Should the ECB buy gold this year?

SeanW

Hi everyone;

My understanding of Central Banking is somewhat limited as in I'm not an economist, but as I understand it the way a CB works is they create the money supply and make a profit lending all new (and existing) money at interest. In our case, the ECB returns a pro-rata share of its profits to the Eurozone national CBs every year.

To restore some of the credibility the Euro has lost in the last few months (it has depreciated 15 cents against the US$ which is a currency that could soon be in freefall itself, against gold, the Euro has gone from about €770/troy ounce to €900/ounce since January) would it be a good idea for the ECB to retain some profits this year to buy precious metals, rock bottom price real estate and suchlike hard assets? Or am I living in la-la land?

Overheal

Isnt there an argument to be made that a lower currency promotes trade? At least it did when the dollar dropped, as it has done since 2003.

What we probably really want is a close to 1:1 with the EUR:USD

SeanW

The problem is that if everyone depreciates their currency to promote exports/reduce imports, you end up with a "who can print the most money" compeition, which nobody wins but inflation would destroy everyones savings.

I believe that the pre 2010 Euro strength was a deliberate policy of tight fiscal control by the Germans, apparently the ECB HQ is just down the road from the Bundesbank. I'm almost certain the current ECB people do not think recent events have been good for the Eurozone, or they would have depreciated the currency themselves via Quantitative Easing back in 2009.

ei.sdraob

if they want to restore credibility

then eject Greece out of it

keep ejecting countries that have politicians who are not willing to better manage the economies and stick to the rules they have signed up to

Max Power1

ei.sdraob wrote: »

if they want to restore credibility

then eject Greece out of it

keep ejecting countries that have politicians who are not willing to better manage the economies and stick to the rules they have signed up to

while i agree with that, Ireland could well be next in line under such a policy.

ei.sdraob

Max Power1 wrote: »

while i agree with that, Ireland could well be next in line under such a policy.

And that's exactly why its needed since it will rather sharply focus the minds of the governments on the economy and the imbalances they have sown

The again maybe the plan to bailout Greece was given a green light, knowing that it will weaken the euro somewhat without resorting to printing of money?

SeanW

I disagree, we all know that when one decides to devalue their currency, you can have a lot off fun doing that.

A loose ECB policy might look something like this:
To Germany/France: "Hey, you guys have a huge stock of debt. Want to convert some of that to ECB-rate bonds? Sehr Gut and Sacre Bleu!"
To Ireland: "Want to build that Dublin Metro or other infrastructural projects? Borrow from us!"

Heck they could probably have printed the money Greece needs with a smaller detrimental effect on the Euros' value than the selling of last few months have had. Market confidence can be like a blank cheque if you have enough of it - like the US$ (for now) - which is why I doubt the people running the Euro would have chosen a "convince people to sell Euros" approach.

If I'm right and the ECB maintains a tight policy, I still think they ought to buy hard assets (out of profits, not new currency) to demonstrate to the markets their interest in such tight policy.