As a result of increasing concerns expressed by a number of German politicians and Germany's financial policeman, its National Audit Office, the Bundesbank is to check up on Germany's gold reserves, an estimated two-thirds of which are stored outside Germany. The Bundesbank has also revealed that a physical check of Germany’s gold has never been carried out.
A large proportion of Germany's gold reserves is stored abroad in vaults in the US, Britain and France, reports Bloomberg
. The gold bars have not been inspected by German officials for decades, prompting German federal auditors to call for a long overdue stock-take.
Gold has historically been considered to be a safe haven in times of crisis. Governments can print more money, but there is only a finite amount of gold in the world. Since 2008, the US Federal Reserve, the European Central Bank and the Bank of England, have turned on the money spickets at various times, increasing the money supply in an effort to kick start their economies. Inevitably, the value of gold has shot up since gold is regarded as a safe haven in uncertain times.
The financial crisis remains acute within the Eurozone where the largest economy, Germany, is effectively calling the shots in relation to bailing out, so far, the troubled economies of Greece and Ireland.
As the European single currency zone crisis rumbles on from one summit to the next with no resolution in sight, Germany’s National Audit Office and some of the country’s politicians have become increasingly edgy about the country’s gold reserves, nearly three quarters of which are held outwith Germany.
There are historical reasons for Germany not having its own Fort Knox. According to German historian Professor Werner Abelshauser
, while, superficially, these might be related to the Cold War, that would not explain why some of Germany’s gold reserves are held in Britain and France.
Abelshauser says the reasons are more complex. In the 1950s and 1960s, Germany was a leading exporter of goods resulting in a massive balance of payments surplus. In contrast, the United States, France and the UK were regularly running balance of payments deficits and were regularly short of cash, reports Deutsche Welle
As well as Germany lending to its debtor allies, Abelshauser speculates on there being informal agreements between NATO allies along the lines of, “We'll store our gold in your country, and that creates trust. In return, we can help you if you're in a tight spot."
The quid pro quo
for (West) Germany was allied troops being stationed in West Germany long after the Second World War had ended. Professor Abelshauser explains, “Stationing troops in Germany was an effective lever to draw on Germany to compensate for their own problems with balancing payments," he says. "The Germans needed American troops in the country, if they didn't want to run the risk of becoming a nuclear battlefield."
With only about 30% of Germany’s gold reserves being held on German soil and the remainder far away from Frankfurt, Germany’s National Audit Office – the organisation independent of government that keeps an eye on Germany’s finances – has queried whether the German central bank, the Bundesbank, has been regularly keeping tabs on German gold bullion.
The National Audit Office is concerned that no physical checks have been carried out and that exchanges between the Bundesbank and allied depositories may have gone something like this:
“Do you still have 300 tonnes of our gold?”
“Wunderbar. Ich wünsche dir einen schönen Tag!”
The Bundesbank reacted to the National Audit Office’s demands emphasising it does not doubt 'the integrity, reputation and safety' of foreign storage sites, relying on documentation and procedures in place to provide proof and traceability of German gold reserves stored abroad over past decades.
Nonetheless, to allay audit office concerns, the Bundesbank is to make arrangements to repatriate some of Germany's gold reserves and test the gold for purity. The Bundesbank has agreed to ship 150 tons of gold currently stored at the New York Federal Reserve to Germany. Over the next three years 50 tons of gold per year are to exit storage and be returned to Germany reports German daily Bild
. The repatriated gold will be melted down entirely to test the overall purity of each consignment before being re-cast into standard gold bars.
German concerns mounted earlier this year after a delegation of German federal politicians requested an inspection of German gold reserves stored at the Banque de France, France's central bank, in Paris. The group were turned away by officials who said there were no visiting facilities at their vaults said Deutsche Welle
, in an earlier report.
Whilst the official view in Germany is that the Bundesbank has no reason to doubt that all German gold reserves stored in foreign countries can be properly accounted for, they'll be counting on all German gold bullion that glisters being gold.
Op-Ed: Is Fort Knox empty?
India's Goldbug: Country ready to purchase gold with strong rupee