Great questions. Especially because it allows me to run straight through the institution that most people are absolutely certain they already understand, but which almost nobody does.
It all started on a windy evening in the autumn of 1907, with one very rich man and a locked library.
Before the library, though, there was the copper......
....A speculator named Heinze had decided he was going to own it all. Corner the market, squeeze the men who had bet against him, and walk away richer than God.
It held together for about an afternoon.
Then the floor gave out under him, and on his way he took his bank with him.
That’s how those things travel. One bad bet becomes a rumour, and the rumour becomes a queue.
By the time the fear reached the Knickerbocker Trust - the third-largest in New York, marble floors, the kind of place built to feel eternal - depositors were already standing around the block with their hats pulled low against the weather, waiting their turn to ask for their own money back. The Knickerbocker did not have it. Nobody ever does.
The stock market had already shed nearly half its value from the year before.
And there wasn’t anyone whose job it was to stop the bleeding.
No central bank, no emergency fund, no quiet authority to walk into the room and say enough, the money is here, go home.
There was nobody.
Well… almost nobody.....
One last thread, though, because the foreign third of those bondholders has started reading the room.
In 2022 the West froze about $300 billion of Russia’s reserves.
Every central bank on the planet took the same note: dollars held in someone else’s system can vanish by decree.
They’ve been buying gold ever since, over 1,200 tonnes last year, the third straight year above a thousand, more than forty central banks at it.
The dollar’s share of global reserves has slipped to about 57%, the lowest since the mid-90s, down from 72% at the turn of the century. Mostly due to the 10% drop in relative value of the dollar.
For now, it’s still a minority. I don’t think that the dollar will be dethroned next quarter, or even next year. Simply because there’s no rival deep enough to take its place, and even India’s foreign minister went out of his way last year to insist nobody’s trying.
Officially.
Central banks move like supertankers. By the time you can see the turn, it’s been underway for years.
Got gold?
