28, the ECB shall be provided by the national central banks with foreign reserve assets, other than Member States’ currencies, ECUs, IMF reserve positions and SDRs, up to an amount equivalent to ECU 50,000 million. The Governing Council shall decide upon the proportion to be called up by the ECB
following its establishment and the amounts called up at later dates. The ECB shall have the full right to hold and manage the foreign reserves that are transferred to it and to use them for the purposes set out in this Statute.

30.2. The contributions of each national central bank shall be fixed in proportion to its share in the subscribed capital of the ECB.

30.3. Each national central bank shall be credited by the ECB with a claim equivalent to its contribution. The Governing Council shall determine the denomination and remuneration of such claims.

30.4. Further calls of foreign reserve assets beyond the limit set in Article 30.1 may be effected by the ECB, in accordance with Article 30.2, within the limits and under the conditions set by the Council in accordance with the procedure laid down in Article 42.

30.5. The ECB may hold and manage IMF reserve positions and SDRs and provide for the pooling of such assets.

30.6. The Governing Council shall take all other measures necessary for the application of this Article.


ARTICLE 42

Complementary legislation

In accordance with Article 106(6) of this Treaty, immediately after the decision on the date for the beginning of the third stage, the Council, acting by a qualified majority either on a proposal from the Commission and after consulting the European Parliament and the ECB or on a recommendation from the ECB and after consulting the European Parliament and the Commission, shall adopt the provisions referred to in Articles 4, 5.4, 19.2, 20, 28. 1, 29.2, 30.4 and 34.3 of this Statute.

(Remember that "consulting" may mean no more than finding out how much we hate their plan, before they go ahead and implement it anyway.)

More on the Euro as the dollar's replacement

From the website of the Campaign for an Independent Britain, a point about Britain's gold reserves. This strengthens the speculation that the Euro might become gold-related and take the reserve-currency mantle from the US dollar.

Is it really true that Britain's gold reserves would be transferred to Germany in the event of monetary union?

The arrangements for Economic and Monetary Union are set out in a Protocol annexed to the Maastricht Treaty signed by the British Government in 1992. Article 30 of the Protocol would require Britain, on joining EMU, to transfer around £8,000 million of our gold and dollar reserves irrevocably to the European Central Bank in Frankfurt, Germany.

Article 42 provides that more of our remaining reserves could be transferred to the European Central Bank if a majority of the other EMU countries required it.

Britain would not be able to veto this process.

If so, perhaps holders of these German gold bonds from between the two World Wars might end up with Britain's bullion!

Good luck, Tampa investors.

UPDATE

The suit for German gold was brought by a farmer called Ronnie Fulwood. Here's the (English edition) German Spiegel article from 2004. His attorneys seem to have a history of long-shot claims, as this blog from May 2007 explains.

More on gold and the money supply

At last, I've found something to help me see currencies in the context of official gold reserves - a brilliantly useful essay by Mike Hewitt in The Market Oracle (July 31).

The above chart (one of several in his exposition) shows that the Euro zone has a better ratio than the USA of gold to currency, and as I tried to demonstrate yesterday, within Europe Germany is particularly strong. And Europe's economy is also of a size to make it a possible reserve-currency contender.

As a footnote, my fellow Brits must be dismayed at the UK's pathetic weakness.