INTERVIEW-ECB seen as benchmark for gold reserves
By Patrick Chalmers
LONDON, April 15 (Reuters) - The European Central Bank's impending decision on how much
gold to hold in reserves will set other banks a standard for how much they should carry, according to
Chase Manhattan International's Martin Fraenkel.
''It's a very visible sign of what a very influential central bank thinks about gold,'' Fraenkel, the firm's
managing director of global commodities, told Reuters.
The ECB's decision on reserves, due some time after EU heads of state and government select the
new bank's president on May 2, will also give participants in Europe's single currency a legitimate
excuse to sell gold eventually.
''I think it will be a benchmark over time and European central banks will align most of their
domestic reserve policies with what the ECB is doing. There will be pressure and increased
legitimacy for them to sell,'' Fraenkel said.
''It will also be an important benchmark for central banks outside the EU when they ask what would
be the optimal level of gold that a central bank should hold,'' he added.
The ECB decision will also provide a snapshot of thinking among senior central bankers about how
much gold is necessary to meet the reserve needs of a modern central bank serving industrialised
economies, Fraenkel said.
''Most gold-holding central banks are holders by historical accident. It's really the first time that a
Group of Seven central bank is sitting down and asking: 'What's the optimal level of gold I can hold
given that I am starting this from scratch?'''
Total reserves held by the 11 euro-zone candidates, including metal lodged with the European
Monetary Institute, amount to 12,387 tonnes, according to data from industry analyst Gold Fields
Mineral Services.
Of these, Germany accounts for 3,700 tonnes, France 3,184, Italy 2,592 and the Netherlands 1,052
tonnes.
The level of European banks' eventual gold reserves would have more influence on other banks'
thinking than would, say, the strategy of the U.S. Federal Reserve, which has 8,140 tonnes, Fraenkel
said.
''Clearly, people are not going to look at the Federal Reserve because that is a central bank which
has got unusually large reserves. The Europeans are going to decide what's an optimal level of gold
and central banks elsewhere may gravitate towards that conventional wisdom.''
Views on how much gold will be in ECB's 50 billion ECU ($54.4 billion) reserve have varied from
zero to 30 percent or more, with the latest ranging from the 15 percent implied by Belgian central
bank governor Alfons Verplaetse in mid-March to the 30 percent or higher suggested by Bank of
Italy governor Antonio Fazio a few days later.
Fraenkel, while non-committal on what he thought the figure might be, said politics and not simply
banking would decide the outcome.
''There are all sorts of political considerations, with differences of opinion between the various
contributing central banks on how much gold to hold,'' he said.
Looking further ahead, he added, ''I think that will prove to be a two-edged sword. I think the
decision may be taken as an excuse by some central banks to sell while others may buy. Maybe not
in the short term but certainly in the medium term.''
($ equals 0.919 European Currency Unit ECUs)
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