Adam Lebor’s “Tower of Basel”

When the Bank for International Settlements was established almost 80 years ago to administer Germany’s World War I reparation payments, making payments from one country to another was more difficult than now. Americans, or their central bank, not willing to accept payment in German reichsmarks or British pounds were paid in gold. Shipping gold around was expensive and risky.  

The Bank of England, the Federal Reserve Bank of New York and other central banks developed the practice of accepting ownership of gold deposited elsewhere without shipping it. The Federal Reserve Bank of New York, for example, physically stores gold in its vaults belonging to many other central banks and can transfer ownership from one to another by making the appropriate accounting entries in its books.

The BIS provided such payment services between Germany’s central bank and the central banks of the WWI victors receiving Germany’s payments for war damage. It ultimately expanded to provide similar services for 60 central banks earning the nickname of the central bank of the central banks.

The Treaty of Versailles signed June 28, 1919, in which the harsh terms of German reparations were established, was strongly criticized by John Maynard Keynes, among others (see his The Economic Consequences of the Peace, published in December 1919), and often cited as one of the causes of the rise of Hitler’s National Socialists and WWII.

In its own words: “The mission of the Bank for International Settlements (BIS) is to serve central banks in their pursuit of monetary and financial stability, to foster international cooperation in those areas and to act as a bank for central banks.

In broad outline, the BIS pursues its mission by:

  • promoting discussion and facilitating collaboration among central banks;
  • supporting dialogue with other authorities that are responsible for promoting financial stability;
  • conducting research on policy issues confronting central banks and financial supervisory authorities;
  • acting as a prime counterparty for central banks in their financial transactions; and
  • serving as an agent or trustee in connection with international financial operations.”

In addition, the BIS has since become an important source of international financial and trade data collected from its members.

Like other international organizations, the BIS’s founding agreements (the Hague Convention respecting the Bank for International Settlements and its Constituent Charter from the Swiss government) granted the BIS the same privileges and immunities enjoyed by other international organizations such as the IMF or World Bank. From its inception, the BIS has been headquartered in the quiet town of Basel in politically neutral Switzerland.

In his book, “The Tower of Basel” journalist Adam Lebor traces the history of the BIS and its leaders from its origins in 1930 to the financial crises of 2008 from which we have yet to fully recover. His telling is heavily skewed by his disapproval of the liberal market stance of the Bank’s leaders, his envy of the infamously lavish gatherings of central bank governors and other financial sector leaders it hosts whose discussions are usually secret, and suspicion of its political neutrality at a time (WWII) when the world was sharply divided.

Lebor cites with obvious disapproval the Swedish economist Per Jacobson’s dogmatic defense of the Washington Consensus while the BIS’s economic advisor from 1931 to 1956 before taking over the leadership of the International Monetary Fund: “He argued relentlessly against inflation, excessive government spending, and state intervention in the economy (page xvii)….

He shaped the bank’s policy recommendations of laissez-faire economics and the importance of individual responsibility over state provision (page 52)…. The collapse of the gold standard proved a boon for the BIS. It allowed the bank to focus on its founders’ intentions to build a new transnational financial system of large capital movements free from political or governmental control.” (page 42) Not able to contain himself, Lebor blurts out that: “An unelected, unaccountable and secretive financial institution was issuing policy prescriptions for democratic governments.” (176)

While the BIS hosts a number of international meetings, most famously the Basel Committee on Banking Supervision, it has no more policy-making authority of its own than your local bank. Its most famous gatherings are the monthly meetings of member central bank governors, which include dinners of fine French cuisine and good wine. The governors, who take no official decisions in Basel, are able to discuss in secret, and thus frankly, monetary policy issues affecting their and the world’s economies. Lebor, who quotes former Bank of England governor Marvin King in defense of the value of secrecy when decisions are not taken, clearly does not agree.

Lebor is particularly offended by the BIS’s professed political neutrality. “The bankers gathered at Basel were not burdened with idealism except in one respect: they wanted to work together to facilitate the free flow of international capital. They sought economic stability, low inflation and global free trade that would provide political stability and control unemployment…. The bankers may not have been immoral (apart from Schacht), but they were certainly amoral.” (page 53-4)

As the Nazi regime took hold in Germany, the horrors that were to follow where not yet even imagined. But following the German invasion and annexation of Czechoslovakia in early 1939, the BIS was resolute that political neutrality required it to execute an order from the Governor of the Czech National Bank to transfer its gold deposited with the BIS (physically) with the Bank of England to the German central bank. It was fairly obvious that the order was sent under duress but Montagu Norman, governor of the Bank of England and a strong promoter of the BIS maintained that “Political considerations must not affect the BIS’s transactions. The transfer order, he said, must go through.” (page 60)

The transfer of Czech gold to Germany became a big embarrassment to the BIS.

The value and viability of an international organization serving all of its members within its mandate in wartime is an interesting and difficult topic. A serious consideration of the pros and cons would be worthwhile. None is provided by Lebor, who prefers a backward looking innuendo filled condemnation of the struggles of the BIS to get it right. He reports that: “Thomas McKittrick, an American citizen [and president of the BIS during much of WW II], was using his position at the BIS − with the knowledge of the State Department − to try and bring Allied and Nazi businessmen together, to plan for a post-war Germany that preserved as much as possible of the country’s industry.” (page 121-2)

In these endeavors McKittrick worked closely with his friend Allan Dulles, a future director of the CIA. Lebor complains that Dulles’s motive was “dealing the death blow to the spread of Communism in western Europe.” (page 140)

“During the Second World War, the BIS had acted as an information channel between the Allies and the Axis. It served the same purpose during the Cold War, as a neutral and extremely comfortable meeting point for the Communist and capitalist worlds.” (page 202)

In referring to one of a number of German industrialists with close ties to the BIS, some of whom participated in the failed effort to overthrow Hitler, Lebor states that: “The priority was to preserve IG Farben’s factories, sites, and offices so that the chemical conglomerate could quickly resume its dominance after the hostilities were ended.” He implies that this is inappropriate behavior for firms operating in a country that has been taken over temporarily by evil men.

While parts of Lebor’s history are interesting, too much of it is a shoddy polemic. But then anyone buying a book subtitled: “The Shadowy History of the Secret Bank that Runs the World,” should have known what they were getting.


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Warren Coats
Warren Coats retired from the International Monetary Fund in 2003 where he led technical assistance missions to more than twenty countries (including Afghanistan, Bosnia, Egypt, Iraq, Kenya, Serbia, Turkey, and Zimbabwe). He was a member of the Board of the Cayman Islands Monetary Authority from 2003-10. He is currently Visiting Scholar in the Institute for Capacity Development Department of the International Monetary Fund (February 20, 2018 through April 30, 2019) and a fellow of Johns Hopkins Krieger School of Arts and Sciences, Institute for Applied Economics, Global Health, and the Study of Business Enterprise. He has a BA in Economics from the UC Berkeley and a PhD in Economics from the University of Chicago. In March 2019 Central Banking Journal awarded him for his “Outstanding Contribution for Capacity Building.” Warren CoatsT.  +1 (301) 365 0647E. [email protected]W: