– ‘Availability of gold strengthens public confidence in the central bank’s balance sheet’ say Bundesbank
– Bundesbank has Audited Reserves amounting to almost 3,400 tonnes, around 68% of Bundesbank’s reserve assets
– Bank taken series of steps to increase transparency around Germany’s gold holdings
– Germany has second largest gold holdings in the world; U.S. believed to be largest
– Transparency important and all central banks should follow the Bundesbank lead
Editor: Mark O’Byrne
Germany’s central bank serves as an example to central banks when it comes to respecting gold reserves and the public’s knowledge of them. The Bundesbank has worked incredibly hard in recent years to be transparent in regard to its gold bullion reserves.
The latest edition of Gold Investor from the World Gold Council has a very interesting article written by Carl-Ludwig Thiele, Member of the executive board of the Bundesbank which we bring to you below. In it Thiele outlines the reasoning of the Bundesbank to be open and transparent about the 3,373.6 tonnes of gold that represents nearly 70% of the country’s reserves.
There are two significant lessons to be learnt here – one for central banks and one for individual investors. The first is, central banks should be aware of the benefits of gold and how transparency will boost the public’s confidence. The second is investors should understand why the Bundesbank is so interested in protecting its gold bullion.
Gold cannot be devalued as the euro, dollar, sterling and all fiat currencies are being and will be. It cannot be confiscated a la deposits in bank bail-ins and it is extremely difficult to confiscate gold coins and bars if owned in allocated and segregated storage in safe vaults in the safest jurisdictions in the world. It is a borderless money that acts as the ultimate reserve and safe haven in a diversified portfolio.
From Gold Investor:
At the Bundesbank, we are tasked with ensuring price stability and have a variety of monetary policy tools to deliver it. We do, however, have another vital tool at our disposal: our word. As an independent body, free from political influence we have gained public confidence and our word is implicitly trusted.
Confidence, once gained, is priceless. Just like a currency, this confidence must be continually reinforced, and the Bundesbank has always fought for just that – through words, argument and, increasingly, transparency, particularly in relation to our gold holdings.
Germany’s gold reserves were largely accumulated between the 1950s and the early 1970s, when the country experienced rapid economic growth and developed a substantial current account surplus. Initially, the gold remained in its original locations, stored in central banks around the world.
Today, our gold reserves are held in three locations: the Deutsche Bundesbank in Frankfurt am Main, the Federal Reserve Bank in New York and the Bank of England in London. The storage facilities at these sites satisfy a number of essential criteria, including cost efficiency, the ability to liquidate the reserves at short notice and security, which is particularly high at all three locations.
Transporting several hundred tonnes of gold is a complex task and the decision to proceed took careful thought. Following the financial and euro crisis, general awareness of gold as an investment has risen considerably. As a result, interest in the Bundesbank’s gold reserves has increased markedly, among policymakers, the Federal Court of Auditors and the public at large. The overwhelming response to the Bank’s open days in 2014 and 2017 underlined this fascination, when individual visitors queued for up to two hours just for the chance to hold a gold bar in their hands.
Against this background, the Bundesbank was increasingly questioned about the location, security and availability of Germany’s gold. As a direct result, our Executive Board resolved to become more transparent about the reserves and to relocate them…
As a first step, the responsible Executive Board member broke with established practice and, in the autumn of 2012, disclosed the exact volumes of gold held at each storage location. That was when the Board opted to relocate a substantial proportion of this gold to Germany. The public was informed of this decision at a press conference on 16 January 2013. A number of gold bars were on display, several of the Bank’s verification processes were demonstrated and the Bundesbank announced that it would start to relocate 674 tonnes of gold, held in vaults at the Federal Reserve Bank in New York and the Banque de France in Paris. By 2020 at the latest, just over 50% of Germany’s gold reserves were to be stored in Frankfurt.
The decision to transfer the gold was prompted by a number of factors: a desire to increase confidence among the German public; changes in geopolitical circumstances – such as the fall of the Iron Curtain – and the fact that the Bundesbank had available storage capacity in Frankfurt. In this context, it is important to note that, up until 1997, the Bundesbank stored only 77 tonnes of gold in Frankfurt.
In a second step towards increasing transparency, at the beginning of 2014, the public was informed of the previous year’s transfers and, in February 2017, we announced that the transfer of gold from the Federal Reserve Bank in New York had been successfully completed. Six months later, we revealed that the transfers from the Banque de France in Paris had been completed too. At press conferences held to unveil these developments, journalists were given an up-close look at some of the gold bars that had been brought to Frankfurt from both New York and Paris.
In a third step towards increasing transparency, the Bundesbank Executive Board commissioned a fil