Moscow Gold - Background - Status of The Gold Reserves and The Bank

Status of The Gold Reserves and The Bank

On May 1936, shortly before the start of the Civil War, the Spanish gold reserves had been recorded as being the fourth largest in the world. They had been accumulated primarily during World War I, in which Spain had remained neutral. It is known, thanks to the records and historical documentation of the Bank of Spain, that the reserves in question were, since 1931, located mainly in the central headquarters of the Bank of Spain in Madrid, though some parts were located in various provincial delegations of the Bank of Spain and other minor deposits in Paris. The reserves constituted mostly of Spanish and foreign coins; the fraction of antique gold was less than 0.01% of the total reserves. The amount of gold bullion was insignificant, as the reserves included only 64 ingots.

The value of the reserves was known at the time by various official publications. The New York Times reported on August 7, 1936, that the Spanish gold reserves in Madrid were worth 718 million U.S. dollars at the time. Such figures corresponded to 635 tonnes of fine gold, or 20.42 million troy ounces. According to the statistics of the Bank of Spain as published in the official Spanish government newspaper on July 1, the existent gold reserves on June 30, 1936, three weeks before the start of the conflict, reached a value of 5,240 million Spanish pesetas. Viñas calculated that the US$718 million of 1936 were equivalent, adjusted for inflation indexes, to US$9,725 million in 2005. In comparison, the Spanish gold reserves available in September of the same year were worth US$7,509 million.

In 1936, the Bank of Spain was established as a joint stock company (as its French and English counterparts) with a capital of 177 million Spanish pesetas, which was distributed among 354,000 nominative shares of 500 pesetas each. Despite not being a state-owned bank, the institution was subject to the control of both the government, which had the power to appoint the Bank's governor, and the Ministry of Finance, which appointed various members of the Bank's General Council.

The Law of Banking Ordination (Spanish: Ley de Ordenación Bancaria) of December 29, 1921, alternatively called Cambó Law (Spanish: Ley Cambó, named after Minister of Finance Francesc Cambó), attempted for the first time to organize the relations within the Bank of Spain as a central bank and as a private bank. The law also regulated the conditions under which the gold reserves could be mobilized by the Bank, which required the preceptive approval of the Council of Ministers. The Cambó Law stipulated that the Government had the power to approach the entity and solicit the selling of the Bank's gold reserves exclusively to influence the exchange rate of the Spanish peseta and to "exercise an interventionist action in the international exchange and in the regularity of the monetary market", in which case the Bank of Spain would participate in such action with a quantity of gold equal to that dictated by the Treasury.

Historians have questioned the legality of the gold's movement. While authors such as Pío Moa considered that the transfer of gold from the Bank of Spain clearly violated the Law, in the view of Ángel Viñas the implementation of the Cambó Law was strictly followed, based on the testimonies of the last pre-1931 Minister of Finance, Juan Ventosa y Calvell, who before the outbreak of the Civil War judged the application of the current law to be too orthodox, and viewed it as limiting the possibilities of economic growth of the country. According to Viñas, the exceptional situation created by the Civil War caused the change in attitude by the Government with respect to the Cambó Law, which moved on to exercise the necessary measures to carry out a "partial undercover nationalization" of the Bank of Spain.

The intentions of the Republican Government to place in the Bank's management individuals loyal to the Republic were solidified through the Decree of August 4, 1936, which removed Pedro Pan Gómez from the office of First Deputy Governor in favour of Julio Carabias, a move which 10 days later was followed by the removal from office of various council members and high executives. After the transfer of gold to the Soviet Union on November 21, the modification of the General Council was decreed. The Council underwent new modifications until December 24, 1937, when nine council members were substituted for institutional representatives.

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