Ten times a year— once a mouth except
in August and October— a small elite of well dressed men
arrives in Basel, Switzerland. Carrying overnight bags and
attache cases, they discreetly check into the Euler Hotel,
across from the railroad station. They have come to this
sleepy city from places as disparate as Tokyo, London, and
Washington, D.C., for the regular meeting of the most exclusive,
secretive, and powerful supranational club in the world.
Each of the dozen or so visiting members has his own office
at the club, with secure telephone lines to his home country.
The members are fully serviced by a permanent staff of about
300, including chauffeurs, chefs, guards, messengers, translators,
stenographers, secretaries, and researchers. Also at their
disposal are a brilliant research unit and an ultramodern
computer, as well as a secluded country club with tennis
courts and a swimming pool, a few kilometers outside Basel.
The membership of this club is restricted
to a handful of powerful men who determine daily the interest
rate, the availability of credit, and the money supply of
the banks in their own countries. They include the governors
of the U.S. Federal Reserve, the Bank of England, the Bank
of Japan, the Swiss National Bank, and the German Bundesbank.
The club controls a bank with a $40 billion kitty in cash,
government securities, and gold that constitutes about one
tenth of the world's available foreign exchange. The profits
earned just from renting out its hoard of gold (second only
to that of Fort Knox in value) are more than sufficient to
pay for the expenses of the entire organization. And the unabashed
purpose of its elite monthly meetings is to coordinate and,
if possible, to control all monetary activities in the industrialized
world. The place where this club meets in Basel is a unique
financial institution called the Bank for International Settlements-or
more simply, and appropriately, the BIS (pronounced "biz"
THE BIS was originally established
in May 1930 by bankers and diplomats of Europe and the United
States to collect and disburse Germany's World War I reparation
payments (hence its name). It was truly an extraordinary arrangement.
Although the BIS was organized as a commercial bank with publicly
held shares, its immunity from government interference, and
even taxation, in both peace and war was guaranteed by an
international treaty signed in The Hague in 1930. Although
all its depositors are central banks, the BIS has made a profit
on every transaction. And because it has been highly profitable,
it has required no subsidy or aid from any government.
Since it also provided, in Basel,
a safe and convenient repository for the gold holdings of
the European central banks, it quickly evolved into the bank
for central banks. As the world depression deepened in the
Thirties and- financial panics flared up in Austria, Hungary,
Yugoslavia, and Germany, the governors in charge of the key
central banks feared that the entire global financial system
would collapse unless they could closely coordinate their
rescue efforts. The obvious meeting spot for this desperately
needed coordination was the BIS, where they regularly went
anyway to arrange gold swaps and war-damage settlements.
Even though an isolationist Congress
officially refused to allow the U.S. Federal Reserve to participate
in the BIS, or to accept shares in it (which were instead
held in trust by the First National City Bank), the chairman
of the Fed quietly slipped over to Basel for important meetings.
World monetary policy was evidently too important to leave
to national politicians. During World War 11, when the nations,
if not their central banks, were belligerents, the BIS continued
operating in Basel, though the monthly meetings were temporarily
suspended. In 1944, following Czech accusations that the BIS
was laundering gold that the Nazis had stolen from occupied
Europe, the American government backed a resolution at the
Bretton Woods Conference calling for the liquidation of the
BIS. The naive idea was that the settlement and monetary-clearing
functions it provided could be taken over by the new International
What could not be replaced, however,
was what existed behind the mask of an international clearing
house: a supranational organization for setting and implementing
global monetary strategy, which could not be accomplished
by a democratic, United Nations-like international agency.
The central bankers, not about to let their club be taken
from them, quietly snuffed out the American resolution.
After World War 11, the BIS reemerged
as the main clearing house for European currencies and, behind
the scenes, the favored meeting place of central bankers.
When the dollar came under attack in the 1960s, massive swaps
of money and gold were arranged at the BIS for the defense
of the American currency. It was undeniably ironic that, as
the president of the BIS observed, "the United States, which
had wanted to kill the BIS, suddenly finds it indispensable."
In any case, the Fed has become a leading member of the club,
with either Chairman Paul Volcker or Governor Henry Wallich
attending every "Basel weekend."
Originally, the central bankers sought
complete anonymity for their activities. Their headquarters
were in an abandoned six story hotel, the Grand et Savoy Hotel
Universe, with an annex above the adjacent Frey's Chocolate
Shop. There purposely was no sign over the door identifying
the BIS, so visiting central bankers and gold dealers used
Frey's, which is across the street from the railroad station,
as a convenient landmark. It was in the wood-paneled rooms
above the shop and the hotel that decisions were reached to
devalue or defend currencies, to fix the price of gold, to
regulate offshore banking, and to raise or lower short-term
interest rates. And though they shaped "a new world economic
order" through these deliberations, according to Guido Carli,
the governor of the Italian central bank,, the public, even
in Basel, remained almost totally unaware of the club and
In May 1977, however, the BIS gave
up its anonymity, against the better judgment of some of its
members, in exchange for more efficient headquarters. The
new building, an eighteen story-high circular skyscraper that
rises over the medieval city like some misplaced nuclear reactor,
quickly became known as the "Tower of Basel" and began attracting
attention from tourists. "That was the last thing we wanted,"
Dr. Fritz Leutwiler, its president told me, when I interviewed
him in 1983. "If it had been up to me, it never would have
been built." While we talked, he kept his eyes glued to the
Reuters screen in his office, which signaled currency fluctuations
around the globe.
Despite its irksome visibility, the
new headquarters does have the advantages of luxurious space
and Swiss efficiency. The building is completely air-conditioned
and self-contained, with its own nuclear-bomb shelter in the
sub-basement, a triply redundant fire-extinguishing system
(so outside firemen never have to be called in), a private
hospital, and some twenty miles of subterranean archives.
"We try to provide a complete clubhouse for central bankers
... a home away from home," said Gunther Schleiminger, the
supercompetent general manager, as he arranged a rare tour
of the headquarters for me
. The top floor, with a panoramic
view of three countries, Germany, France, and Switzerland,
is a deluxe restaurant, used only to serve the members a buffet
dinner when they arrive on Sunday evenings to begin the "Basel
weekends." Aside from those ten occasions, this floor remains
On the floor below, Schleiminger and
his small staff sit in spacious offices, administering the
day-today details of the BIS and monitoring activities on
lower floors as if they were running an out-of-season hotel.