German central bank starts to bring some of its gold back home

A view of the Bundesbank building in Frankfurt. The German central bank began in 2013 to bring back many tonnes of the valuable gold bars from abroad and store them in its vaults. By 2020 at the latest, half of Germany’s gold reserves are to be stored in Frankfurt. At the end of last year the volume was not even one-third.

For decades — because of the Cold War — the Bundesbank’s gold holdings have been kept in the treasuries of other central banks — in Paris, London and New York. Now the public and the Bundesbank believes that more of the country’s treasure should be at home

DPA

Frankfurt

Germany’s gold is something that stirs peoples’ emotions. For decades the Bundesbank’s gold holdings have been kept in the treasuries of other central banks — in Paris, London and New York.

There were historical reasons for this, and it did not bother Bundesbank officials at all. They had no reason to doubt that their gold was in safe keeping outside the country.

But all the same, the Bundesbank began in 2013 to bring back many tonnes of the valuable gold bars from abroad and store them in the vaults of the central bank in Frankfurt. By 2020 at the latest, half of Germany’s gold reserves are to be stored in Frankfurt. At the end of last year the volume was not even one-third.

“We are proceeding completely according to plan. The gold is arriving here,” Bundesbank president Jens Weidmann recently disclosed.

This should please many Germans, who feel the country’s treasure is better kept at home than in some foreign vault. The German public in fact has become mistrustful as to whether Germany’s gold bars abroad really are where they are said to be, and whether, in an emergency, the country can get access to them.

Germany’s general accounting office has demanded that an exact inventory of the gold should be carried out and that there should be regular controls. But the Bundesbank was not reacting to public pressure when it decided to bring some of the gold home, executive board member Carl-Ludwig Thiele stressed.

“The storage depot concept is based on an autonomous decision of the Bundesbank executive board,” he said. “We are now following through on this.”

In fact, the gold transfer in 2013 started off very slowly. Out of the 674 tonnes of gold that are to be returned by 2020 to Frankfurt from Paris and New York, only 37 tonnes were transferred last year — five tonnes from New York and the rest from Paris.

The Bundesbank explained the low volume with the major logistical effort that first had to be put into place. In addition, for security reasons the bars are shipped only in small batches.

For the year 2014 now coming to a close, the pace of the gold transfer was to be picked up. In March, it was said that by the end of the year, 30 to 50 tonnes of gold would be shipped from New York and 50 tonnes from Paris. Nobody at the Bundesbank is saying whether this has actually happened. Thiele only says that the central bank is “completely on schedule.”

Thiele does reassure people about one thing. “There is not the slightest doubt about the integrity of the Fed,” he said about the US Federal Reserve Bank. “The transports carried out so far have confirmed this.”

There are historical reasons why most of Germany’s gold is kept in vaults of the Fed, the Banque de France and the Bank of England. Starting in mid-1951 the Bank of the German States — the predecessor to the Bundesbank — began building up the country’s gold reserves. In the 1950s and 1960s, thanks to then-West Germany’s “economic miracle” and booming exports, these rose rapidly as the German bankers used the export dollars to buy up gold.

The result is that the Bundesbank has the second-highest gold reserves in the world today, behind the US. At the end of November the holdings were valued at €105bn ($130bn). This value however is subject to market fluctuations.

The same reserves in 2000 were worth only about €33bn. The value of the gold today comes despite the fact that the gold holdings have been reduced some by the sale of bullion to the Finance Ministry for the issuing of gold coins.

During the Cold War it was intentionally willed that German gold should be kept “west of the Rhine” and held as far as possible away from the country’s borders. Since the introduction of the euro on both sides of the Rhine, however, the argument for keeping gold in Paris in order to be able to convert it into currency in case of a crisis has fallen away. So the depot there will be closed in the next few years.

This does not apply to New York and London. As a result, only 300 of the more than 1,500 tonnes of gold kept in the US will be transferred to Germany, while the 35,640 bars of gold in London will remain untouched.

There are sound reasons for this, Thiele stresses. “In a crisis situation, gold can be loaned out, or converted into another currency. As a result, part of the gold will remain in the storage vaults in New York and London.”