Wednesday, August 23, 2017


Wow, I can hardly believe it's been nine years. Where the heck has the time gone, and where the heck is Freegold? ;D

A little more than two years ago, I changed format to an NFF (not-for-free) blog in order to keep me enthused and engaged, and more importantly, to keep out the trolls. I wished FOA had done that rather than quitting, so that's how I view it. I have hundreds of subscribers, and when they quit, so will I. The Freegold Speakeasy now has 100 posts and 20,000 comments.

This being the anniversary of this blog, I have started a new tradition of sharing some samples from the Speakeasy with you, the tired, poor, huddled masses, yearning to escape the wretched refuse of the free internet, teeming with trolls and misinformation. For you, the homeless and tempest-tossed, I lift my lamp beside the golden door! For you, from back in June, here's No Fix, No Peg, No Reserves:

No Fix, No Peg, No Reserves

"One way to address the issue of the management of foreign exchange reserves is to start with an economic system in which no reserves are required. There are two. The first is the obvious case of a single world currency. The second is a more useful starting point: a fully functioning, fully adhered to, floating rate world.

All requirements for foreign exchange in this idealized, I should say, hypothetical, system could be met in real time in the marketplace at whatever exchange rate prevails. No foreign exchange reserves would be needed.

If markets are functioning effectively, exchange rates are merely another price to which decisionmakers--both public and private--need respond. Risk-adjusted competitive rates of return on capital in all currencies would converge, and an optimized distribution of goods and services enhancing all nations' standard of living would evolve."
-Alan Greenspan (1999)

It's a simple concept: In a system of free floating exchange rates, no one needs foreign currency reserves, because there’s nothing to defend. The exchange rates just float. If foreign currency is needed for some liquidity reason, we have the technology today to do currency swaps in any amount, on a moment’s notice, so no one needs foreign currency reserves, and the world doesn’t need a reserve currency. It’s a simple concept.

I wrote this last month in a comment:

"In Bretton Woods, it was something we did. It was mandated that fixed exchange rates be defended by accumulating dollars. Then Bretton Woods ended, and five years later, floating exchange rates were officially authorized by the same body that had created Bretton Woods, but everyone basically did their own thing, which included supporting the dollar and buying US government debt.

We could certainly stop selling debt, but by now we have become addicted to it. And even that would not stop them from accumulating dollars. We didn’t create the Eurodollar, they did. We didn’t ask them to buy our debt, they just did, and we liked it.

Triffin’s dilemma was first talked about in the 60s, while Bretton Woods was still in effect. The bottom line is that, with fixed exchange rates, you need a reserve currency, but with floating exchange rates you don’t. Today it’s really just inertia that keeps us thinking in terms of one currency being the reserve. In truth, it is not necessary.

Of course Triffin’s dilemma still applies, but because it’s something we don’t control yet are dependent upon for our status quo, there’s no real point in talking about it. Some think we can just slither out of it without disturbing anything, by simply replacing one reserve currency with another, or with a basket like the SDR, but they never actually discuss the ramifications of doing so. […]

The problem is that the global financial system is basically the remnant of the past 45 years of using the dollar as the reserve currency after it wasn’t really necessary. It's like a giant abandoned nest, or hive, or house of cards, built upon the dollar being used as a reserve currency for decades after it was no longer necessary to even have a reserve currency. But the switch will have to bring it down, so no one wants to switch.

However, because it is not discussed in these terms, the switch is occurring anyway. I’m sure some people are aware of what’s likely to happen, and some aren’t, but it’s probably not spoken about except in certain circles, and then only in whispers, for fear of waking the beast. But it’s happening nonetheless.

What is obvious to us, is certainly obvious to others, but not necessarily widely so, because it can’t be discussed openly. And because it can’t be discussed openly, for fear of waking the beast, some officials are still trying to slither out of the dollar reserve system without disturbing the giant house of cards built on top of it. And those who know what will be the likely result, can’t really stop them. There’s nothing they can say. There’s nothing to say. The only thing there is to do is to know, prepare (on the personal level), and watch."

Later in the speech quoted at the top, Alan Greenspan talked about the Asian Financial Crisis, which happened in 1997. He explained that the Asian countries which allowed their currencies to more or less float, like Taiwan and Singapore, fared far better than the countries who tried to defend their peg to the dollar, like Thailand and South Korea:

"Between 1992 and 1997, yields on a broad range of emerging market debt instruments fell relative to those on comparable debt instruments issued by industrial country governments. But this pattern reversed sharply with the onset of the Asian financial crisis in the second half of 1997, and again following the ruble's devaluation in August of 1998.

These changes in foreign investors' willingness to hold claims on emerging market economies had a particularly severe impact on currencies operating under fixed or pegged exchange rate regimes. Accordingly, those countries' foreign exchange reserves, and reserve policy, played an important role in the recent financial crises.

In both Thailand and Korea the monetary authorities allowed their foreign exchange reserves, net of forward contracts and other obligations, to fall almost to zero. Once this became obvious to market participants, subsequent downward pressure on the baht and the won intensified substantially. In contrast, a number of countries (Taiwan and Singapore, for example) introduced greater exchange rate flexibility without exhausting their foreign exchange reserves. These countries did not suffer the same violent downdrafts in their foreign exchange markets."

There are a few issues I need to explain in the context of this post. It's all stuff I've written about before, but maybe not quite in this context. Like, what is the purpose of reserves? What happens to existing reserves if they are no longer needed? And what about the gold reserves?

When I say "reserves," I'm talking about foreign currency and gold. To be more precise, it's claims denominated in foreign currency against non-resident institutions (US Treasuries being the most common) and gold. I discussed the definition and treatment of reserves under the current system in 2011, in RPG Update #4.

Reserves are a subset of assets on a central bank's balance sheet. On one side are its liabilities (its currency), and on the other side are its assets, which include domestic currency assets and reserves. Reserves are a portion of assets on all kinds of bank balance sheets. Bullion banks have physical gold reserves. They are needed for clearing, and delivery/allocation requests. Commercial banks have reserves in the form of cash and claims on their central bank. They are needed for clearing, withdrawals, and to meet regulatory requirements.

Central bank reserves are no longer needed for clearing, delivery, allocation or withdrawal, now that Bretton Woods has ended and currencies are no longer redeemable in gold from the central bank. The only thing central bank reserves do in a clean float is sit there. If they move, if they change, then it's not a clean float.

When I say that in a clean float, reserves aren't needed, that means no change in volume, either way, up or down. It doesn't mean any CB should get rid of its reserves. That wouldn't be a clean float. Any change in reserves, up or down (in volume, not value), by the monetary authority or central bank, is manipulation of the exchange rate. Reserves may fluctuate a little over the short term for liquidity reasons, but any permanent change implies exchange rate intervention.

In fact, in a true clean float, the central bank shouldn't be involved even for liquidity reasons, that is, temporarily supplying foreign currency reserves to its own banks that are involved in foreign exchange. Those banks should be obtaining all the foreign reserves they need from the interbank market. So the only liquidity central banks should need to supply is that liquidity they can print from thin air. Greenspan said this too:

"Only liquid reserves denominated in domestic currency would be required by public and private market participants. And in the case of a central bank of a fiat currency regime, such reserves can be created without limit."

You can't run out of a currency you can print, but you can run out of reserves if you fix or peg your exchange rate. That's what happened to Thailand and South Korea in the Asian Financial Crisis. They ran out of dollars while trying to defend their dollar pegs. That's when they became vulnerable, and that's when the market attacked. If a currency becomes vulnerable because its CB is running out of reserves defending a peg, you can make billions attacking that currency, like George Soros did with the pound in 1992:

"On September 16, 1992, Black Wednesday, Soros's fund sold short more than $10 billion in pounds, profiting from the UK government's reluctance to either raise its interest rates to levels comparable to those of other European Exchange Rate Mechanism countries or float its currency.

Finally, the UK withdrew from the European Exchange Rate Mechanism, devaluing the pound. Soros's profit on the bet was estimated at over $1 billion. He was dubbed "the man who broke the Bank of England." The estimated cost of Black Wednesday to the UK Treasury was £3.4 billion." (Wikipedia)

So why would any country want to put itself in such a vulnerable position? In truth, there is no good reason. Part of it is just old habits left over from Bretton Woods, part of it is an irrational fear of having a "weak" currency, and part of it is just good old fashioned ignorance. In Britain's case, they were participating in the ERM, which was like a mini-Bretton Woods for Europe, fixing all the European exchange rates to each other in preparation for switching over to a single currency, the euro.

The problem was, it took a decade longer than expected. ERM started in 1979, but as I have explained many times, fixed exchange rates are not the same as using a common currency (even though a certain Nobel Prize-winning economist seems to think they are). In both a common currency area and in a clean float, the adjustment mechanism is automatic, but under fixed exchange rates, imbalances just pile up until the fix breaks. And with the ERM, it took 13½ years to break the pound's fix.

Now, bear in mind that exchange rate manipulation goes in both directions. The difference between the UK, Thailand and South Korea in 1992 and 1997, and what the Europeans did starting in 1979 and China in 2001, is that the former were trying to support their domestic currency while the latter were supporting a foreign currency (while also suppressing their own). When you do the former, your reserves decline and can run out, and when you do the latter, they increase, but make no mistake, both are exchange rate manipulation.

So, any change in the monetary authority's reserves, either up or down, is exchange rate manipulation. An exchange rate peg or fix requires increasing or decreasing the monetary authority's reserves in defense of the fixed or pegged exchange rate. Fix. Peg. Reserves. No fix, no peg, no reserves. Get it? Got it? Good! ;D

But what about the gold? Well, first of all, you must understand that gold could be used to fix and peg exchange rates during Bretton Woods, only because one of the currencies was, itself, fixed to gold. And by "fixed to gold," I mean defined as a specific weight of gold. The US dollar was defined as 1/35th of a troy ounce of fine gold. So you could defend a dollar fix or peg by buying or selling either US dollars or gold, as they were fixed to each other by definition. But once that fix was broken, gold went from being a currency to being an asset.

Now this part's a little tricky, but important to wrap your head around. Gold being a currency prior to the 70s is different from it being either money or a metal used for coinage. As I have explained, with coins, the "money" part is the token name and number stamped onto the metal, not the metal itself. The value represented by the imprint must be greater than the value of the metal, or else the money aspect of the coin will be destroyed in favor of the metal's value as an asset.

Think about our coins today. They are made out of brass, copper, zinc, manganese and nickel, none of which are considered money, or even monetary metals. It's the stamp on the coin that is the money, not the metal itself. But gold was different, because the token name itself (the "dollar") was defined as a specific amount of gold. And that's how you could have gold bars, or even gold nuggets, that were worth the same as gold coins. Gold was a dollar, and dollars were gold, by definition. Not the best system, but it's important to understand what it was.

So gold was a currency. Currency is a subset of money, and gold was a subset of currency, so gold was currency, because of that definition of a dollar. Copper is not currency. See the difference? If you have a pile of copper, that is an asset, not money. So when the definition of a dollar as a specific weight of gold was voided in 1971, gold went from being a currency to being an asset. This is relevant to the subject matter of floating, fixed and pegged currency exchange rates because, as a member of the currency club, gold flowed in the monetary plane, opposite the physical plane of goods, services and assets, both physical and financial. But now gold flows opposite the monetary plane, at least from a national accounting perspective.

The fact that central banks still call their gold "monetary gold" is really just an anachronism. But when you finally realize that, in Freegold, the CBs' "monetary gold" is just going to sit there for, oh—let's just throw out a number that FOA used—the next thousand years, perhaps it makes some sense to distinguish it in that anachronistic way.

Trail Guide (02/15/2001; 17:02:46 MDT - Msg ID: 48325)

"The one thing that was negotiated into the EMU was gold's place in the world. Indeed, this is where the ECB and BIS knew their oil neighbors well. By signaling gold to be an asset, not a currency, it could be promoted to rise outside its commodity range without competing with the new currency. With the history of the dollar's use of gold, America's war on gold and its locked in political stance on gold, Old World Europe played a Master Stroke."

Now don't read this in the way that people so often do which completely misses the point. Don't read it as some sort of failed timing prediction. Read it as what it is: a very high level understanding of gold and currency being explained simply enough for even you to understand. As I said, gold changed from being a currency to being an asset as soon as the dollar's golden definition was voided. But as we know, the US became locked in a political stance toward gold that not only ignored it, but left its price on the books at a ridiculous $42.22 per ounce for the last 45 years.

What the EMU did in the run-up to the euro's launch was exactly what he said. They "signaled" that gold was an asset, not a currency (which it already was, but hadn't been officially "signaled" by any government or CB), that could rise in price just like any other asset. Of course, as we know, the LBMA bullion banks have been trading (unallocated) "gold" (credits) as a currency (XAU/USD) for a long time now.

"In ANOTHER master stroke, the BIS knew that the entire bullion house structure was endorsed and supported politically, to frame gold in a dollar price band. Outside that band, up or down, these paper markets cannot function. Especially if the driving force becomes a physical demand that drains all settlement credibility from contract gold. There will be no squeeze in these markets now, as they will be allowed to kill themselves by trying to save themselves. Inflating the supply is that process. The loss of such credibility will eventually come as trading just stops, virtually closing the dollar contract markets as we know them. Opening the door to an ECB sponsored physical market."

Again, please try to avoid the temptation of reading this as a failed timing prediction. That's not what it was then, and it's not what it is today. It's an extremely high level understanding of the gold market that is as true today as it was in 2001. The Europeans (BIS) of course set up the whole "bullion house structure" (the LBMA) and endorsed and supported it politically as part of their plan to support the dollar until they could launch the euro.

They "knew" it because they did it. They also knew that it acted very similar to, and almost as a proxy for, the old gold-denominated dollar. Think of it like this: The bullion banks are analogous to the US Federal Reserve during Bretton Woods. Like the Fed then, they have a token currency (XAU/USD) which is defined as a specific weight of gold (1 troy ounce). Like the Fed then, they can print the token currency at will, and in response to demand. And when it's strong or wants to rise, like the dollar from 1945-1952, physical gold reserves will flow in and accumulate, and when it's weak or wants to fall, like the dollar from 1958-1971, physical gold reserves will flow out and diminish. "Especially if the driving force becomes a physical demand that drains all settlement credibility from contract gold," just like the dollar circa 1968-1971.

They knew this was how the paper gold market worked, because they were the ones who "endorsed and supported" it politically, for a purpose. And because they knew how it worked, they also knew how it would end. It hasn't ended yet, but that doesn't change a thing. This is, and always has been, how the paper gold market will end—just how the gold-denominated dollar ended.

FOA (08/02/1999; 12:59:44 MDT - Msg ID: 10156)

"Isn't it interesting how quickly the LBMA was born to market gold, in the late 80s in response to this new [euro] initiative. Their first purpose was to create a paper gold market to trade commitments of [European] CB gold.


Aristotle, when the dollar went off the gold exchange standard in 71, it was the modern day equivalent of destroying the gold market. Back then, all dollars were "gold loans" in every sense of the word! The world dollar market was the gold market that everyone used. When that market failed, because there wasn't enough gold to deliver against the "gold loans", everyone was left holding "empty gold loans" in the form of dollars!

Yet, today, tell people that the gold derivative markets that represents 90% of the entire gold market is going to fail from non delivery, and they don't conceive it can happen! This is an arena that isn't even a government treasury production, as the dollar was back then.


Throughout the net, gold thinkers continue to look for a return of "inflation" to bring back the "good old days" of "bunker Hunt silver" and "fast rising comex gold"! The future may not repeat the past. We shall see. In the days to come, we will do well to consider following in "The Footsteps Of Giants" as they continue to lead in a direction of "physical only" gold."

Unlike the dollar, though, it's difficult to track the LBMA's reserves, because the private gold market is, for good reason, very opaque. GLD, however, is a proxy that we can watch. The pattern is quite similar. With US gold reserves, we see a steep rise from the end of WWII until about 1952, and then a plateau from '52 to '58, and then a steep decline until the definition of a dollar as a weight of gold is discarded in 1971. Curiously, they pulled the plug while they still had about 8,500 tonnes left, which makes me wonder if the LBMA will do something similar.

Gold is a means of settlement for the private sector, and at the personal level. I'm talking about physical gold, and I'm talking about in Freegold, after the transition. Call it savings, call it wealth, call it the focal point tradable wealth item par excellence, or call it whatever you want. It will be a wealth reserve that puts anyone and everyone on equal footing. It's what I wrote at the end of Money or Wealth:

"Regardless of any impression my early posts may have given you about gold being important for settlement at the national level, I want you to understand that anytime a CB/country buys gold to increase its reserves, it manipulates its currency. And while having an initial CB gold reserve is needed, Freegold is the antithesis of countries settling imbalances through gold. Countries correct (not settle) imbalances though floating monetary exchange rates, private entities settle imbalances (monetary balances) by buying wealth (gold, or any other physical-plane item). Having wealth means you settled unsettled imbalances, i.e., monetary plane balances."

This is a key difference between Freegold and Freefiat. If any of you remember Freefiat, Victor and Blondie's distortion of Freegold, you'll recall that Blondie's seminal idea was about gold's "function." He started calling Freegold "AG", meaning "after gold starts functioning." BG was now, "before gold" could function properly. He wrote:

"What is relevant is how gold functions. This is the future paradigm, one in which gold functions."

What he meant by "function" was that gold, or the fluctuating price of gold, would have an influence on currency and price inflation. His idea was not a separation of gold from currency in terms of influence, but simply a reversal of their traditional relationship. Whereas it has long been a goal of monetary thought to keep currency stable in terms of gold, even at the expense of price inflation and deflation in goods and services, Blondie's "AG" (which became Victor's "Freefiat") was all about keeping currency stable in terms of goods and services (an inflation target of 0%) while the price of gold "fluctuated wildly" as a kind of shock absorber, or monetary damper. Here was Freefiat's seminal moment:

Someone wrote:
"I think that post-transition a currency manager who manages his/her currency with the aim of keeping it stable in gold will outperform a currency manager who tries to target prices."

Blondie replied:
"ECB has the correct policy already in place, and they're not targeting gold. You want stability with the stuff people use if you want to keep them happy. […] That’s my point about WJB (William Jennings Bryan): he decried the pain of deflation gold was imposing at the time, the same pain which I suspect will be felt AG if currency managers attempt to keep their currencies stable in gold. Money is credit, and people don’t like being debtors during deflation. Once again, this is a terrible business model, so I can’t see the motivation. The better policy is to keep the currency stable in goods and services."

Victor put it all together:
"AG, in every given currency area, the real price of gold needs to fluctuate, just as it did before 1922 in the international gold standard.

Now, let's say the issuer of the fiat can freely choose how to manage it.

1) If he manages the fiat to be stable with respect to gold, this means that the real value of the fiat will fluctuate (simply because the real value of gold needs to). Depending on the international trade flows, your currency area will experience periods of inflation and periods of deflation in terms of your fiat. Before 1922, these price swings could be quite wild. I suppose people would have serious difficulties with the deflationary phases (unless you run your banking system in a way very similar to the old hard money times).

2) If he manages the fiat to be stable with respect to goods and services, he will never have any significant deflation in his fiat, but always a benign small inflation - this is what the ECB is targeting at present. The gold price in terms of fiat would then fluctuate and adjust the international competitiveness of the currency area.

The medium of exchange, i.e. I owe you E50 which is a large bag full of groceries, remains about one large bag of groceries. Exactly what you would expect. The gold price, however, fluctuates and transmits price signals as to whether saving in gold or investment in MoE denominated assets is more desirable.

I'd go for (2)."

And finally, Blondie corrected Victor in his last comment ever on my blog:


If you’d go for (2), as I would too, you’d need to adjust your terminology:

"The medium of exchange, i.e. I owe you E50 which is a large bag full of groceries, remains about one large bag of groceries. Exactly what you would expect. The gold price, however, fluctuates and transmits price signals as to whether saving in gold or investment in MoE denominated assets is more desirable."

Because your currency now performs as the “savings” vehicle, and gold as the “investment”.

Gold is not a SoV, nor is it a UoA except as a tautology.
Currency, finally, really does it all, all three monetary functions (actually all four if you want to include the standard of deferred payment).

But only AG. Only with functioning gold."

Victor's mind was from then on blown, and he replied to Blondie by email thusly:

"Blondie, you are a genius. This was an eye opener. I had it right at the technical level, but as long as you cannot spell it out, "gold is an investment", you haven't really understood it. I suppose we need to get back to the drawing board and rethink the various steps. Why did we think gold was "savings"? […]"

I bring all this old Freefiat stuff up because, in a way, I owe Blondie, Victor and Freefiat a huge debt of gratitude. It was only against the backdrop of their distortion of Freegold that I was able to finally finish the Freegold puzzle. Freegold is not a complex currency management scheme to achieving 0% price inflation through "functioning" gold, it is simply the clean float. It is the most simple of systems, because the adjustment mechanisms are all automatic. It's what Alan Greenspan called an "idealized" system, "a fully functioning, fully adhered to, floating rate world," in which "no foreign exchange reserves would be needed," and in which "an optimized distribution of goods and services enhancing all nations' standard of living would evolve."

By the way, Victor's idealized (Freefiat) system is still a complex currency management scheme, where the public sector actively buys and sells gold in order to balance private sector trade and foreign investment. This is a fix, it requires reserves, and there's no automatic adjustment mechanism because the public sector is constantly supplementing the private sector with either the printing press or public gold.

The big irony, and the most surprising conclusion drawn from this line of thought, for me at least, is that the US's treatment of its gold reserves following 1971 is actually the model for everyone else come Freegold. Freegold, after all, is really just the world finally finishing what it started in 1971, and was collectively and officially agreed to in 1976 at the Jamaica Accords.

We've all "grown up" in terms of our gold education learning that the Nixon Shock was bad, that the US Treasury taking the public's gold away from the Fed and replacing it with certificates was bad, that the US ignoring its public gold, even putting it in "deep storage", was bad, and that leaving its value on the books, and even on the central bank's balance sheet, fixed at an arbitrary and meaningless price of $42.22 per ounce was bad. But I'm telling you now, this will all be what makes the most sense for the treatment of public gold reserves by all CBs once Freegold is well underway.

Don't get me wrong, though. This in no way negates or delegitimizes the genius of MTM gold on Line 1 of the Eurosystem's balance sheet. That was a master stroke in terms of promoting gold within the current system (the $IMFS), and "signaling" that it's an asset, not a currency, that can rise without competing with the euro currency. It was also a master stroke in terms of weathering the transition away from the dollar reserve system.

Think about it this way. When the dollar dies, most of the reserves on most central banks' balance sheets will go *POOF*. Simultaneously, the gold portion will be revalued and will fill that hole, and then some. So it's good to have gold reserves for the transition, and it's good to promote gold for the people. But in Freegold, that public gold will just sit there, except in the case of an extreme emergency or war.

Now think about the magnitude of the revaluation in terms of the central bank's balance sheet. I'll use the latest Eurosystem quarterly for example. Right now, assets and liabilities on the Eurosystem's balance sheet stand at €4.1T each. On the asset side, about 18% of the assets are reserves, 8% dollars (and other foreign currencies, but mostly dollars), and 10% gold.

So let’s hyperinflate the dollars down to zero, and revalue the gold to $55K in today’s dollars. Converted to euros at today’s exchange rate, that’s €49,118 per ounce. That’s a 42.28X revaluation in terms of this balance sheet. What that does to the balance sheet, however, is it makes it look absurd. The revaluation would raise the assets total to €20.5T, of which the reserves (now only gold since we zeroed out the foreign currency) would be a whopping 83.5% of the balance sheet.

To keep the liabilities side in balance with the assets side of the balance sheet, the revaluation "windfall" will be added to Line 11 on the liabilities side. Line 11 is how they make the balance sheet balance each quarter with revalued foreign assets, but more importantly, it represents a liability of the Eurosystem back to its member National Central Banks. It essentially represents the portion of reserves in excess of what is needed. It goes up and down as exchange rates fluctuate, but ever since the launch of the euro in 1999, it has stayed within the range of 9% - 18% of total liabilities.

It could potentially drop below that range, and you don't want it to go negative, so ~10% is a reasonable pad. But with Freegold, line 11 will suddenly become 82% of the liabilities on the balance sheet. That will look absurd and be distracting from the rest of the page, especially since reserves are meaningless at that point, and the rest of the page is the meaningful part.

What will make the most sense at this point will be to basically do what the US did with its gold. What I’d do if I was the ECB at this point is “return" most of the gold to the members (of course it was only ever a technicality of joining the euro, the gold never moved or changed ownership, so this "return" is just on paper anyway), leaving just enough so that, at its new MTM value, the balance sheet balances. That would be about 460 tonnes, less than the 504 tonnes the ECB claims for itself, meaning 100% of the national gold reserves could be “returned” to its owners, to be put in “deep storage” where it would lie very still for the next thousand years, and all national gold would finally be set free from its currency, as it should be in Freegold.

It would also make sense for them to stop marking it to market on the balance sheet, since it’s not needed anymore, except to balance out the liabilities once, at the beginning. Why mark reserves to market if you don’t need them anymore? It would only complicate the balance sheet process unnecessarily at that point. So what I’d do is freeze the price on the books and forget about it, not at $42.22, but at €49,118. The price is going to be very stable then anyway, but I can’t think of a good reason to keep changing it on the balance sheet every three months. And if you're not going to do that, then there's no need for line 11 anymore, and without line 11 and its 10% pad, the ECB would only need to keep 201 tonnes on its balance sheet. So that's another 300+ tonnes that could be "returned" to the core euro countries.

When all is said and done, it will look a lot like the Fed and the US Treasury's treatment of gold for the last 38 years or so, with the public sector's gold untouched and forgotten in "deep storage", its "price" locked on paper, and the central bank with no need for reserves of any kind. Isn't it ironic? Kinda like the future monetary system I call Freegold having almost nothing to do with gold? ;D