No one would quite admit it, but the
announcement yesterday by the Bundesbank that it was undertaking a huge
transport operation to move gold bars worth ¢27bn from Paris and New
York to Frankfurt signalled that the proudly independent central bank
was, for once, heeding public opinion.
Having built up the world’s second-biggest gold currency reserves after
the US since 1951, when it had no holdings, postwar Germany has never
kept most of its gold on its own -territory.
Before German reunification, as much as 98 per cent of the precious
metal was in foreign vaults, partly because it was also being earned
abroad in the form of trade surpluses, which, until the collapse of
Bretton Woods agreement in 1971, were converted by the US Federal
Reserve into gold.
The share of foreign holdings is now down to about 70 per cent following
a large, yet secret, transfer of gold from its account at the Bank of
England to Frankfurt a decade ago.
The “storage plan” announced yesterday will result in half of Germany’s
gold reserves being stored at the Bundesbank in Frankfurt and the other
half split between the New York Federal Reserve and the Bank of England,
both of which are near gold trading centres.
“To hold gold as a central bank creates confidence,” Carl-Ludwig Thiele,
a Bundesbank board member, said at a press conference. “?[We] build
trust at home and have the possibility to exchange gold at short notice
into foreign currency abroad.”
Although Mr Thiele sought to deflect suggestions that the Bundesbank was
reacting to public fears about the safety of German gold in foreign
vaults, his formal reasons – the end of the cold war and the birth of
the euro – did little to answer why the bank was changing strategy now.
During the cold war, which ended 22 years ago, the Bundesbank had wanted
to stash its gold “as far to the west as possible” in case Soviet tanks
rolled in, according to Mr Thiele.
The decision to remove every last bar of German gold from the Banque de
France in Paris was linked to the fact that France is no longer a source
of foreign exchange as both nations share the euro, which they have
done since 1999.
More recently, however, a German populace worried by a potential
break-up of the euro started asking wild questions about the gold
holdings.
The issue was then supercharged by a report by the federal Court of
Auditors that criticised the Bundesbank for having insufficient access
to the gold in foreign vaults to test and count it.
“What I still find surprising is that we don’t have any control over our
own gold,” said Rolf Baron von Hohenhau, president of the Bavarian
taxpayers’ association, who staged an online campaign dubbed “bring our
gold home”.
“We need to know if it’s really gold or is it something covered with gold?”
Mr von Hohenhau said he welcomed the repatriation of the 674 tonnes of
gold as a start but it was still too little and that the great majority
of the bullion should be in Germany. “There is no good reason why
Germany should be the only country keeping most of its gold abroad,” he
said.
Speaking at an event alongside Bill Dudley, president of the New York
Fed, in November, Alexander Dombret, another Bundesbank board member,
said the discussion about gold reserves in Germany had become “bizarre”
and “driven by irrational fears”.
“You can be assured that we are confident that our gold is in safe hands with you,” he said.
“The days in which Hollywood Germans such as Gert Fr?be, better known as
[the actor who played] Goldfinger, and [fictional Die Hard] East German
terrorist Simon Gruber, masterminded gold heists in US vaults are long
gone.
“Nobody can seriously imagine scenarios like these, which are
reminiscent of a James Bond movie with Goldfinger playing the role of a
US Fed accounting clerk.”
Perhaps not. Yet, just two months later, the Bundesbank is no longer taking any chances.
At yesterday’s press -conference, 20 bars of gold were on display amid
tight security, along with an ultrasound and X-ray device used to test
the gold’s authenticity. It was exactly the sort of meticulous
stewardship the Court of Auditors praised the Bundesbank for in its
domestic gold holdings – and criticised it for failing to undertake
abroad.
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