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Author Topic: Moscow Gold  (Read 2627 times)
Mad_Russian
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« on: 18 February 2012, 07:30:20 »
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The term Moscow Gold (Spanish: Oro de Moscú), or alternatively, Gold of the Republic (Spanish: Oro de la República), refers to the operation by which 510 tonnes of gold, corresponding to 72.6% of the total gold reserves of the Bank of Spain, were transferred from their original location in Madrid to the Soviet Union a few months after the outbreak of the Spanish Civil War. This transfer was made by order of the government of the Second Spanish Republic, presided over by Francisco Largo Caballero, through the initiative of his Minister of Finance, Juan Negrín. The term also encompasses the subsequent issues relating with the gold's sale to the USSR and the usage of the funds obtained. The remaining fourth of the Bank's gold reserves, 193 tonnes, was transported and exchanged into currency in France, an operation which is also known by analogy as the "Paris Gold".

Since the 1970s this episode of Spanish history has been the focus of many essays and works of literature, many relying on information from official documents and records of the time. It has also been the source of strong controversy and historical debate, especially in Spain. Disagreements are centered on the political interpretation of its motivations, on its supposed usage, its effects on the development of the conflict, its subsequent influence on the exiled Government of the Republic and on the diplomatic relations between the Francoist government and the Soviet Union.

What about the Spanish Gold?

On May 1936, shortly before the start of the Civil War, the Spanish gold reserves had been recorded as being the fourth largest in the world. They had been accumulated primarily during World War I, in which Spain had remained neutral. It is known, thanks to the records and historical documentation of the Bank of Spain, that the reserves in question were, since 1931, located mainly in the central headquarters of the Bank of Spain in Madrid, though some parts were located in various provincial delegations of the Bank of Spain and other minor deposits in Paris.[10] The reserves constituted mostly of Spanish and foreign coins; the fraction of antique gold was less than 0.01% of the total reserves. The amount of gold bullion was insignificant, as the reserves included only 64 ingots.

The value of the reserves was known at the time by various official publications. The New York Times reported on August 7, 1936, that the Spanish gold reserves in Madrid were worth 718 million U.S. dollars at the time. Such figures corresponded to 635 tonnes of fine gold, or 20.42 million troy ounces. According to the statistics of the Bank of Spain as published in the official Spanish government newspaper on July 1, the existent gold reserves on June 30, 1936, three weeks before the start of the conflict, reached a value of 5,240 million Spanish pesetas. Viñas calculated that the 718 million U.S. dollars of 1936 were equivalent, adjusted for inflation indexes, to 9,725 million U.S. dollars in 2005. In comparison, the Spanish gold reserves available in September of the same year were worth 7,509 million U.S. dollars.

In 1936, the Bank of Spain was established as a joint stock company (as its French and English counterparts) with a capital of 177 million Spanish pesetas, which was distributed among 354,000 nominative shares of 500 pesetas each. Despite not being a state-owned bank, the institution was subject to the control of both the government, which had the power to appoint the Bank's governor, and the Ministry of Finance, which appointed various members of the Bank's General Council.

The Law of Banking Ordination (Spanish: Ley de Ordenación Bancaria) of December 29, 1921, alternatively called Cambó Law (Spanish: Ley Cambó, named after Minister of Finance Francesc Cambó), attempted for the first time to organize the relations within the Bank of Spain as a central bank and as a private bank. The law also regulated the conditions under which the gold reserves could be mobilized by the Bank, which required the preceptive approval of the Council of Ministers. The Cambó Law stipulated that the Government had the power to approach the entity and solicit the selling of the Bank's gold reserves exclusively to influence the exchange rate of the Spanish peseta and to "exercise an interventionist action in the international exchange and in the regularity of the monetary market", in which case the Bank of Spain would participate in such action with a quantity of gold equal to that dictated by the Treasury.

Historians have questioned the legality of the gold's movement. While authors such as Pío Moa considered that the transfer of gold from the Bank of Spain clearly violated the Law, in the view of Ángel Viñas the implementation of the Cambó Law was strictly followed, based on the testimonies of the last pre-1931 Minister of Finance, Juan Ventosa y Calvell, who before the outbreak of the Civil War judged the application of the current law to be too orthodox, and viewed it as limiting the possibilities of economic growth of the country. According to Viñas, the exceptional situation created by the Civil War caused the change in attitude by the Government with respect to the Cambó Law, which moved on to exercise the necessary measures to carry out a "partial undercover nationalization" of the Bank of Spain.

The intentions of the Republican Government to place in the Bank's management individuals loyal to the Republic were solidified through the Decree of August 4, 1936, which removed Pedro Pan Gómez from the office of First Deputy Governor in favour of Julio Carabias, a move which 10 days later was followed by the removal from office of various council members and high executives. After the transfer of gold to the Soviet Union on November 21, the modification of the General Council was decreed. The Council underwent new modifications until December 24, 1937, when nine council members were substituted for institutional representatives.

After negotiations the gold was transferred to 4 Soviet ships and transported to Odessa, Ukraine.

The gold took three nights to be loaded, and on October 25 the four vessels set out en route to Odessa, a Soviet port in the Black Sea. Four Spaniards who were charged with guarding the keys to the security vaults of the Bank of Spain accompanied the expedition. Out of the 10,000 boxes, corresponding to approximately 560 tonnes of gold, only 7,800 were taken to Odessa, corresponding to 510 tonnes. Orlov declared that 7,900 boxes of gold were transported, while Méndez Aspe stated there were only 7,800. The final receipt showed 7,800, and it is not known whether Orlov's declaration was an error or if the 100 boxes of gold disappeared.

The convoy set sail for the USSR, arriving at the port of Odessa on November 2 — the "Kursk", however, would arrive several days later because of technical problems.


Gold Transactions:


Guillermo Cabanellas[84]

Historians that have had access to the "Negrín dossier" believe that the Soviets did not abuse their position nor did they defraud the Spanish in their financial transactions. Nevertheless, in the words of María Ángeles Pons: "nothing did the Republicans obtain for free from their Russian friends", as all types of expenses and services had been charged to the Government of the Republic. However, authors such as Gerald Howson believe in the existence of a Soviet fraud in the management of the deposit in Moscow, claiming that Stalin intentionally inflated the price of the matériel sold to the Republic by manipulating the exchange of Russian rubles to U.S. dollars and of U.S. dollars to Spanish pesetas, raising the international exchange rates up to 30% and 40%.

The increased power of the communists at the time, taking advantage of the political pressure that the Soviet Union could exert having control of the gold, is occasionally mentioned among scholars. According to José Giral, even though the payments for arms and weapons had been fulfilled, the Soviet Union would not send any supplies if the government of the Republic "did not agree to first appoint important communists to police and military positions."

Ángel Viñas reached the conclusion that the gold deposits were exhausted less than a year before the end of the Civil War, being spent entirely on payment for matériel (including the costs of the operation). However, authors such as Martín Aceña and Olaya Morales criticize Viñas' hypothetical models, which in their opinion lack the evidence to fully validate them, therefore it is impossible for the time being to affirm whether Viñas' conclusion is accurate or not. If, in fact, the gold deposits were entirely sold to the Soviet Union, the fate of all the funds generated by the selling of the gold and transferred to the Banque Commerciale de l'Europe du Nord in Paris, remains uncertain, as no documents have been found, neither Soviet nor Spanish, in reference to such operations. According to Martín Aceña, "the investigation on the gold has not been fully closed." In any case, with the gold depleted, the scarce credit of the Republican Ministry of Finance vanished.

The withdrawal of the Bank of Spain's gold reserves to Moscow has been pointed out to be one of the main causes of the Spanish monetary crisis of 1937. While the gold became in practice an excellent source of funding, its usage dealt a hard blow against the coined and printed currency of the country. Nationalist efforts to expose the exportation of the gold put the government's financial credibility in question, and caused general mistrust among the public. A decree issued by the Ministry of Finance on October 3, 1936, obliging Spaniards to yield all the gold they possessed, caused widespread alarm. Even though the government denied in January 1937 that it had deposited the gold reserves abroad (vide supra), it was forced to acknowledge that it had made various payments with such gold.

Lacking a gold reserve to back up the Republican banknotes, and already suffering from significant devaluation, the Government of the Republic began to issue increasing quantities of banknotes with no backing in gold or silver, thereby increasing the overall paper money in circulation. By April 30, 1938, the number of new banknotes in circulation in Republican-controlled areas was calculated to be 12,754 million pesetas, an increment of 265.8% with respect to the 3,486 million of July 17, 1936; by then 2,650 million were in circulation in the Nationalist-controlled territory, in contrast to the approximately 2,000 million of July 1936.[98] These actions caused massive inflation, and led to the amassment of precious metals by the population. While prices increased by 40% in the Nationalist areas, prices sky-rocketed by up to 15-fold in the Republican-controlled areas. Metallic coins began to disappear and were replaced by paper or cardboard circles. Transactions with Republican banknotes became undesirable, as such notes were already highly devalued, and it was further known that, if Franco were to win the War, those banknotes would lose their full value, since they were all newly-issued series placed in circulation from the start of the War (June 1936) onwards. The State was unable to effectively respond to the lack of metallic currency, causing town halls and other local institutions to print their own provisional bonds, some of which were rejected in neighboring municipalities.

Historiography and Myth

Pablo Martín Aceña, Francisco Olaya Morales and Ángel Viñas have been among the most distinguished researchers on the topic, the last one being the first to gain access to the documentation of the Bank of Spain. At an international level, Gerald Howson and Daniel Kowalsky have had direct access to the documents of the archives of the Soviet Union opened to researchers during the 1990s, focusing their investigations on the relations between the Soviet Union and the Spanish Republic, and the deliveries of military material.

Even though the decision to use the gold reserves has not given rise to much debate or interest among historians, its final destination continues to be a motive for controversy. Authors like Viñas, Ricardo Miralles or Enrique Moradiellos defend Negrín, both as head of the Ministry of Finance and as Prime Minister (Viñas considers him "the great Republican statesman during the Civil War") and view that the sending of the gold to the USSR had a political, economic and operative rationale accepted by the Republican government. It was, according to the aforementioned, the only viable option faced with the Nationalist advance and the non-intervention of the Western democracies, making the survival of the Republic possible in an adverse international context. For these authors, without the selling of the reserves, there would not have been the slightest possibility of military resistance. On the other hand, Martín Aceña viewed the sending of the gold as a mistake that cost the Republic its financial capability: the USSR was a distant country, of opaque bureaucracy and financial functioning foreign to international norms and guarantees, in such respect that it would have been logical to send the gold to democratic countries such as France or the United States. With respect to Olaya Morales, exiled anarchist during the Francoist régime, in all of his works he described the administration of Negrín as criminal and denies the arguments and theories of Ángel Viñas, considering the "gold issue" a gigantic fraud and one of the most important factors in the Republican defeat.

Authors like Fernando García de Cortázar, Pío Moa or Alberto Reig Tapia have defined the Spanish episode of the Moscow Gold as mythical, used to justify the disastrous situation of post-war Spain.


Primary Sources:
http://en.wikipedia.org/wiki/Moscow_gold
http://forum.axishistory.com/viewtopic.php?f=32&t=172432
http://www.gutenberg-e.org/kod01/kod16.html

Good Hunting.

MR
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Mad_Russian
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« Reply #1 on: 18 February 2012, 07:33:44 »
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I first read about the transfer of Spanish Gold to the Soviet Union in the book, "The Storm Petrels". It sparked my interest enough to look for some more details. There are plenty.

The impact of the transfer of the gold reserves seems to continue having a big impact on Spain to this day.

Good Hunting.

MR
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