ECB sold gold and bought dollars -- but it's not intervention


6:32p ET Tuesday, April 21, 2009

Dear Friend of GATA and Gold:

Not much is more disingenuous than central banking, as the Reuters story appended here suggests. The story reports how the European Central Bank sold gold in 2008 and purchased U.S. dollars with the proceeds, even as the story also reports that the bank "confirmed that it had not intervened in currency markets in 2008."

But of course selling gold and buying dollars are by definition interventions in the currency markets. Indeed, the very purpose of central banking is market intervention -- to prevent free markets alone from setting the value of financial instruments, particularly currencies and government bonds. When a central bank can assert that its actions in the markets don't constitute intervention and have the assertion reported without the least questioning, you may see how inadequate most financial market reporting is.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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ECB Invested 2008 Gold Sales Proceeds in U.S. Dollars

By Sakari Suoninen
Tuesday, April 21, 2009

FRANKFURT, Germany -- The European Central Bank said on Tuesday it used proceeds from gold sales to boost its U.S. dollar reserves in 2008, although dollar holdings fell as a proportion of overall currency reserves.

Its foreign currency portfolio was worth 38.5 billion euros at the end of last year compared with 32.1 billion euros at the end of 2007, the ECB said in its annual report.

The share of the currency portfolio denominated in dollars fell to 77.5 percent from 79.7 percent in 2007, while the yen's share rose to 22.5 percent from 20.3 percent in 2007, boosted by the stronger Japanese currency.

The overall increase in reserves was funded by the sales of 30 tonnes of gold, which were announced in 2008. "The proceeds of the gold sales were added to the U.S. dollar portfolio," it said in its annual report.

The yen appreciated 30.8 percent and the dollar went up 5.8 percent against the euro in 2008, the ECB said. The euro also weakened 11.4 percent against the Chinese yuan, and 10.2 percent against the Swiss franc.

The ECB also confirmed it had not intervened in currency markets in 2008. The last time it intervened was in 2000.

The overall net value of the ECB's foreign reserves rose to 49.5 billion euros at the end of 2008 from 42.8 billion at the end of 2007, due to portfolio management and the depreciation of the euro against the dollar and the yen.

Gold and special drawing rights issued by the International Monetary Fund accounted for 11 billion euros of net foreign reserves, up from 10.7 billion euros in 2007 due to a 2.6 percent rise in the value of both gold and SDRs versus the euro.

China suggested in March that the dollar could eventually be replaced as the world's main reserve currency by the IMF's SDR.

"The objectives for the management of the ECB's foreign reserves are, in order of importance, liquidity, security and return," the annual report said.

The ECB said it had no losses in foreign reserves as a result of default of counterparties.

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