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Regarding Italy's Proposed Parallel Currency: What If It Was Backed By Gold?

A Five Star/Lega deal is taking shape in Italy. The platform includes a parallel currency. Why not back it with gold?

As noted earlier today, a Five Star / Lega Coalition is in the works in Italy.

The parties are eurosceptic to varying degrees. Part of their platform includes a Parallel Currency.

Heck, why not back it with gold?

After all, the bank of Italy has the third largest gold reserves in the world after the US and Germany.

Banca d’Italia’s Mammoth Gold Reserves

The BullionStar discusses Banca d’Italia’s Mammoth Gold Reserves.

Italy’s gold has had an eventful history. Robbed by the Nazis and taken to Berlin. Loaded on to gold trains and sent to Switzerland. Flown from London to Milan and Rome. Used as super-sized collateral for gold backed loans from West Germany while sitting quietly in a vault in New York. Leveraged as a springboard to prepare for Euro membership entry. Inspired Italian senators to visit the Palazzo Koch in Rome. Half of it is now in permanent residency in downtown Manhattan, or is it? Even Mario Draghi, European Central Bank (ECB) president, has a view on Italy’s gold. The below commentary tries to make sense of it all by bringing together pieces of the Italian gold jigsaw that I have collected.

According to officially reported gold holdings, and excluding the gold holdings of the International Monetary Fund (IMF), Italy’s central bank, the Banca d’Italia, which holds Italy’s gold reserves, is ranked as the world’s third largest official holder of gold after the US and Germany, with total gold holdings of 2,451.8 tonnes, worth more than US$ 105 billion at current market prices. Notable, Italy’s gold is owned by the Banca d’Italia, and not owned by the Italian State. This contrasts to most European nations where the gold reserves are owned by the state and are merely held and managed by that country’s respective central bank under an official mandate.

Palazzo Koch

In its Palazza Koch vaults in Rome, the Banca d’Italia claims to store 1199.4 tonnes of gold. Of this total, 1195.3 tonnes are in the form of gold bars (represented by 95,493 bars), and 4.1 tonnes are in the form of gold coins (represented by 871,713 coins). While most of the bars in Rome are prism-shaped (trapezoidal), there are also brick-shaped bars with rounded corners (made by the US Mint’s New York Assay Office) and also ‘panetto’ (loaf-shaped) ‘English’ bars. The average weight of the bars in Palazzo Koch is 12.5 kg (400 oz), with bar weights ranging from relatively small 4.2 kgs up to some very large 19.7 kgs bars. The average fineness / gold purity of the Rome stored bars is 996.2 fine, with some of the holdings being 999.99 fine bars.

The Banca d’Italia also states that 141 tonnes of gold that it transferred to the ECB in 1999 as a requirement for membership of the Euro is also stored in Palazzo Koch. This would put the total gold holdings in the Palazzo Koch vaults at 1340 tonnes. Gold transferred to the ECB by its Euro member central banks is managed by the ECB on a decentralised basis, and is held by the ECB in whatever location it was stored in when the initial transfers occurred, subject to various location swaps which may have taken place since 1999.

Where's the Rest?

Bullion Star writer Ronan Manly asked the Bank of Italy, Mario Draghi, and other officials a bunch of question on location, leasing, etc. The questions were all refused.

Manly also uncovered a bit of history, translating a video in Italian into English, noting that when the bars were moved to Germany they were stamped with a Swastika:

"The RAI broadcast video shows a 1940 Nazi bar from Berlin, stamped with the eagle and swastika insignia and with Prussian mint markings. The Nazi bar holdings can be explained by the fact that the Italian gold was confiscated by the Nazis during World War 2 and ended up being moved out of Rome up to the north of Italy and then most of it was transported onwards to Berlin in Germany or else to Switzerland."

The reporter, Angela, states that in addition to Rome, the Italian gold is stored at the Federal Reserve Bank in New York, the Bank of England in London, and at the Bank of International Settlements (BIS) in Switzerland. The reporter uses the exact words “Banca dei Regolamenti Nazionali”.

Even in Italian, the video is fascinating. Here are some image clips.​

Italy's National Debt

Italy's National Debt Clock stands at 2.331 Trillion as of May 11, 2018.

Italy's gold is worth a bit over $100 billion. Thus, Italy could not wipe out its debt with gold, nor could the US or any other country.

That aside, backing a new currency with gold, gets my endorsement. How might that work?

Addendum

Clueless MMTers Point Out Lega Rejected the Idea

For further discussion of the absurdities of MMT, please see Debunking MMT, Keynesianism, Monetarism: Reader asks “What theories do you believe?”

Ultimately, MMT is a belief in something for nothing, that governments can print money at will with no consequences.

Mike "Mish" Shedlock

Perhaps Fiat currencies are actually good invention in sense that they are based on free-markets ideas and free markets (i.e. forex participants) are ready to ruthlessly punish countries like Venezuela and Zimbabwe, if those countries try to pull of monetary tricks at higher magnitude than other countries are attempting at the same time?

With any gold backed currency (or peg to another currency for that matter) the punishment would not be continous, but rather a binary one where system breaks under sell pressure and all hell breaks loose. In other words - with true fiat trade balance (or imabalance) would dictate forex excange rates gradually.

(edited)

The real roadblocks are the status quo. The EU elite and northern Eurozone won't allow an escape. It's another existential threat and more so if it looks like it might work. Gold backing might just work by offering some legitimacy to a parallel coin. Expect massive denigration of any idea that might work.

We then have to wonder if the more the status quo comes down on any idea will the populace backing increase for the idea. It's going along with the status quo that helped hold Italy down - since Euro membership.

There were “rational persons” trying to get the heck out of South Korea recently. Some $325,000,000 in gold bars were found in the airport trash by a janitor. Somebody was sitting that much physical gold?

It’s unsure how close to a nuclear strike things got to last month, maybe somebody was trying to bail out of the country and lost their nerve at the last minute. You’ll see all kinds of physical gold showing up in odd places when things get hot.

Hugo is a reader of my Blog. I just got an email from him, thanking me. There are some very interesting details in his email - not related to Italy, but something else. I cannot disclose yet.

Not sure what to make out of your comment... Are you trying to say that if it comes to nuclear attack then people will abandon their gold in airport trash cans?

Though, few things I would like to point out:

  1. $325,000,000 is ~9 Tons of gold. That for sure would be a hell a lot of a gold.
  2. I don't think any "rational person" was worried about nuclear strike a month ago. Maybe back in September 2017 plus minus a month here and there?

I just used it as an example that there may be a lot of gold out there unaccounted for. A crisis of some sort or another will reveal such stockpiles.

We don’t know what the word was on the ground in South Korea, just the MSM nonsense version of events. Somebody of that level of net worth may know more than the average birdbrain anchoring the evening news, that’s all.

And what are you trying to imply with the hypothesis that there could be stockpile of unaccounted gold?

As for somone who is long USD and TSLA stock, it would freak me out if there was a stockpile of legally emitted, but unaccounted dollars in Bernarke's vault or TSLA stock in Elon's portfolio. Why it does not work the same way for gold?

BTW, other sources state that the janitor found only $325,000 gold (1$=1,067 Wons), not $325,000,000.

(edited)

So I read Mr. Price's article. It seems obvious to me that all he is doing is trading the word peso for oz.

honest money is solution, gold and silver.
free coinage by any one
separation of Deposit and Loan Banking
no fractional reserve
taxes paid only in coins gold or silver
laws to be changed only by referendum ( 99% of all eligible for change )

The Bank of Italy could organize paid tours through it's warehouse. Not that anybody would be interested in this old relic.

Leaving aside the issue of gold, which has such a grip on the imaginations of many -- how does a "parallel currency" work? Do people keep two sets of books and pay taxes on whichever is lower? OK - we are talking Italy here, so the issue of paying taxes is moot.

One of the few real world examples of parallel currencies I am aware of is in Bahrain, which serves as Las Vegas to Saudi Arabians, many of whom pay their bar bills in Saudi Rials instead of Bahrain Dinars. The result is that anyone in Bahrain may receive change in Saudi currency when he pays in Bahrain currency. The system works because of an informal understanding that 10 Saudi Rials = 1 Bahrain Dinar, regardless of the formal exchange rate.

In Italy's case, if the Parallel Currency is practically-speaking tied to the Euro, then what purpose would it serve? And if it is not effectively tied to the Euro, then we are back to the question of how the two currency system works?

Nothing has ever worked, or will work in the future, as long as the system is controlled by career politicians. The elephant in the room is not the Fed or the lack of a gold standard. After all, it's been tried and failed many times. The problem is absolute power, enabled by career politicians.

1

If you tied a 50% discount/rebate monetary policy directly to the final point of the economic process, namely retail sale and a 20% discount/rebate policy to the point of sale of every business model to its customer along the line toward final retail sale you'd not only increase everyone's potential purchasing power by a factor of 2.5 you'd also implement the Austrian/libertarian wet dream of price deflation painlessly and beneficially into profit making systems. You'd also be able to eliminate all transfer taxes for welfare, unemployment insurance etc. etc. and most importantly break up the financial paradigm of Debt Only which rips off and oppresses virtually everyone. Think about it.

WindowCleaner -there would not be a Fed, rebates, or monetary policy etc etc, in the Libertarian world.

Well, after a relentless and rather quick dive into a depression as demand evaporated....a monetary authority that would distribute the funds required to fulfill the two policies I referred to....would I'm sure be created.

The e
conomic problem is about the chronic relative scarcity of free and clear individual purchasing power, not nearly so much about the volume of money in the economy. It also is not nearly so much about debt as it is the currently enforced paradigm for the form of distribution of money described as Debt Only which the business model of finance monopolistically uses to dominate every other business model and probably 98% of the general populace.

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