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Sir Teddy Taylor (Rochford and Southend, East): Does my hon. Friend think that the whole business of the instruction given to the Bank of England to switch from gold largely into euros is simply a pathetic attempt--a device--to give credibility to, and boost the value of, the Euroflop currency?
Sir Peter Tapsell: I said that I thought that that was one of the possibilities. It is certainly among those that commentators have discussed. I have never been an advocate of the conspiracy theory of history, and I tend to think that slightly more complicated issues are involved than that, but I shall return to the issue of the relationship with the euro.
The point of my remarks about the history of the issue and the fact that it has been passionately argued about for centuries, was to show the amazing contrast with the almost furtive way in which the announcement was made on 7 May. One might have expected that the Chancellor of the Exchequer would make the announcement at the Dispatch Box--but far from it. The announcement came on a Friday afternoon, in answer to a planted written question by the hon. Member for Hove (Mr. Caplin), who is not even in the Chamber today, and who has not yet had time to establish himself in the House as a leading authority on international monetary affairs. It seems extraordinary that it should have been done in that way.
Moreover, the written answer given by the Economic Secretary to the Treasury--who I am glad to see in her place--was extremely cursory and brief, and contained
only a very small part of the story. As is characteristic of the present Government, the information was contained in two press releases, each several pages long, one from the Treasury and one from the Bank of England, giving a great deal of information about the Government's intentions--vastly more than was given in the written answer--and then press conferences were held at which many questions were answered. The House of Commons was sidelined again, on this very important issue. For those reasons, the way in which the announcement was handled was disgraceful.
The immediate effect has been the loss of £400 million of our taxpayers' reserves, and so far the only beneficiaries of this event have been the foreign finance houses, which have been shorting the gold market. As I said to my hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) in all friendliness, I am not a subscriber to the conspiracy theory in any aspect of life, so I shall not go into detail about the conspiracy theories that are widely circulating in the City about that shorting of the gold market, but it is often said that some of those famous foreign finance houses have shorted gold to a huge amount--vastly greater than the tonnage of sales contemplated by the Bank of England--and that it was therefore vital for them for the gold price to fall substantially so that they could close their positions and take huge profits. I do not know whether that is true, although I think that there is no doubt that several finance houses have been shorting gold in a very large amount, so I suspect that the financial press will pursue that point with vigour in the days and weeks to come.
Everyone remembers how Mr. Soros precipitated the last Russian economic collapse by publicly declaring that, in his view, the rouble was overvalued. Not long after, he said that his funds had lost $800 million as a result of that collapse in the Russian market. I do not know whether our Chancellor has been inspired by Mr. Soros to follow in that path, but he seems to have produced a somewhat similar effect.
I have the greatest respect for the Bank of England, and it is perfectly clear that the Bank did not take the decision. I doubt whether it even favours it. It was given an instruction by the Treasury and when, at the press conference, a Bank of England spokesman was asked by a journalist whether the Bank thought that this was a good idea, that spokesman replied:
I strongly suspect that the Bank of England is now again selling at pretty near the bottom of the bear market--or what would have been the bottom if it had not made its announcement. As I said in my personal declaration of non-interest, I have never owned gold,
but in recent weeks, as the gold price has declined, I have said jocularly to friends that, if I won the national lottery, I would put half the proceeds into gold bullion with the price below $300. I believe that many people who have followed these matters with interest were thinking that it was about time that the finance houses closed their short position. It is extraordinary, as a matter of market judgment, that the Treasury and Bank of England should have chosen this very sensitive moment to step in and deal that damaging blow to market confidence.
The answer that other countries have given is extremely interesting. We have not really been told the Government's reasons for their sale, but on 26 May the Prime Minister, in answer to a question by my hon. Friend the Member for Macclesfield (Mr. Winterton), said that
The Prime Minister's answer was most misleading, as I shall show. Of the more than 100 countries that hold gold, only five, with relatively small economies, have sold. No other major economy has sold gold or intends to sell it. It must be borne in mind that the losses imposed on the British taxpayer by the Chancellor's decision have also been suffered by the French, German, Italian and American taxpayers. I cannot imagine that, when the Governor of the Bank of England next attends a cocktail party in Basle for the monthly meeting of the Bank for International Settlements, he will be the most popular chap there.
Mr. Christopher Gill (Ludlow):
I am grateful to my hon. Friend for giving way. Several times he has instanced the potential loss to British taxpayers as a result of the Bank of England selling its gold reserves. I understand that point and entirely agree with him. However, is there not another consideration? Gold and money are a store of value. If, by selling gold, the Bank of England put that value into another currency that seems unlikely to preserve the store of value for British taxpayers, would that not have a doubly deleterious effect on taxpayers' funds, first by making a loss on the transaction, and secondly by investing the proceeds in a currency where the store of value will not be retained?
Sir Peter Tapsell:
I entirely agree with my hon. Friend. I shall deal with that point later, as I intend to make a fairly comprehensive speech about gold. The point about gold, as my hon. Friend says, is that it is no one else's liability. As soon as one puts money into other stores of credit, other factors are at work.
I return to the Prime Minister's claim that so many other countries were selling gold. No major country is planning to sell gold, and other countries must be extremely irritated by the way in which the British Government have handled the matter. A series of central bank governors of major countries have issued similar statements on the subject. For example, on 19 May the governor of the Bank of France, Mr. Jean-Claude Trichet, said:
Mr. Edward Davey (Kingston and Surbiton):
I am grateful to the hon. Gentleman for giving way. Will he confirm that the average annual sales of gold by national central banks across the world over the past decade has averaged 300 tonnes a year--almost three times the amount that the Bank of England proposes to sell?
"It was a political decision."
I hope that, when the Economic Secretary replies, she will--as has not yet been done--give us all the reasons for this political decision, because the Bank of England, despite its many merits, has not always been clever at playing the market, and Governments in general are not usually very clever at playing markets. The last time that the Bank of England sold gold in sizeable quantities was in 1971, at about $40 per fine ounce. The price of gold then rocketed, reaching a peak of $850 by 1980. So when the Bank of England last sold gold, it did so at the worst possible time, and I do not know whether anyone has ever worked out the extent to which the British taxpayer was deprived of profits by that decision.
"throughout the world countries have been selling gold in order to diversify their reserves."--[Official Report, 26 May 1999; Vol. 332, c. 351.]
That is really the only ministerial statement that has been made, and that was elicited by an omnibus question by my hon. Friend.
"I will simply say that as far as I am aware--and this is not just the position of the Bank of France and our country, but also the position of the Bundesbank, the Bank of Italy and of the United States, and these are the four main gold stocks in the world--the position is not to sell gold."
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The chairman of the US Federal Reserve bank, Mr. Greenspan, speaking to the House banking committee in Washington the following day, 20 May--there was obviously co-ordination between the central bank governors--said:
"We should hold our gold. Gold still represents the ultimate form of payment in the world. Germany in 1944 could buy materials during the war only with gold. Fiat money in extremis is accepted by nobody. Gold is always accepted."
Those were the words of Mr. Greenspan, the world's most admired central bank governor. That takes up exactly the point made by my hon. Friend the Member for Ludlow (Mr. Gill). It is therefore not open to Ministers to say, as the Prime Minister said, that countries of our standing in the world are all selling gold.
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