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To: Bobby Yellin who wrote (29213)	3/1/1999 8:55:00 AM
From: Alex	Read Replies (1) \| Respond to of 116858

Gold's role in the monetary system <Picture> The WGC recently urged IMF leaders to lift their ban on member countries' ‘pegging' their currencies to gold. In a speech to participants at a two-day meeting in New York, organised by the Re-inventing Bretton Woods Committee, and attended by senior officials of the IMF, the World Bank, the European Central Bank and other national central banks, the Council said that efforts by the IMF to demonetize gold had largely failed and gold was still the second most valuable component in official sector reserves - behind only the dollar - accounting for 16% of the total. Excerpts from the Council's presentation follow: "The result of the demonetisation attempt was to institutionalise the hegemony of the U.S. dollar. The advent of the euro upsets this stability. In this new environment, some would say that gold should be put back on the agenda of those seeking to produce the blueprints for the new financial architecture. Our contention, however, is that gold has never been away - you have only to look at its continued role as a major central bank reserve asset to accept that." "Why should a Fund member not be allowed to link its currency in some way to gold if it so wants? Currently Article IV 2(b) forbids this. The move 25 years ago to "abolish" gold was designed to enthrone the SDR instead. The SDR has not, however, succeeded in establishing itself as a genuine international reserve asset. In such circumstances there should surely be no reason why gold is precluded from competing on all fours with other reserve assets. For the Fund to outlaw it in the Articles is an outmoded restriction." "One lesson from history was that international monetary arrangements can and do change and the coming of the euro provides an obvious opportunity to reconsider the whole system." "For the last half-century the dollar has been the hegemonic currency. Why? To start with - let us not forget -because of its explicit gold link. Subsequently, because there was no possible competitor and the U.S. was, after all, the strongest economy - and possessed the most liquid capital markets - in the world." "With a single hegemonic currency there were not many choices to make. Now, there are two potentially equal reserve currencies - the dollar and the euro. Although the combined capital market of the EU-11 is not yet as large as that of the U.S., it is still dramatically larger than any of the previously individual European markets. Any central bank looking to diversify its reserves now has a real alternative." "But one thing seems fairly clear. Now that countries have a genuine choice between two global currencies, there are likely to be significant moves in and out of them as sentiment ebbs and flows." "Can the world live with competing currencies or will one eventually become supreme? Or might gold, as a recognised store of long-term value, stage a comeback on the international monetary scene? It is probably worth noting here that all previous reserve currencies (including, at the outset, the SDR) had some kind of link with gold." "The problem with hegemonic currencies (be it the dollar or the deutschemark) is that they are run purely for the benefit of their own domestic economies, not for the benefit of any other country which chooses to peg to them." "Gold is the only external asset which is no one else's liability. Now that we have the euro, some countries may decide to take the relatively simple decision to define their basket as some weighted combination of that currency and the dollar in order to hedge their bets. An even more effective hedge, however, can be constructed by incorporating some gold. Studies suggest that the volatility of a central bank's reserve asset portfolio is reduced, and the risk/return balance enhanced, by holding anything up to 20% in gold." "Most central banks do not see it as their business to take risks. By incorporating gold into both a currency basket used for exchange rate management purposes and a reserve asset portfolio, volatility is reduced and the risk/reward picture improved." "Which brings us back to the IMF and - as we would contend - its no-longer-justified prohibitions on various potentially useful roles for gold. The IMF's own gold holdings - 103 million ounces, make it the world's third largest single holder. In 1995, the Executive Board held a long and thoughtful discussion on the subject and came to some important conclusions. These included the view that gold provided a fundamental strength to the IMF's balance sheet, and the Board felt that the Fund should continue to hold a relatively large amount of gold among its assets, not only for prudential reasons but also to meet unforeseen contingencies." "Nothing has happened in the outside world in the last 4 years to invalidate these judgements. Indeed, given the systemic uncertainties caused by the arrival of the euro, there are surely all the more reasons for the official sector to preserve its gold holdings and actively consider ways in which its real value can be utilised in this brave new monetary world." <Picture> Contact: Dick Ware, Centre for Public Policy Studies World Gold Council, London. E-mail: dick.ware@wgclon.gold.org gold.org

To: Bobby Yellin who wrote (29213)	3/2/1999 8:42:00 PM
From: goldsnow	Read Replies (1) \| Respond to of 116858

Iraqi Oil Pipeline Remains Shut as Second Communications Facility Damaged Iraqi Oil Pipeline Remains Shut as Second Facility Damaged New York, March 2 (Bloomberg) -- A pipeline that carries about half of Iraq's oil exports remained shut amid reports that a second communications facility used by pumping stations was damaged. The pipeline from Kirkuk in northern Iraq, to Ceyhan, a Turkish port on the Mediterranean Sea, was shut Sunday evening after a communications center was struck by fire from U.S. aircraft patrolling a ''no-fly'' zone, the United Nations said. A program administered by the UN permits Iraq limited oil sales to buy food and medicine. ''The prospects for an early resumption of flows faded today with reports that a second communications facility has also been damaged,'' the UN office that administers the program said. Iraq informed the UN today that the second facility, at Ain Zala, was damaged, though it didn't provide any further details about the cause or extent of damage, said John Mills, a spokesman for the Iraq program in New York. A UN worker was sent to view the damage at Ain Zala, which is 40 kilometers, or 25 miles, from the Zahko metering station near the Turkish border, said Mills. The first communications facility that was damaged was located 125 kilometers from the station. The pipeline was shut down Sunday because of inadequate communication among pumping stations, Mills said. Crude prices rose today on expectations that the pipeline won't reopen soon. April crude oil futures were up 24 cents at $12.48 a barrel on the New York Mercantile Exchange. Hussein al-Fattal, head of operations at the northern wing of Iraq's state-run oil company, told the official Iraqi News Agency that damage to communications was so severe that ''it will be long before pumping can resume.'' The pipeline normally carries about 800,000 barrels of oil a day. Damage Easy to Repair? That ran counter to comments today from Turkey's energy minister, Ziya Aktas, who said the damage would be easy to repair. Atkas confirmed that U.S. air strikes were the cause of the disruption Sunday. U.S. Defense Secretary William Cohen yesterday acknowledged that U.S. aircraft on Sunday targeted a communications center used by the Iraqi military and that the damage ''may or may not'' have interrupted oil flow. U.S. and U.K. war planes bombed Iraq in December in response to Iraqi interference with UN weapons inspections. Since then there have been a series of confrontations, almost on a daily basis, as the two countries enforce northern and southern no-fly zones in Iraq that were set up to protect minority groups from the government in Baghdad. The executive director of the UN's Iraq program, Benon Sevan, said he was concerned that the disruption to Iraqi oil exports could further reduce the amount of money available to purchase humanitarian supplies. The program allows Iraq to export as much as $5.2 billion worth of oil every six months, though low oil prices and the disrepair of Iraq's oil production and distribution system have prevented it from exporting that much. $900 Million Gap During the current six-month period that began Nov. 26, Iraq has exported $1.48 billion worth of oil, according to the UN. ''Given the depressed price of oil and the state of Iraq's oil industry, there's currently a $900 million gap between the revenue expected and what's needed to fund the humanitarian program,'' Sevan said. ''This shortfall is already cutting deeply into the allocations for water and sanitation, agriculture and education.'' Iraq has been exporting about 1.9 million barrels of oil a day during the past month, accounting for about 2.5 percent of world supply. This is the first instance in which Iraq has reported a disruption to exports attributed to the conflict with the U.S., though a refinery in Basra was bombed in December. ©1999 Bloomberg, LP. All rights reserved. Terms of Service and Trademarks.