Creative thinking solves Copenhagen crisis
Feb, 2010
Kindly re-published in University World News
A professor at Melbourne Business School has called for some simple creative accounting to solve the Copenhagen impasse.
The solution hinges on creating a multi-billion dollar fund to pay for carbon reduction schemes in developing countries.
The creative accounting involves using the difference between the book value of gold held at the International Monetary Fund (IMF) and its much higher market value.
The IMF holds bullion that was valued at just US$34/ounce when 170 countries first paid their membership. Because the IMF is charged with stabilising the world money supply and exchange rates, it was decided that its gold must remain fixed at US$34/ounce.
In the Seventies, when the market value of gold-price of gold on the streets- soared to US$900/ounce, governments around the world collectively decided to revalue the gold held in the coffers of their reserve banks to match. This benefited greatly the wealthy gold holding countries.
"At the time of agreement in 1978 to abolish the official price of gold, three-quarters of the world's reserve asset gold was owned by seven countries-the US, Germany, France, Italy, Switzerland, the Netherlands and Belgium. With central banks free to re-value their gold at market prices, the seven countries registered gains of a staggering US$358 billion. (at 1980 prices). The per capita gains to the seven countries were US$553 on average and nearly US$6000 for Switzerland.
"The equivalent figure for African countries was US$3. They held just 0.2 per cent of their reserve assets in gold."
Sampson proposes using the US$91 billion difference between the US$9 billion book-keeping value of IMF gold and its market value of $100 billion at today's prices as collateral for a carbon reduction fund for developing countries.
His logic is based on what he considers to be a legitimate claim of developing countries. Aid giving governments forced these countries to hold Treasury Bills (returning less than 3 per cent) instead of gold, as gold was an immutably "fixed priced" asset without return. "They were told that the dollar was as good as gold", Sampson says. "How wrong can you be?"
"Had these developing countries held their reserves in the same proportion as the seven gold holding countries (66 per cent), they would have been US$100 billion better off at the end of the 1970s (or $262 bn. in 2009 prices)."
Sampson lists three key justifications for using the book-keeping profits of IMF gold as collateral for a carbon reduction fund.
First, he says, using IMF gold for development purposes has already been accepted. The April 2009 G20 London meeting called for IMF gold sales to provide US$6 billion in concessional finance (not grants) for the 49 poorest countries of the world.
"At best a truly pathetic effort compared to the US$150 billion for the 15 wealthiest countries," he added.
"Second, according to the Articles of the IMF, only the US could obstruct the use of IMF gold for this purpose and finally the gold profits belong to developing countries anyway."
For more information please contact, Professor Gary Sampson, 0423841501 and (03) 9349 8161, g.sampson@mbs.edu
