Washington Agreement

The W
ashington Agreement of 26 September 1999, so-called because it was signed in Washington DC during the IMF annual meeting, could equally be called The European Agreement, for it involved solely European central banks.

Under the agreement, the European Central Bank (ECB), the 11 national central banks of nations then participating in the new European currency, plus those of Sweden, Switzerland and the United Kingdom, agreed that gold should remain an important element of global monetary reserves and to limit their sales to no more than 400 tonnes (12.9 million oz) annually over the five years September 1999 to September 2004, being 2,000 tonnes (64.5 million oz) in all.

The agreement came in response to concerns in the gold market after the United Kingdom treasury announced that it was proposing to sell 58% of UK gold reserves through Bank of England auctions, coupled with the prospect of significant sales by the Swiss National Bank and the possibility of on-going sales by Austria and the Netherlands, plus proposals of sales by the IMF. The UK announcement, in particular, had greatly unsettled the market because, unlike most other European sales by central banks in recent years, it was announced in advance. Sales by such countries as Belgium and the Netherlands had always been discreet and announced after the event. So the Washington/European Agreement was at least perceived as putting a cap on European sales.

Taking into account what has been sold and the declared intentions of those institutions that have signed up to the Agreement, the probable sales picture for the September 1999 - September 2004 period is as follows:

  Tonnes Million oz
Austria 90 2.9
Switzerland 1,300* 41.8
Netherlands 300 9.6
UK 345** 11.1
Total 2,035 65.4

* Swiss sales will probably extend over a slightly longer period
** This quantity excludes the two UK auctions that took place before the Agreement. See Markets/London/Bank of England

In addition, the Deutsche Bundesbank issued 12 tonnes (0.4 million oz) of one mark gold coins in the third quarter of 2001, using gold from its reserves. The sale during 2002 of 11 tonnes of euro-denominated gold coins was also planned by the German Finance Ministry. Further coin sales during the period through to September 2004 have not been announced but must be considered as possible if not probable. These German gold sales will almost certainly require some reduction in the sales targets of other declared sellers if the Agreement's 2000 tonne limit is to be respected. Furthermore, Germany has already signaled that it will be looking to sell a meaningful quantity of its reserves after September 2004.

The European central banks also agreed that they would not increase their gold leasing, nor any positions in futures and options. The Agreement will be reviewed after five years.