(Kitco News) - The Bank for International Settlements (BIS), often called the "central bank of central banks," has played a powerful and often controversial role in shaping the global financial system for nearly a century, according to Adam LeBor, Author of 'Tower of Basel.'
Founded in 1930 to manage German reparation payments after World War I, the BIS has evolved and adapted to become a key player in international finance. However, its history is marked by secrecy, lack of accountability, and a tendency to operate beyond the scrutiny of the public and even governments.
"It was set up by international treaty and was immune from Swiss law. It has a very high level of protection – like a diplomatic organization," LeBor told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News. "Over the years, it has become more influential and more protected. And behind the scenes, it has been a major player in some of the key events of economic history in the 20th century."
Today, it has 63 member states, around 90% of the world's GDP. "Every two months, all member banks meet, and the meetings are closed to the public. The BIS argues that the central bankers need to be able to speak in confidence about things," LeBor said.
Watch the video above for insights into the mysteries of the BIS.
The early years and World War II
The BIS was established by a treaty, granting it immunity from Swiss law and a level of protection similar to diplomatic organizations. This structure, designed to ensure its independence, has also shielded it from accountability.
All the bank officials are immune under the Swiss law for life for all acts unless they do something "obviously criminal," LeBor explained. "If I did something bad on the streets of Basel and ran in there and got in there, the Swiss police couldn't come after me. So Swiss law doesn't apply there. It's the same as an embassy," he said.
During World War II, the BIS controversially facilitated transactions with Nazi Germany, raising serious ethical questions that continue to haunt its legacy. "The bank was essentially set up by two people, Montagu Norman, who was the governor of the Bank of England, and Hjalmar Schacht, who was the governor of the Reichsbank. Later on, Schacht became the Minister of Economics for the Nazis," LeBor described.
Despite calls for closure after the war, the BIS survived, leveraging its connections and expertise to secure a place in the post-war financial order. For more details, watch the video above.
The post-war era and the euro
The BIS reinvented itself in the post-war era, playing a crucial role in creating the euro. Its work on harmonizing European exchange rates, conducted largely behind closed doors, paved the way for the single currency.
"Without the BIS, there would be no Euro. Everyone thinks the euro popped up and was suddenly the currency used by all these different countries. But decades of preparatory work had gone into the project before the euro could be introduced," LeBor pointed out. "The whole of Europe's current financial architecture and monetary architecture in terms of currencies has come out of the BIS."
For more on how this happened, watch the video above.
The London Gold Pool and market manipulation
In 1961, the BIS played a central role in establishing the London Gold Pool, a secretive cartel of central banks that sought to manage the price of gold and prevent it from rising above that official $35 an ounce peg. "These immensely influential people were taking very important decisions about the global financial system behind the scenes," LeBor said.
Watch the video above to learn how the price of gold was manipulated and how the London Gold Pool later collapsed.
Basel Accords
The BIS hosts the Basel Committee, which sets regulations for commercial banks worldwide. These regulations, known as the Basel Accords, directly impact commercial banks, and thus individuals and businesses, by affecting the availability and cost of credit.
In 2019, the BIS designated gold as a tier-one asset under the Basel Accords, increasing its importance in the banking system. Watch the video above to learn why this was significant.
Central bank digital currencies and a new global order
The BIS has actively promoted the development and adoption of central bank digital currencies (CBDCs). Its Innovation Hub has worked on Project mBridge, a multi-CBDC platform – a collaboration launched in 2021 between the BIS and the central banks of China, Hong Kong, Thailand and the United Arab Emirates. The project was also joined by the Saudi Arabian central bank in June and has many observing members.
Since this video was recorded, the BIS announced it would quit Project mBridge. "The BIS is leaving that project not because it was a failure or not because of political considerations but mostly because we have been involved for four years, and it is at a level where the partners can carry it on by themselves," BIS General Manager Agustin Carstens said at the end of October.
Proponents of CBDCs argue that they offer benefits such as increased efficiency and reduced risk of money laundering. However, critics raise concerns about privacy, control, and the potential for censorship and surveillance.
Watch the video above for insights on BIS's involvement in Project mBridge and what it could mean for shaping a new global financial order.
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