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Ireland's political and cultural magazine
34 July 2022
T
HE NEW York based financial and
media company, Bloomberg, noted
that the Irish Central Bank had
bought two tonnes of gold in late
2021. In the first quarter of 2022, the
Bank further increased its gold holdings to 12
metric tonnes, thus — extraordinarily —
doubling its gold reserves over the past twelve
months. The recent increase in gold holdings
was the first for over ten years.
While the Central Bank does not publish
reasons for its purchase of gold, it may be
related to the rapid increase in the rate of
inflation, now above 7 per cent, the highest
rate for over 20 years. Increasing gold holdings
may also be related to global uncertainty
about exchange rates that has been amplified
by the Ukraine-Russian crisis. In a written
reply to a Dáil question from Independent TD,
Carol Nolan, Finance Minister, Paschal
Donohoe, said that the Central Bank had
increased its holdings of gold during 2021
and early 2022 “as part of the diversified
longer-term investment strategy for the
discretionary investment assets aimed at
improving balance sheet resilience”.
The main contributor to current inflation is
energy prices. But other prices, including
grain and raw materials, are feeding inflation.
Gold is a proven safe asset and a store of value
when inflation, and uncertainty, grips. Another
reason to hold gold was given by President
Hoover in his remark to Franklin D. Roosevelt:
“We have gold because we cannot trust
governments”.
Ireland has
quietly doubled
its stocks of gold
By Finola Kennedy
The Central Bank hedges against inflation —
though Ireland’s holding per capita is still
only one sixteenth of Germany’s
Minister for Finance, it was argued that gold
did not earn interest.
In the course of the debate one of the few
critics of the sale of gold was Labour Party TD
and UCD Economics Professor John O’Donovan.
O’Donovan believed that the price of gold
would inevitably rise. Like many prophets, he
was ignored.
When Ireland joined the Euro area in 1999,
a condition of joining was to give some gold to
the European Central Bank to form part of the
reserves for the new currency. The gold
holdings of individual member states vary
today with Germany holding over 3,000 tonnes
and Ireland now holding 12 tonnes.
Holding gold as part of the reserves of the
Central Bank and linking the value of a currency
to a particular gold value are distinct matters.
When the Irish pound was linked at par with
sterling there was a period when the Irish
pound was indirectly linked to the gold
standard, that is, until sterling left the gold
standard in 1931 during the Great Depression.
There is an Irish footnote to the departure of
the dollar from the gold standard two years
later in 1933. As it happened Keynes came to
Dublin to deliver the Inaugural Finlay lecture
in UCD, named after the first Professor of
Political Economy in the College, Thomas
Finlay, SJ. The lecture was followed by a dinner
that evening, hosted by Professor of Political
Economy, George O’Brien, at which one of the
guests was Oliver St John Gogarty.
During the meal Keynes was called to the
telephone. When he came back, he said,
“You may be interested to know that the
United States has just left gold”. Gogarty,
also identified as “Stately, Plump Buck
Mulligan” of ‘Ulysses’, responded: “Does
that matter?”. The answer is still not clear.
In any event the recent purchase by the
Central Bank brought to mind the time when
the Irish Central Bank sold most of its gold. As
the Second World War approached, substantial
quantities of gold had been purchased by the
Irish Currency Commission, the forerunner of
the Central Bank. Some further purchases of
gold took place several years later in the 1960s
when Maurice Moynihan was at the helm at the
Central Bank of Ireland.
When T K Whitaker became Governor in 1969
there was a move out of gold and into foreign
exchange. In 1969-70 when the Irish Central
Bank opted to sell the bulk of its gold holdings,
the price of gold had been static since 1935
when the price was fixed at $35 dollars an
ounce.
But the price was about to take o. By 1980
it was $615 dollars an ounce. The price
fluctuated during the 1980s and 1990s but by
2010 was $1,225 an ounce. Today gold is
valued at over $1,700 dollars an ounce, or
nearly fifty times the price in 1970.
With the benefit of hindsight, it can be
argued that, having held gold for so long at a
fixed price, 1969-70 was the time to continue
to hold.
Most of the Irish gold reserves — nearly 50
tonnes — were sold between 1969 and 1970.
Today, following the recent purchases, we hold
about 12 tonnes. In terms of the increase in
the price of gold, the period 1969-70 when the
Central Bank sold gold turned out to be the
worst possible time to sell.
The sale attracted hardly any attention at
the time. In a Dáil Debate on Exchange Control
in December 1970, when George Colley was
POLITICS
