On the Saturday before the second Monday of every month in the gloomy, dingy cavern of the Basel railway station a scene is regularly re-enacted which could be the opening of a Hitchcock film—casual and unobtrusive, with melodramatic lights and shadows hinting at mysterious important events about to unfold.
A sleek, comfortable, brightly lit Trans-European Express glides into the station from Rome, Paris, Frankfurt, Amsterdam, or Brussels. If the master of film suspense were directing, his camera would watch the passengers swarm out of the coaches and then pan to several conservatively tailored gentlemen who descend with deliberate and distinguished self-confidence and calm. The camera would focus briefly on their faces as they move slowly down the platform, and a few in the audience would be left wondering “Where have I seen that man before?” Next it would pick up gloved hands in close-up, handsewn attaché cases with combination locks, wellpressed striped trousers, and shiny black shoes. From a distance it would watch dark tailored overcoats and black homburg hats mingle with ski parkas and fur caps and trench coats and finally disappear through the ticket barrier and out into the station square.
No flags are flying, no honor guard salutes, no bands play, no protocol chiefs are on hand, and not even a chauffeur-driven car is in sight. Indeed, these gentlemen unexpectedly ignore the taxi rank and instead pick their way purposefully between clanging trolley cars and honking automobiles, which fill the seedy little Basel Bahnhofplatz, and walk across the square to one of two old-fashioned hotels a few hundred yards from the station: the Euler to the left or the Schweizerhof to the right. But the impression is clear that they are Very Important Persons on a confidential mission— which indeed they are.
They are the governors of the principal central banks of Europe, arriving in Basel (gentlemen bankers still prefer to travel by train whenever possible) for the most powerful and secretive conclave in the world of international finance and monetary affairs—the regular monthly meeting of the board of directors of the Bank for International Settlements.
On the second weekend in May, the bankers arrived in Basel to face their sixth monetary crisis in eighteen months. It is a baleful record, which began with British devaluation of pound sterling in November, 1967. This was followed by the gold crisis of March, 1968, when the gold pool was wound up and the two-tier gold price system established; the French crisis of May-June, 1968, with the abrupt drop in French reserves and emergency measures to hold the value of the franc; the November, 1968, crisis, when francs were transferred on a massive scale into German marks; the wave of gold speculation which sent the price of gold to $49 per ounce in March, 1969; and now another $5 billion rush of speculative money into German marks all over again until the Bonn government slammed the windows with an announcement that the mark would not be revalued upward.
The central bankers wish that speculators would go away and stop speculating, but that’s like saying that if people stop dying we could do away with undertakers. In the meantime, in crisis number six, the best they could do in Basel was to go over the books once more, rerig their private emergency credit arrangements, and try to keep things stable until governments were at last ready to face up collectively to the hard political decisions which the fraying monetary system demands. It was a little like administering a sedative to a patient who needs an operation. It was a grim weekend—the more so because everybody in Basel knew that the only certainty was that when it was over, it would by no means be the last such weekend.
Central bankers have been coming to Basel ever since the Bank for International Settlements was founded in 1930, apart from the war years, when directors’ meetings were politely suspended. They used to meet in privacy and seclusion, but the monthly sessions have become much too important to the workings of the world monetary system to be ignored. For the last two years the world has lurched with alarming regularity from one monetary crisis to the next, at intervals of about three to four months, and the end is not in sight. In each case the regular get-together on the “Basel weekend” of the “bankers’ club” inevitably came into the headlines, horrifying and alarming some of its participants, boring others, and secretly pleasing a few.
In fact, the actual news value of the meetings is usually either very slight, or is couched in such highly esoteric financial jargon as to be meaningless to all but the most sophisticated readers. Even so, a simple throwaway line such as “no comment” or “we have reached agreement” afLer a B.I.S. meeting can and does have its effect on money markets or gold markets the next day, and the bankers know it. The importance of the gathering is hard to underestimate. The ten central bank directors who regularly attend are in charge of the management of three quarters of the currency reserves of the non-Communist world. The simple fact that they sit down around the same table together once every month is important in itself.
They are the governors of the banks of England, France, West Germany, Holland, Belgium, Italy, Sweden, Canada, Japan, and the Federal Reserve of the United States. The Basel weekend begins with an informal meeting in the boardroom of the Bank for International Settlements which lasts all day Sunday. There are only fifteen or seventeen men in the room: the central bank heads, several outside directors of the B.I.S., the senior managers of the B.I.S., and one interpreter. No minutes are kept, and by tradition not even any notes are taken. The bankers simply talk and listen. The lingua franca is English, although occasionally the president of the Banque de France, Jacques Brunet, calls upon the interpreter when he wishes to put a particularly intricate technical point of discussion in French.
The meeting is conducted by the governor of the Royal Bank of The Netherlands, Dr. Jan Zijlstra, who is also the chairman of the board of the B.I.S. The bankers are gathered around the table with one simple aim and a fundamental trust in the same objective: to work together without political interference to maintain currency stability in the mutual interest of all. This is not always an aim which is reinforced by their governments. But at least the members of the “bankers’ club” have managed to continue to share the most secret information in the most difficult times on each others’ currency reserves and economic and political problems and outlook, and they have agreed in secrecy among themselves on the most colossal temporary credit and borrowing arrangements to help each other out —all in an atmosphere of confidence and trust which is really unmatched in any other sphere of international cooperation or public life.
After the informal Sunday meeting, which is the real working session of the weekend, there is a formal B.I.S. board of directors meeting on the second Monday of each month, which six of the ten principal central bank directors currently attend. Meanwhile, deputy governors and specialists in foreign exchange and other matters are burrowing away on the sidelines. By Monday afternoon the Basel weekend is over, and the bankers are making their way to the airport or back across the station square to the Hauptbahnhof.
The Bank for International Settlements, which brings these men together every month, was founded as a first effort by governments to institutionalize central bank cooperation in Europe and to try to make some order out of the financial chaos of the late 1920s. To call the B.I.S. a “unique institution” is like referring to Toscanini as an “unusual conductor.” There is only one like it. It is the banker’s bank par excellence, with the essential task of doing the banking for the bankers.
“We have a balance sheet of well over $4 billion,” one of the B.I.S. staff mused, “but you know if somebody broke into the building, about all they would find here would be the small change in a secretary’s desk.”
The first immediate task given to the B.I.S. when it was founded in 1930 was the funding of the German reparations account—the Dawes and Young Plan loans. But the overall aims of the institution and its statute were fortunately broader and higher than mere reparations, and it is because of the technical foresight of the conservative but intelligent bankers who drafted the articles of establishment, and who were looking for a mechanism of cooperation, that the B.I.S. is able to play such a vital and important role in the new economic environment four decades later.
The B.I.S. is owned by the central banks, or private stockholders, of twenty-five nations—including Albania, Bulgaria, Czechoslovakia, Hungary, Poland, Rumania, and Yugoslavia, all of which were deeply involved in German reparations when the bank was established. It owns or holds a very sizable quantity of gold which it uses to support currencies. It organizes “swap credits” among central banks. It acts as a trustee for international government loans. It is a depository of funds for the European Coal and Steel Community. It operates the European Monetary Agreement’s offset credit arrangements, and acts as a banking agent for the Organization for Economic Cooperation and Development (OECD). At times it operates directly on the money markets.
The best way to picture its operations is to think in terms of a small cog set in the midst of a lot of big cogs—all of which revolve against the little cog, but cannot turn unless it is spinning. Take gold. The B.I.S. owns about $1 billion in gold, and then in addition it has on deposit another $3 billion or more in shortterm gold owned by the other central banks. None of this gold is in Basel. It is in the Federal Reserve vaults in New York, the Bank of England in London, in holding banks in Zurich, and elsewhere. It shows as an “asset” on the books of the central banks and partly as a “debit” on the books of the B.I.S.; but in the meantime the B.I.S. has a total of about $4 billion in gold with which it can operate.
Thus it will get a teletype order from the Bank of England to transfer from its gold holding at the Federal Reserve in New York x million dollars to the account of the Bank of Japan. The gold never leaves New York. The B.I.S. simply changes the accounts. The Bank of Japan gets a credit, the Bank of England gets a debit, and the gold most probably still remains on the books as held by the Bank for International Settlements. Insurance, handling charges, transportation are all saved, which is quite a lot when you are lugging a ton of gold around.
“Swap credits” and “hot money” transfers are somewhat similar. Suppose the Bundesbank in Frankfurt finds at the end of a week when it receives the regular statements from the German commercial banks that there has been a sudden excessive transfer of French francs into German marks, say $100 million. (It ran into the billions in the currency crisis of November, 1968.) This would not look like normal investment money—it would be speculative. Therefore instead of allowing this sum to go into German bonds or other investment, the German central bank would turn over a credit of $100 million to the B.I.S., which in turn would immediately lend the money to the Banque de France at a very low handling charge.
Thus, at the same time, via the B.I.S., the Germans would have a credit and the French would avoid showing a loss in reserves. Then when the speculative money flows back to France, or the French payments position improves, the Banque de France repays the B.I.S., which in turn repays the Germans, and in the meantime stability is preserved.
The building in Basel where all this takes place was once a nondescript station hotel around the corner from the Euler and the Schweizerhof, where the B.I.S. settled down when it was founded. The bank is run by a staff of 215 people (an increase of only about a dozen in the last twenty years) of fourteen nationalities. While there is no international “stacking” or organization of the staff, the general manager has always been a Frenchman and the secretary-general, or administrative head, an Italian. Currently, an American, Dr. Martin Gilbert, is the head of the bank’s monetary and economic department.
The bank’s prestige was not always high with the United States. It was, after all, founded with the German reparations problem in the forefront, and its relations with the German financial world were therefore strong. During the Nazi years and the Depression years, the B.I.S. lapsed into fairly routine minor operations, and during World War II it did all of its business by mail— but it kept up its contacts with both sides. For this reason, it was “blacklisted” by the United States Treasury as an organization trading with the enemy, and at the Bretton Woods Monetary Conference in 1944 the United States pushed through an agreement that the B.I.S. should be suppressed when the International Monetary Fund came into operation.
But the bank fought back, with support from the European central banks which had taken part in its founding. They saw a need for something more flexible and operational than the Washington-based I.M.F. It’s the difference between a checking account and a savings account, on a multimillion-dollar scale.
The I.M.F. operates on a global governmental scale, with over a hundred member governments and much procedural formality. The B.I.S. operations remain tight, flexible, and cozy, above all conducted by bankers and not governments. Secrecy, privacy, and mutual trust and confidence are the keys to its success—even though half a dozen or a dozen news correspondents now regularly show up for the Basel weekend.
Once a year the B.I.S. unbends in its public relations, and produces a very thick annual report, which is one of the best written, most astute and independent analyses of the world monetary picture which emerges anywhere. It stages an annual general meeting at the same time, in June, with a luncheon for some 200 of the top monetary experts of the world and a sprinkling of journalists, who rarely get a chance to meet such distinguished financiers as the governor of the Central Bank of Albania, Mr. Zeqir Lika. Albania’s dividend from the B.I.S. (which makes a profit and pays its shareholders like any other private institution) amounted in 1968 to something like $100,000, which may well have been its biggest single liard-currency earning.
For the rest of the time, correspondents and others curious about the big bank in Basel have to mold their bricks without much straw. A favorite opener when a banker is waylaid in the lobby of the Euler or the Schweizerhof is: “You gentlemen certainly waste a lot of time in Basel.” The classic riposte came some months ago from M. Brunet of the Banque de France when he was asked if there had been a renewal of a “gentleman’s agreement” credit for the British.
“I know of no gentleman’s agreement,” he replied exquisitely, “but there were only gentlemen present in Basel.”