Originally posted on Thursday, March 21st, 2013
“Interwar-era Bank of England Governor Montagu Norman used to dream that the BIS would one day foster a core of central bankers entirely autonomous of governments.” — The Confidence Game
Journalist Steven Solomon, a former staff reporter at Forbes, in 1995 provided the world with an exceptionally interesting look inside the ordinarily hermetic work of central banking, entitled The Confidence Game and published by Simon & Schuster. For those, such as Sen. Rand Paul, who are eager to audit the Fed, The Confidence Game is an invaluable guide. Solomon (pp. 111-112):
The BIS [Bank for International Settlements] was one of the world’s unique and most mysterious institutions. Central bankers owned and ran it. Sixteen percent of the BIS’s shares floated over the counter…. It was run by a central banker-chosen general manager….Special exemption from taxation under the Hague Treaty of 1930 and self-financing through its banking activities made the BIS independent of any government, though absent any true power beyond that collectively extended by central bankers.
Interwar-era Bank of England Governor Montagu Norman used to dream that the BIS would one day foster a core of central bankers entirely autonomous of governments. That dream was translated into a loose credo of independence, sound money, international financial stability, pragmatism, and mutual support against government pressure that the governors imbibed ten times a year, from Sunday night through Tuesday at the start of the second week of each month. “The governors in Basel meet on trust; it is the meeting of a club,” said the late Renaud de la Geniere, governor of the Bank of France in the early 1980s. “outside of the official meetings there are dinners without secretaries, all in confidence.”
The international freemasonry that flourished in Basel for over half a century reinforced central bankers’ sense of unique supranational identity. “We are clubby. It is related to the fact that we feel inferior about being unelected,” explains one European governor. “I think there is an international voice, a constituency, we represent. We must defend monetary policy even against Treasury ministers–we need allies to mitigate the disadvantage of not being elected.”
Until May 1977 BIS headquarters was an anonymous, converted six-story hotel across form the Basel train station. The address was so obscure that visitors were told to look for Frey’s chocolate shop next door. Only a small plaque indicated the entrance. To the chagrin of many central bankers, their increased world prominence with the rise of stateless capital then became visible in a new eighteen-story office tower.”
The principles of “independence, sound money, international financial stability, pragmatism, and mutual support against government pressure” are extremely laudatory. These are, in fact, the precise qualities that made the classical gold standard, in its day, so beneficial to a flourishing world economy and will in the future have a similar beneficial effect.
Whether, however, the very “clubbiness” and feeling of “inferiority” that, reportedly, suffused (and, one can infer, suffuses) the BIS might not work toward fomenting a subtle vulnerability to — rather than independence from — government pressure. Consider the rapid worldwide transmission of policies of “quantitative easing.”
One cannot resist recalling the sage words of essayist (and co-founder of the London School of Economics) George Bernard Shaw in contemplating this enigmatic association: “You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the government. And, with due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold.”
Gold has proven, over the course of history, while no panacea, reliably resistant to recurrent government proclivity to succumb to the seductions of currency debasement. The solidarity cultivated at “dinners without secretaries, all in confidence,” while clearly honorably intended, is a very poor substitute for the legal definition of currencies as a fixed weight of gold.
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