two months, the Central Bank of Spain (Banco de España) has sold off 20% of its
gold reserves, equivalent to 80 tonnes of pure gold, and worth about 2 billion
dollars. Experts close to the Banco de España have characterized these sales as
mere “technical adjustments of the reserves” but the fact is that the Spanish
gold holdings, which in March of 2004 held eleventh place in the world’s
ranking with 523 tonnes, have been reduced to little more than 300 tonnes.
vertiginous fall of gold reserves in Spain is not just another decline,
because, since 2004, it has plummeted 60%; this drop can hardly be attributed
to “technical adjustments” as the Banco de España claims.
necessary to clarify that it is an error to perceive the gold reserves as
something obsolete and without strategic interest just because Spain is in the
European Monetary Union and enjoys the euro’s protection. None of the great
economies inside the Eurozone has significantly altered their strategic
holdings; indeed, they have kept them at full strength since the launch of the
euro because each national bank must act as lender of last resort in the event
of a crisis and the European Central Bank (ECB) may intervene only if an
incidental crisis spreads across the eurozone.
policy of selling off gold can only be understood if one considers that Spain’s
current account deficit has ballooned to 9.5% of GDP, reaching almost 9 billion
euros in March alone. The Spanish trade deficit is out of control. It is the
worse deficit in the country’s history and worse than in any other country in
the world in relative terms.
the gold reserves? The government could have used other more effective means to
give liquidity to the current account balance without having to sell strategic
assets. But that would damage the public’s perception of Spanish Prime Minister
Jose Luis Zapatero’s economic management because the public deficit would
increase and thus finish with the impression of a surplus, as well as with the
fiction that the economy continues to go full speed ahead due to the
government’s good administration. Selling off the gold reserves looks more like
a maneuver so that the unpleasant part of our economy, being that we spend much
more than we produce, remains unnoticed – while in technical terms, we
enjoy a fiscal surplus and have a government staging good economic management.
Banco de España has done is similar to the situation of a family that resorts
to selling off jewels instead of requesting a loan. There are no debts, but
neither is there any backup to face unusual situations.
present government has always despised the trade deficit because they consider
it like one disturbing and inevitable consequence of economic growth for which
there is no cure. Spain, with better growth than the European average, has a
negative foreign trade balance reaching more than 7 billion euros every month,
almost 10% of its GDP.
of the growth, the Spanish economy is far from excellent and there are enormous
risk factors that can accelerate the end of the growth and economic bonanza we
The private sector has amassed the equivalent of 600 billion dollars in debts.
The mortgage debt is more than 120% of disposable income, being almost all of
it, 96%, on floating interest rates.
The construction sector accounts for 20% of GDP according to Morgan Stanley (in
the case of Germany after reunification, it was not more than 14% and,
according to some analysts, this was the key to the German economic depression
that it has just overcome.)
possible that the Banco de España, the bank of banks, may need liquidity to
finance even further the credit expansion for financial institutions and that
the bank does it by taking advantage of the attractive prices for gold right
now. But it does not seem reasonable that selling off 20% of the reserves is a
simple “adjustment” when, in addition, this happens at a moment when having
strong strategic reserves seems more advisable.
the Banco de España is an autonomous entity, independent of the Executive
branch. However, in practice, Miguel Ángel Fernández Ordóñez’s appointment,
ex-State Secretary for Economic Affairs of the current government, casts a
shadow of suspicion on this body and its potential performance.
If we take
into consideration the meddling carried out by the Zapatero administration in
all of the Spanish regulatory bodies during this legislature, it becomes very
difficult to give the benefit of the doubt to the Banco de España. Indeed, it
is startling to see that it has taken the decision to dump the holdings at a
vulnerable moment, falling to 13.2 billion euros, equivalent to just 12 days of
gold sales, Spain reduces its ability to face a financial crisis, something
that could be a reality in the case of an abrupt housing slump that could
affect the stock market and, with complete certainty, the banking system due to
default in payments. In similar cases, for example in Japan during the 90’s,
the government could barely uphold its banking system but since it had strong
holdings, it could guarantee deposits. That would not be possible in Spain
because of its much-reduced reserves.
be convenient to get a clear explanation behind the reasons that have driven
the Banco de España – which it is not this government’s bank – to sell part of
the national assets that should have been managed in an effective and
beneficial way for the Spanish people and not to finance the trade deficit.
They should explain why they have sold off gold (at a time when Asian central
banks, like those of China or Japan, continue hoarding gold) and above all,
what they have done with the money and why they took such decision.
does it seem logical that, since 2004, Spain has become the biggest seller of
gold in relative terms with a volume drop of almost 60% (not in value, due to
the continuous price rise).
sale makes us think that perhaps the government’s triumphalism when it comes to
speaking about economic results is not justified. That is why one cannot
understand actions that weaken Spain’s standing in the face of a possible
be a real pity if, in order to solve the current account deficit, the
government applies a simple measure such as the partial sale of gold reserves,
instead of applying structural reforms that could produce more competitiveness
for our economy.