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| The Most
Powerful Bank You Have Never Heard Of |
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| March 2006 |
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| You know banks
like Citibank, Bank of America, Wells Fargo, etc. You read about the World
Bank and the International Monetary Fund (IMF), even if you’re not quite
sure what they do (not to worry—they’re a little confused, too). And you’re
probably aware that the Federal Reserve is neither federal nor a reserve,
but a consortium of privately owned banks. Chances are, though, that you’ve
never even heard of what is arguably the most powerful financial institution
on earth, the Bank for International Settlements (BIS). |
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| The BIS is
headquartered in Basel, Switzerland. It was founded in 1929, for the purpose
of overseeing reparation payments owed by Germany as a result of the Treaty
of Versailles that ended World War I. It’s been with us ever since, and
its mission has, to put it mildly, grown a bit. |
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| A banker’s
bank, the BIS does no direct business with individuals, governments, or
corporate entities. |
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| Instead,
it deals solely with member nations’ central banks (most of which are privately
owned). There are 55 of them at present, and the list includes every central
bank of consequence in the world. |
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| All members
are owners and have voting privileges, in proportion to the number of shares
they have. (Private citizen ownership was originally allowed, and comprised
about 14% of shares outstanding, but in 2001 all of those were bought out
by the central banks.) We were unable to pin down the exact present
share structure, but it can be assumed that the founding members have the
most clout. |
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| The founders
were the central banks of Belgium, France, Germany, Italy, Japan and the
U.K., all of which got an identical number of shares. The U.S. Federal
Reserve was not an original shareholder; however, three American banks
(J. P. Morgan, First Bank of New York, First Bank of Chicago) each
got the same number, giving the U.S. three times the voting power from
the outset. |
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| Management’s
inner circle is of course the Board of Directors. There are six ex officio
(i.e., permanent) members, the central bank governors of Belgium,
France, Germany, Italy, and the U.K., plus the chairman of the Fed. |
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| These six
appoint six others of their own nationality, and then there can be up to
nine more elected members (there are five at the moment, representing
Canada, Japan, the Netherlands, Sweden and Switzerland). Ben Bernanke
has thus just replaced Alan Greenspan as the U.S.’s ex officio rep, and
his appointed American sidekick is New York Bank President Timothy Geithner. |
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| So, what does
the BIS do these days? According to the bank’s website, “BIS . . . fosters
international monetary and financial cooperation and serves as a bank for
central banks . . . by acting as: a forum for discussion and decision-making
among central banks and within the international financial and supervisory
community; a centre for economic and monetary research; a prime counterparty
for central banks in their financial transactions; and agent or trustee
in connection with international financial operations.” |
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| That is, it
helps central banks construct and implement financial policy decisions,
in concert with one another. And it acts as a third party in transactions,
facilitating the flow of money and other financial instruments, including
gold. |
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| Putting it
succinctly: “Promoting monetary and financial stability is one key objective
of the BIS,” although it would probably be more accurate to call that
the key objective. The bank sees as its primary job the stabilization of
world financial markets. |
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| It accomplishes
this through control of currencies. It currently holds 7% of the world’s
available foreign exchange funds, whose unit of account was switched in
March of 2003 from the Swiss gold franc to Special Drawing Rights (SDR),
an artificial fiat “money” with a value based on a basket of currencies
(44% U.S. dollar, 34% euro, 11% Japanese yen, 11% pound sterling). |
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| The bank also
controls a huge amount of gold, which it both stores and lends out, giving
it great leverage over the metal’s price and the marketplace power that
brings, since gold is still the only universal currency. |
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| BIS gold reserves
were listed on its 2005 annual report (the most recent) as 712 tons.
How that breaks down into member banks’ deposits and the BIS personal stash
is unknown. |
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| By controlling
foreign exchange currency, plus gold, the BIS can go a long way toward
determining the economic conditions in any given country. Remember that
the next time Ben Bernanke or European Central Bank President Jean-Claude
Trichet announces an interest rate hike. You can bet it didn’t happen without
the concurrence of the BIS Board. |
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| Obviously,
this bank wields a lot of power. But are they good guys or bad guys? In
their own estimation, unsurprisingly, they are the white hats. They work
to prevent chaos and, as they put it, address “imbalances” in the
increasingly interconnected global financial marketplace. They derail panics
and currency meltdowns when they can. |
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| While we at
WWNK generally prefer that private interests do things that government
would like to get its hands on (and screw up), we are also free-marketers,
and therefore uneasy with any entity, public or private, that can tamper
with the free market. Preventing a currency meltdown may be a good thing,
or it may not. A devaluation may be just what a country’s money needs.
Not to mention that we can’t ignore a simple corollary: anyone with the
power to prevent a currency debacle can also cause one. |
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| Another
negative is that the BIS can cooperate with governments on transactions
that said governments would rather keep out of the public view. For
example, U.S. taxpayer monies can be passed through BIS to the IMF and
from there anywhere. In essence, the BIS launders the money, since there
is no specific accounting of where particular deposits came from and where
they went. |
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| This is
what happened during the Brazilian panic of 1998, when the IMF, courtesy
of American workers, bailed that country out. Not incidentally, our taxpayers
were generally unaware that what they were mostly doing was subsidizing
the large American banks (Citigroup, J. P. Morgan Chase and FleetBoston
among them), which had made a lot of risky loans and didn’t feel like
paying a penalty for their mistakes. |
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| Maybe we’d
feel better about the BIS if it were more transparent, but most everything
about it, including its bi-monthly member and board meetings, is shrouded
in secrecy. And perhaps more worrisome is that the BIS is free from oversight.
By rights granted under its agreement with the Swiss Federal Council, all
of the bank’s archives, documents and “any data media” are “inviolable
at all times and in all places.” Furthermore, officers and employees
of BIS “enjoy immunity from criminal and administrative jurisdiction,
save to the extent that such immunity is formally waived ... even after
such persons have ceased to be Officials of the Bank.” |
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| Finally, no
claims against BIS or its deposits may be enforced “without the prior
agreement of the Bank.” |
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| In other words
they can do whatever they want, without consequences. How’s that for a
leak-proof legal umbrella? |
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| But in
the end, how you feel about the BIS may come down to how you feel about
a one-world currency. The bank was a major player promoting the adoption
of the euro as Europe’s common currency. |
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| There are
rumors that its next project is persuading the U.S., Canada and Mexico
to switch to a similar regional money, perhaps to be called the “amero,”
and it’s logical to assume the bank’s ultimate goal is a single world currency. |
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| That would
simplify transactions and really solidify the bank’s control of the planetary
economy. |
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| Will the day
ever come when the earth is flooded with fiat “globos?” We sincerely
hope not. And, as the recent transnational rush to turn paper into gold
suggests, the market is beginning to agree with us. |
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