... the US Treasury and the Fed would rather not give gold a status that rivals the dollar, but they cannot boss the Basel Committee around. Ever since President Nixon took the dollar off the gold standard, the official mantra has been that gold no longer has any monetary role. To do an about-turn and accord it the same rank as dollar-cash is therefore extremely significant.


The proposal is only at the stage where comments are invited, but it is unlikely that the banks will turn this proposal down, since it represents a secure lending opportunity and the opportunity to diversify a bank's own assets without facing a risk-weighting penalty. The proposal when implemented is certain to encourage banks to buy gold, and the bullion banks in London will hedge uncovered unallocated customer liabilities. And what is sauce for the commercial goose is also sauce for the central-bank gander: it makes no sense for the central banks to continue to marginalise gold on their own balance sheets. Instead, central banks should abandon the myth of valuing gold on their books at $42.22 and treat it as a proper monetary asset.

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