Over two years ago, the US Clearing house of the CME, the world's largest derivatives marketplace, had no choice but to allow gold as collateral. Why: because as we showed some days ago, while in Europe bank deposits are expansive, in the US, financial system funding relies primarily on mythical assets as liabilities, i.e., those that exist primarily due to faith in the system, something which has been in short supply, as a result of which the $15 trillion (down from a peak of $23 trillion) shadow banking system long used to fund regular operations, has been imploding.
Couple that with a scarcity of other (re)pledgeable assets which in the US do not, unlike the UK, have an infinite rehypothecation chain, and one can see why back in October 2009 the CME had no choice but to accept gold as eligible collateral for clearing purposes.
As of minutes ago, the European arm of CME Clearing has folded too, and has released a press release stating that it to0 "has extended the range of eligible collateral types to include gold bullion." Of course, this is the same gold bullion that Germany will be seeking to "repo" in exchange for sovereign bail outs as Europe's periphery continues to run out of endogenous money and has to increasingly rely on the benevolence of the Bundesbank.
For now all we need to know is that another exchange just threw in the towel and admitted that contrary to Bernanke's stern position, gold is, indeed money.
Full press release:
CME Clearing Europe, the London-based clearing house wholly-owned by CME Group, the world's leading and most diverse derivatives marketplace, today announced it has extended the range of eligible collateral types to include gold bullion.
The extension offers additional flexibility at a time when high quality collateral is at a premium and the clearing of over-the-counter (OTC) derivatives is increasing. CME Clearing Europe has followed the lead of CME Clearing, which has accepted gold to cover margin requirements since October 2009.
Launched in May 2011, CME Clearing Europe currently clears OTC commodity derivatives and plans, subject to regulatory approval, to introduce OTC Interest Rate Swap clearing later this year.
CME Clearing Europe
CME Clearing Europe is an FSA regulated, multi-asset class clearing house based in London that offers more than 200 OTC products for clearing. Its clearing model ensures stability and increases transparency in the OTC markets that it clears. CME Clearing Europe has its own dedicated staff, and its governance arrangements, capital and default resources are separate from those of CME Clearing in the US. As part of CME Group it nonetheless has full access to the to the clearing and risk management expertise, systems and financial strength of CME Clearing. More information can be found at www.cmeclearingeurope.com