Earmarks

An exotic economic history lesson at Zero Hedge:

Earmarked gold, as Toniolo notes, “allowed for cheap and confidential transactions between central banks, as the transfer of property merely entailed a bookkeeping change by the [Bank of International Settlements].” This was a growth industry for the BIS — in 1935–1936 earmarked gold movements totaled more than 1,121 million Swiss gold francs. By 1938 – 1939 that sum had increased to more than 1,512 million.

BIS managers and directors were immensely proud of the bank’s innovative, new mechanisms for gold and foreign currency trades. But the principle behind earmarked accounts was not nearly as new as they believed. Few, if any, of the BIS directors had ever heard of the island of Yap, in Micronesia. But centuries ago its inhabitants had invented a similar system, one based on large limestone discs. The discs, known as fei, were quarried on a neighboring island and brought back to Yap by boat. The discs, the islanders decided, represented substantial wealth — enough, for example, to pay for a daughter’s dowry. But the “currency” was extremely heavy and almost unmovable. So it stayed in its place, and only the ownership changed with the agreement of the buyer and seller. In fact the stone did not even need to be present on the island. The locals’ oral tradition tells of one disc that fell off the boat into the sea. Rather like the gold deposits at the BIS accounts in London or New York — or indeed any bank nowadays — the physical existence of the submerged fei was taken as a matter of faith. The islanders simply passed the ownership of the submerged disc back and forth — until 1899 when the Germans arrived and colonized the island of Yap.

The islands’ new rulers demanded that the inhabitants repair the walkways that linked the different settlements. The locals ignored their orders, and eventually the Germans decided that they must be fined. Painting a large black cross on the most valuable fei and declaring them to be the property of the government exacted the fine. It worked. The islanders quickly fixed the paths, the German officials removed the crosses, and the islanders once again had possession of their capital assets.

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