“The central banks don’t consider it manipulation, they consider it part of their job“

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James G. Rickards, the Senior Managing Director of the consulting firm Omnis, Inc., gives in this exclusive interview his analysis of the so called currency war and explains why Germany should pick up its gold reserves from New York. Moreover, he gives his take on the secret gold policy of the major central banks of the world and discusses two scenarios for a new global monetary system.
By Lars Schall 
James G. Rickards is Senior Managing Director of Tangent Capital Partners (http://www.tangentcapital.com/), a registered broker-dealer and merchant bank, and Senior Managing Director of Omnis, Inc. (http://www.omnisinc.com/), a research and consulting firm in McLean, Virginia, USA. He is also co-head of Omnis‘ practice in Threat Finance & Market Intelligence and a member of the Board of Directors. Moreover, he serves as Principal of Global-I Advisors, LLC, an investment banking firm specializing in the intersection of capital markets and geopolitics. Mr. Rickards is a seasoned counselor, investment banker and risk manager with over thirty-five years experience in capital markets including all aspects of portfolio management, risk management, financing, regulation and operations.
Mr. Rickards’ career spans the period since 1976 during which he was a first hand participant in the formation and growth of globalized capital markets and complex derivative trading strategies. He has held senior executive positions at sell side firms (Citibank and RBS Greenwich Capital Markets) and buy side firms (Long-Term Capital Management and Caxton Associates) as well as technology firms (OptiMark). He has directly participated in the release of U.S. hostages in Teheran, Iran in 1981 as well as in the 1987 Stock Market Crash and the 1990 collapse of Drexel. He was the principal negotiator of the government-Federal Reserve Bank of New York-sponsored rescue of LTCM in 1998.
Mr. Rickards is a graduate school visiting lecturer at Northwestern University and the School of Advanced International Studies. He has recently delivered papers on econophysics at the Applied Physics Laboratory and the Los Alamos National Laboratory. Mr. Rickards has written articles published in academic and professional journals in the fields of strategic studies, cognitive diversity, network science and risk management. He is a member of the Business Advisory Board of Shariah Capital, Inc., an advisory firm specializing in Islamic finance and is also a member of the International Business Practices Advisory Panel to the Committee on Foreign Investment in the United States (CFIUS) Support Group of the Director of National Intelligence.
Mr. Rickards holds an LL.M. (Taxation) from the New York University School of Law; J.D. from the University of Pennsylvania Law School; M.A. in international economics from the School of Advanced International Studies, Washington DC; and a B.A. degree with honors from the School of Arts & Sciences of The Johns Hopkins University, Baltimore, MD.
His advisory clients include private investment funds, investment banks and government directorates. Mr. Rickards is licensed to practice law in New York and New Jersey and various Federal Courts and has held all major financial industry licenses. He has been a frequent speaker at conferences sponsored by bar associations and industry groups in the fields of derivatives and hedge funds and is active in the International Bar Association. He has been interviewed in The Wall Street Journal and on CNBC, Fox, CNN, NPR and C-SPAN and is an OpEd contributor to the New York Times, Financial Times and the Washington Post.
James G. Rickards lives in Connecticut, U.S.A. 
Mr. Rickards, could you give me your interpretation of the so called currency war? Is there for example a difference between your analysis and the one in the mainstream media?
Well, I would say the one difference is that in my view that there is a currency war going on now. I think a lot of the mainstream media and some policy makers have used the expression, usually to say that there is no currency war. I believe the currency war has already begun. The main front in the currency war is between the United States and China. China is maintaining a fixed exchange rate between the yuan and the dollar, and the U.S. is trying desperately to inflate. We want to create inflation in the United States. But the problem is: Chinas exporters receive dollar payments and then the Central Bank of China requires them to basically hand in the dollars and they get the yuan, which they use for their local expenses. So what’s being happening is, as the U.S. is printing dollars and expanding the money supply, a lot of that money is going to China and the Chinese are having to increase the Chinese money supply in order to maintain the peg.The result is that the inflation is showing up not in the United States, but in China. The Fed is desperately trying to get inflation in the U.S., they have not been successful – the inflation is showing up in China and the Fed is going to continue to pursue its policy of quantative easing, essentially trying to break the peg between the Chinese currency and the U.S. currency. The Chinese have become very concerned. They may soon have to raise interest rates, they may soon have to revalue the yuan upwards, but this creates other problems for them, because the low yuan and the fixed yuan to the dollar has been a big source of job creation in China, because they need jobs to maintain political stability. But if they keep the peg and get inflation, they’ll going to have political instability because of the inflation. So either way, China appears to be poised on a lot of instability, either on the employment front or the inflation front, possibly both.I think China’s solution in the short run will be to impose price controls which they can back up with coercion. The U.S. solution in the short run is to continue quantative easing to force the Chinese to break the peg, but so far without success. So you have a currency war between China and the United States, which at the moment both sides appear to be losing. The winner in some ways is Europe, because the euro-crisis has caused the euro to devalue somewhat, but that might be a temporary advantage, because if the U.S. does devalue in some way, then you may see the dollar go down against the euro and the euro rally again.

So it’s a three-front currency war among the euro, the yuan and the dollar, it is getting serious and it is going to continue. This is very typical of what happens when you have not enough growth. When you have good economic growth, people don’t worry so much about their share, if somebody gets a little advantage over someone else because of the currency, they may grumble, but they are not overly concerned because they have the growth. But when you have no growth or insufficient growth, people begin fighting over the crumbs, and that’s when currency wars begin.

Do you think that a trade war is the next step of this currency war?

Logically, trade wars are the next step in currency wars, because not everybody can devalue against everybody else. You begin to devaluing against one currency, and then they retaliate by devaluing against you or some third currency also devalues against the first two. It becomes a kind of negative sum game. One way to play the game is to impose tariffs or surtaxes which is what the United States did in the 1970’s. Putting a 10 percent import tariff or a ten percent surtax on imports,  is economically the same as a ten percent devaluation. It gets you to the same place, makes foreign goods ten percent more expensive in your country. I think the first step is a currency war, but that tends to be unsuccessful and all advantage is temporary. The next step is to move the currency war to embargos, tariffs and surtaxes, and beyond that outright capital controls and more stringent control on foreign trade. So yes, there is the danger that it goes very quickly from a currency war to a trade war.

On October 16, you’ve raised on Eric King’s “KingWorldNews.com“ in relation to the currency war the topic of gold by saying that the United States could commandeer all foreign depositors of sovereign gold at the New York Fed to West Point for example and make them part of the US gold reserves.i First of all, are you sure that the official gold reserve numbers of the US are valid or do you have your doubts (that could be easily wiped out once and for all with an independent audit for which GATA is asking in their freedom-of-information lawsuit versus the Federal Reserve)?

Well, a few things, Lars. Number one: I take the official figures at face value, I believe they are correct. To put it differently: I have not seen any evidence that they are not correct. So in my analysis, in my research I assume that they are correct. Having said that, I agree that an audit would be a good idea. I don’t see the harm in an audit if the gold is there. An audit would confirm that and would put a lot of doubts at rest. If the gold is not there, then the American people deserve to know and the world needs to adjust accordingly, because it is operating on the basis of a fraud. So in the first instance, I believe the gold is there, but I do agree that it should be audited. Again, if the gold is there, I don’t see any harm in the audit.

On your first point, I was not recommending that foreign gold in New York be converted to U.S. purposes immediately; what I was saying is that if the currency wars escalate and if we have a sequential collapse of paper currency, there may come a time – we’re not there, yet – but there may come a time in the future, when the dollar is collapsing, and in that case we will need to re-start a new currency backed by gold, which would be acceptable in world trade. And if that happens, it would make sense for the United States to commandeer not just the German gold, but all foreign gold in the United States, basically move it to a different location.

Right now it is at the Federal Reserve Bank of New York, which is an independent agency. So it would be good for the United States to in fact commandeer the gold and move it exclusive U.S. government control, away from the Fed, probably at West Point, because we have a good large gold vault there and good security. And at that point, the United States could launch a new version of dollar backed by gold and work with the Europeans, the Japanese and others to make this the new global currency that would be acceptable in world trade. In conversion of the gold we would give the Europeans some kind of treasury certificate in exchange for their gold.

Roughly 66% of the German gold reserves are located in the vaults of the NY Fed. You see them at risk in your currency war scenario?

I see them at risk in an extreme case. I do not see them at risk today or in the immediate future, but as the collapse of paper currencies progresses, the world would need another solution. There are really two competing solutions. One is a global currency backed by a global bank, such as the IMF. In effect, the G20 would reconstitute the IMF as a World Central Bank, there were already some steps taken in that direction, at which point the IMF, that I think of as the World Central Bank, would market and issue a new paper currency, probably based on SDR’s. ii That would be a way to liquify the world and get world trade revitalized. That’s one scenario.

The other scenario would be a gold backed currency, which would be in my view a lot more acceptable. The difference is that an IMF-SDR backed currency would have to be on a multi-lateral basis with large participation from the Chinese, whereas a gold backed currency could be controlled by the United States of America, in particular if we would convert the foreign gold. I would favor a solution which sees the United States in charge of the world economy.

Should Germany / the Bundesbank say to the Federal Reserve in New York City: “We want our gold back“? And do you think they might have already done so in the past without a positive outcome?

I have no information on whether Germany has ever made that request, I simply don’t know. But if I were Germany, yes, I would move my gold to a secure location somewhere in Germany, in Frankfurt or Berlin or maybe a secure facility outside one of the major cities. Remember, in the 1960’s, President Charles de Gaulle of France sent a French naval vessel to New York to pick up France’s gold.

Yes, and Germany should do the same?

Well, I think it would be prudent of Germany. Germany is a gold power. If you look at the world and say: Who are the gold superpowers?, the answer is: the United States, Germany, France and Italy. Those are the four leading gold superpowers. So if I were Germany, I would want to have my gold in Germany in order to maintain my finacial superpower status. But as long as the German gold is in New York, it is vulnerable to confiscation by the United States, which would obviously act in its own best interests in the event of a global financial panic and the collapse of paper currencies.

I’ve asked the Bundesbank recently the following question without receiving an answer whatsoever:

In the past the Bundesbank stated with regards to the German gold reserves abroad „that transportation to Germany and safekeeping in the Bundesbank’s own vaults would entail high costs.“ Can you give an estimation of those „high costs“ and an answer why it costs less to keep them safe in the U.S. / NYC than in Frankfurt and/or Mainz? iii

Is this a reasonable question, Mr. Rickards?

Well, I think it is a reasonable question, but I would say the following: On the one hand, I have no idea what the actual costs of custody in New York would be versus those in Germany, I don’t know what those numbers are, and I don’t know what the transportation costs are – but I wuld say, that those costs are miniscule relative to the risks. In other words, you can’t just look at the costs of custody in New York and the cost of custody in Germany and say that’s the basis for your decision, because that completely ignores the risks of confiscation.

Now, if you think the risk is zero, it probably makes sense to leave your gold in New York. But if you think the risk is non-trivial, if you think that in extremis your gold might be in effect neutralized by the United States and controlled by the U.S. in a form of a gold backed dollar, then if you want to participate in that global financial arrangement, you need your own gold. Just look at China – China is not storing their gold in the United States. Russia is not storing their gold in the United States. So why is Germany?

Is this also a reasonable question:

As the Bundesbank itself acknowledged last year in a statement to GATA consultant Rob Kirby, Germany keeps much of its gold at „gold trading centers“ abroad „in order to conduct its gold activities“: http://www.gata.org/node/7713.Why can’t that be done also if the gold would be on German soil? In other words: why does „the Bundesbank needs to hold gold at the various trading centers in order to conduct its gold activities“ – and especially its gold at the NY Fed? iv
So the question would be: Why does it have to be for example in New York or London?
Well, I don’t think it does. Most gold trading is done without moving the gold physically, it’s done based on certificates of ownership or in fact based on a form of warehouse receipt. So this goes back to the following point: the gold of Germany was never moved to the United States, it was always in the United States. At the end of World War 2, the United States had 20.000 tonnes, by 1970 the United States had approximately 9.000 tonnes, and by 1980 the United States had approximately 8.000 tonnes. Now what happened to the 11.000 tonnes between 1950 and 1970? The answer is, the gold was always in the United States, but the ownership changed. Some could have been moved from one U.S. location to the another, but basically it remained stationary and then accounting entries were made to ensure the change of ownership. So that’s why the gold is here today.
It was U.S. gold in 1950 at the time the Germans earned the gold due to their trade surplusses, but the gold never really went anywhere, they just made accounting entries to reflect the new German ownership.v There is no reason why that could not be done in reverse. In other words, if the gold were in Germany and Germany wanted to sell some gold to another country, then Germany could act as the depository and just make accounting entries. But I think the more reasonable point is, you wouldn’t have to move it all. I think Germany has about 3.000 tonnes. Just to give you an example: they could move, say, 2.500 tonnes to Germany and leave 500 tonnes in New York and London for trading purposes. I don’t know why you couldn’t have some reasonable solution such as that.
What do you think is the Bundesbank exactly doing in the gold market, or what things done by others in the gold market is the Bundesbank facilitating?
I don’t know. I know that is one of the most closely kept secrets of central banks. They like to say that they don’t have gold activities and they like to denegrate the role of gold in international financial transactions. But in fact, they are active. We have seen some evidence recently. It was pointed out in the last annual report of the Bank for International Settlements, the BIS based in Basle, Switzerland. There was a footnote in the financial statements, showing at least several hundred tonnes of gold repurchase agreements, basically gold loans.vi We know that the BIS acts as the agent of its members, which includes Germany and the United States.
So there is central bank gold activitiy going on through the facilities and intermediation of the BIS, there is definately proof of that, but we don’t know exactly which countries are behind it. Whether it’s the United States or Germany, I don’t have any information on that. But they are the two largest holders and there is central bank activity going on through the BIS, so one might assume that the United States and Germany are involved, but I don’t have direct evidence for that, we have just indirect evidence.
As you have mentioned, central banks are secretive in general and why do you think in particular when it comes to gold?
Because when you try to manipulate the market, the more secrecy the better.
Yes, and you think they are manipulating the market?
Yes, I think they have been at least for sixty years. The central banks don’t consider it manipulation, they consider it part of their job or part of policy, but I think from a market perspective you can best understand it as a form of market manipulation.
What is your comment on the gold policy of China and Russia?
Well, their policy is very clear, they need to acquire gold. If you look at any metric: absolute ownership of gold, gold as a percentage of total reserves, gold as percentage of GDP – if you take any metric comparing gold with some economic activity, countries like the United States and Germany are very strong, countries such as China and Russia are very, very weak. China is a paper tiger, but they’re a gold pygmy. My estimate is that Russia needs to acquire over 1.000 tonnes and China needs to acquire over 3.000 tonnes in order to achieve a gold parity with the United States of America.
The problem is gold is very thinly traded, it is a very thin market, and therefore it is very difficult to transact in the market without having adverse market impact. You would force the price to go up very rapidly if you try to very large (100-200 tonnes) purchases in the open market. So what they do is that they are capturing their domestic mining supply. Together they produce about 500 tonnes of gold per year, which is between 20 to 25 percent of the gold output of the world. What they are doing is that they say to their miners: You must sell to the central bank. In other words, they are diverting a lot of that gold from the open market to direct purchases by the central banks. Little by little, they are getting their gold supplies up, not by going to the gold market, but by capturing their domestic supply. Having said that, China is still a very large gold importer, they’ve increased their gold imports by 500 percent over the past year. vii They will continue to do that. But a lot of their activity is by in fact buying their domestic mining output rather than going to the open market.
One last question that might seem off topic at first glance: What is your opinion with regards to Max Keiser’s “Crash JPMorgan, buy silver“ campaign? viii 
I don’t really endorse campaigns targeted at particular institutions. I think that you should let the market go where it goes. If JPMorgan is short silver and silver goes up, then JPMorgan will suffer accordingly. If they have good traders and silver is going from $ 20 to $ 30 per ounce in a matter of months, then a good trader who is short would have been out of that trade a long time ago. I don’t know what JPMorgan’s silver position is, but I know what is going on with the price of silver, and if you’ve been short silver you will lose lots of money. So my view is this is not a case of targeting a specific institutions, it’s more the case of letting markets work in a free manner.But would you be bullish for silver?Well, Lars, I’m not an expert in silver as I am in gold. I spend a lot of time researching and understanding the gold market. There is surely some relationship. If your thesis is that paper currencies are in danger of collapse, and that is my view, then silver will do well along with gold. Both have always been considered monetary metals as well as commodities. So I would say yes, I think the outlook for silver is bullish, but I don’t want to go into specific forecasts, because I simply don’t know as much about it as I know about gold.Thank you very much for taking your time, Mr. Rickards!

Okay, Lars, you’re welcome.


i Max Keiser/Lars Schall: “Currency War: Germany about to lose 66% of its gold reserves“, published on October 16, 2010 under:


ii In May of 2010, Dominique Strauss-Kahn, Managing Director of the IMF, called for “a new global currency issued by a global central bank, with robust governance and institutional features,” and said that the “global central bank could also serve as a lender of last resort.” Compare Dominique Strauss-Kahn: “Concluding Remarks at the High-Level Conference on the International Monetary System”, Zurich, 11 May 2010, under:


See also Jeffrey Garten: “We Need a Bank Of the World”, published in Newsweek on October 25, 2008, under:


and Ambrose Evans-Pritchard: “The G20 moves the world a step closer to a global currency”, published in The Telegraph on April 3, 2009, under:


iii Lars Schall: “Some Justified Questions for the German Bundesbank“, published on December 1, 2010 under:


iv Ibid.

v Compare ibid. As the Bundesbank said in its official statement: “The Deutsche Bundesbank keeps a large part of its gold holdings in its own vaults in Germany, while some of its gold is also stored with the central banks located at major gold trading centres. This has historical and market-related reasons, the gold having been transferred to the Bundesbank at these trading centres.“

vi Compare for example Jan Harvey/Veronica Brown: “ANALYSIS-BIS footnote unlocks major development in gold use“, published at Reuters on July 16, 2010 under:


vii Compare “China’s gold imports increase 480%“, published at People’s Daily Online on Dember 3, 2010 under: http://english.peopledaily.com.cn/90001/90778/90859/7220475.html

From the article: “China imported nearly 210 tons of gold between January and October in 2010, an increase of 480 percent over the same period of the previous year, Shen Xiangrong, president of the Shanghai Gold Exchange, said on Dec. 2.“

See also “China Massively Buying Gold“, published at MoneyNews on December 3, 2010 under:


From the article: “The Wall Street Journal reports Friday that gold prices are soaring to record highs as a new powerful factor has emerged as a driver of that rally — China.

According to the Journal, China is now buying huge amounts of gold fearing inflation as the Federal Reserve begins a new set of quantitative easing policies. The paper’s report — ‚China Buys In to Gold’s Allure‘ — cites key data released by China’s state-run Xinhua news agency showing that China imported 209.7 metric tons of gold in the first 10 months of this year. That’s a five hundred percent increase compared to the same period in 2009.“

viii Frank Meyer/Lars Schall: “An idea of epic grandeur for ‚anyone who wants to bankrupt a bank'“, Interview with Max Keiser, published at chaostheorien.de on November 18, 2010 under:


See also Rob Kirby: “Something’s Wrong in the Silver Pit: But It’s Much Bigger than J.P. Morgan“, published at SilverSeek on December 10, 2010 under:


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