The Bundesbank understandably offered few details as to the timing of or methods to be used in the move, which presumably will occur with secret, well-guarded trucks from Paris and in numerous small batches by plane from New York.
Tuesday, January 22, 2013
Neil Irwin
The Bundesbank understandably offered few details as to the timing of or methods to be used in the move, which presumably will occur with secret, well-guarded trucks from Paris and in numerous small batches by plane from New York.
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Why Germany wants its 674 tons of gold back
ReplyDeleteby Neil Irwin
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/01/16/why-germany-wants-its-674-tons-of-gold-back/
Movie scriptwriters, rejoice!
ReplyDeleteGermany’s central bank will relocate 54,000 solid gold bars, worth about $36 billion, from deep underneath the Federal Reserve Bank of New York and the Banque de France in Paris to the safe confines of German soil — vaults at the Bundesbank’s Frankfurt headquarters.
The Bundesbank understandably offered few details as to the timing of or methods to be used in the move, which presumably will occur with secret, well-guarded trucks (from Paris) and in numerous small batches by plane from New York. Presumably, it will make sure the villain from “Die Hard: With a Vengeance” is accounted for before the move, along with the “Ocean’s 11″ gang. And whatever happened to Auric Goldfinger?
But while the notion of billions of dollars in gold bars being transported across the Atlantic and the Franco-German countryside triggered a thousand heist jokes on Twitter, the decision reflects a real, and somewhat disturbing, current in German politics.
The backstory: Germany built up its gold reserves as the flip side of running trade surpluses in the decades after World War II. In practice, much of the world’s gold is stored in vaults underneath central banks: eighty feet below street level and hard against the bedrock of lower Manhattan at the New York Fed, in the ancient vaults of the Bank of England on Threadneedle Street in the City of London, and so on. This is highly convenient; when one government or central bank sells its gold to another, the precious metal can be rolled from one cage to the next, with none of the risk that comes with transporting it across oceans. (For more about the New York Fed’s gold storage operation, click here).
The system, of course, is built upon trust — that the New York Fed won’t suddenly be taken over by people with no respect for those nations’ property rights and seize it for their own use, and that the central banks won’t lie about how much gold is in their vaults. Among the world’s central bankers, that trust runs deep, and most governments are content to keep their gold wherever it is most convenient. The exceptions are governments that have reason to fear that their gold stocks could be frozen as part of a conflict, such as in Iran and Libya.
So what the heck is Germany doing? It is a nation with a deep-seated fears about the stability of its currency, no doubt in part the legacy of the Weimar hyperinflation of the early 1920s. The fixation on its gold comes at a time when the world of finance seems in chaos. Germans are being asked to help rescue Greece and other European nations with troubled finances. The European Central Bank has bought bonds from some of those nations, which Germans widely view as tempting enormous inflation. Against that backdrop, it is perhaps not shocking that there is political resonance to the theory that the New York Fed and Banque de France may be putting one over on the Bundesbank and that some of Germany’s gold might actually be missing.
(This is, it should be noted, not solely a German fixation. There are plenty of Americans who are convinced that the U.S. gold reserves in Fort Knox are missing.)
So, essentially, the Bundesbank is offering a sop to the conspiracy theorists by relocating the gold to German soil. The nation just has to hope that nothing goes wrong during the journey.
“In Germany, a lot of emotion is attached to the topic of gold reserves,” Bundesbank board member Carl-Ludwig Thiele said in a press conference announcing the move. The same could be said of Americans.
The Real Story Behind Germany’s Gold Recall
ReplyDeleteby Byron King
http://dailyreckoning.com/the-real-story-behind-germanys-gold-recall/
Did you hear the news? Germany, the world’s second largest gold-holding nation, is recalling some of its gold. The Germans are bringing the physical metal – once on hold outside its borders – back in country.
This is a huge development in the world gold market. But more importantly may portend a life-changing trend that gold buyers like you and I can take to the bank.
Today let’s connect a few more dots, and talk gold…
Germany, Russia, Ronald Reagan, Clausewitz, this story has it all. Let’s start by covering a distant memory, the Cold War.
Indeed, the Cold War is not just over, it’s REALLY over. Get over it. The world is REALLY changing, and I mean in ways that you can scarcely begin to comprehend.
Yes, I know. The Soviet Union fell apart in 1991. Germany reunified – expensive as that was – and the Red Army went home to Mother Russia in the mid-1990s. (I was in Berlin, in 1991, right after I did my thing in Operation Desert Storm. Wow, I could tell you some stories about the Group of Soviet Forces in Germany, headquartered at Potsdam. Another time, perhaps.)
But now? In 2013? What’s happening? There’s big news, which the mainstream media evidently fails to comprehend, while they fixate on the wrong sorts of shiny stuff – “gun control,” for instance, and what Hollywood celebrities think about it.
Here’s the real news. Long-term, this will change your life. You paying attention?
Germany is recalling some of its central bank-owned gold from the Federal Reserve Bank in New York, as well as all “German” gold on deposit in France. It’s back to der Heimat.
Let’s back up. Why was German gold not in Germany? It’s a monetary relic of the Cold War. Back in the 1950s-1980s, the “Federal Republic of Germany” (the Bundes Republik Deutschland, or BRD – “West” Germany) was basically a potential nuclear battlefield. So part of the monetary preparation for fighting World War III in Europe was to keep West Germany’s gold away from the Russian tanks and nuclear fallout.
There was also something of a “conqueror’s legacy” about it. Post-World War II, the immediate challenge to U.S.-British-French policymakers was to keep Germany tame, considering the horrible memories of the late unpleasantness of 1939-1945. As Nobel laureate Francois Mauriac once quipped, “I love Germany so dearly that I hope there will always be two of them.”
One way for the U.S., Britain and France to keep a leash on Germany was to keep “German” gold under control outside of that country’s borders. The West German “mark” — the national currency that predated today’s euro — was thus, to a significant extent, at the mercy of people in Washington, London and Paris.
Indeed, the German gold in New York, London and Paris was a form of conquerors’ deference to maintaining “gold backing” for the mark. It’s a much longer story than this, but the point is that the policy lasted three generations.
Now, however, that issue of outside control over the German currency has come to a new turn of events. The Germans are burying the last of their grandparents who lived through World War II. And they are revisiting the rationale for storing their gold under the jurisdiction of conquering powers of World War II. There are all manner of policy implications — immediate and long term.
ReplyDeleteWhat will Germany do with its gold after it is back inside the traditional national boundaries? Well, we’re going to find out, aren’t we?
Germany is removing all of its gold from France. The publicly-stated reasoning is that there’s no further reason for the French to store German gold, in that both nations are part of the “euro” monetary union. Of course, just a glance at the past 200 years of history tells you that there’s likely much more to the underlying rationale.
Germany will still keep some gold in New York and London, but only after conducting a complete inventory of every bar – by weight and assay, for each serial number. (Remember what Ronald Reagan said? “Trust, but verify.”)
The monetary rationale, here, is that – despite what some banker-types want you to believe — gold plays a role in balancing terms of trade between Germany and the U.S. and Britain. In other words, the dollar-euro and pound-euro exchange system works better with gold in the gearbox.
It’s accurate to say that as history shows, gold goes to where it’s respected. As I see things, just the idea that Germany is assaying its gold, and wants some of it back, speaks volumes. The gold will boost the credibility of the German government and its central bank, and generally strengthen the German economy for all manner of reasons.
Here’s a future scenario on which to chew. Perhaps Germany might look at its gold, smile and then back out of the euro as we know it. The effect will be to ditch the southern countries — certainly Greece, Spain and Portugal — from a “European” currency.
Then Germany will do what we all know it wants to do anyhow — that is, form a “new” euro including the economies of northern European countries. Think in terms of an expanded version of the old Hanseatic League, perhaps, with Germany as the center of gravity. Very Clausewitz, no? And there’s the possibility of offering membership to Italy (or perhaps just “northern” Italy).
Oh, and don’t dismiss the possibility of a German-Russian monetary alliance. They already have a strong, and growing energy alliance. Why not start coordinating things in terms of currency as well. We’ll see, right?
Best wishes…
Byron W. King
Original article posted on Daily Resource Hunter