Citigroup Sees Gold as Bitcoin, Says Swiss Gold Reserves Vote Makes No Sense

Citigroup Inc. states the initiative demanding the Swiss National Bank to store part of its assets in gold is senseless as it has no intrinsic value and is too costly to store.

Photo: ibusiness lines/Flickr

Photo: ibusiness lines/Flickr

Willem Buiter, Chief Economist at Citigroup Inc., stated that gold implies high costs on production and storage. He compared the metal with bitcoin, which have a number of similar characteristics.

Citigroup Inc. considers the initiative, called “Save Our Swiss Gold”, which requires the Swiss National Bank to keep a part of its assets in gold, is pointless. Currently the SNB hold only 7% of assets in the metal. The intention of the proposal is to improve the security and independence of Switzerland in case of uncertainty. Moreover, the SNB will not be allowed to sell any amount of gold it stores.

Buiter said: “There is no economic or financial case for a central bank to hold any single commodity, even if this commodity had intrinsic value.”

“Forbidding a central bank from ever selling any gold it owns reduces the value of those gold holdings to zero.”

“The mining of new gold and the costly storage of existing gold for investment purposes are wasteful activities, they may be individually rational. The same applies to Bitcoin. Its mining is socially wasteful and environmentally damaging,” Buiter also said.

David Andolfatto from WallStreetPit wrote: “Unfortunately, Buiter starts talking about Bitcoin, making false analogies between the cryptocurrency and gold. He should have just focused on gold.”

“Bitcoin production requires zero cost. If one had control over the protocol, one could instantly and costlessly create as many bitcoins as one wanted. No environmental waste, no effort needed. The same is not true of gold.”

“Gold miners prospect for gold. But they do not necessarily get paid in gold. In fact, if they work for gold companies, they are likely to get paid in dollars. But they could get paid in gold, or anything else, for that matter. How they get paid does not take away their basic function, which is to discover new gold.”

“Bitcoin miners, like bank tellers, process payments. Miners, like tellers, want to get paid for the service they provide. It really does not matter how they are paid. As it turns out, miners are paid in the form of newly-issued bitcoins (as well as old bitcoins offered as service fees by transactors). But this does not mean that they are “mining for bitcoin” any more than a bank teller is “mining for dollars,” he added.

With about 1,040 metric tons of gold, Switzerland is the world’s seven country in terms of the metal reserves, as shown by IMF data. Moreover, the additional purchases valued at $72.8 billion would turn the country into the largest gold holder after the US and Germany.

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