Germans Fret about Their Foreign Gold Reserves October 27, 2012
A large portion of Germany's massive
gold reserves are stored abroad, mainly in the Federal Reserve
in New York. But are the bars really where they are supposed
to be? A dispute has broken out over whether the central
bank needs to check on its gold, or if Germany can trust
its international partners.
Germany has gold reserves of
just under 3,400 tons, the second-largest reserves in the
world after the United States. Much of that is in the safekeeping
of central banks outside Germany, especially in the US Federal
Reserve in New York. One would think that with such a valuable
stash, worth around €133 billion ($170 billion), the
German government would want to keep a close eye on its
whereabouts. But now a bizarre dispute has broken out between
different German institutions over how closely the reserves
should be checked.
Germany's federal audit office,
the Bundesrechnungshof, which monitors the German government's
financial management, is unhappy with how Germany's central
bank, the Bundesbank, keeps tabs on its gold. According
to media reports, the auditors are dissatisfied with the
fact that gold reserves in Frankfurt are more closely monitored
than those held abroad.
In Germany, spot checks are carried out
to make sure that the gold bars are in the right place.
But for the German gold that is stored on the Bundesbank's
behalf by the US Federal Reserve in New York, the Bank of
England in London and the Banque de France in France, the
German central bank relies on the assurances of its foreign
counterparts that the gold is where it should be. The three
foreign central banks give the Bundesbank annual statements
confirming the size of the reserves, but the Germans do
not usually carry out physical inspections of the bars.
'No Doubts'
According to German media reports, the Bundesrechnungshof
has now recommended in its confidential annual audit of
the Bundesbank for 2011 that Germany's central bank check
its foreign gold reserves with yearly spot checks.
The Bundesbank has rejected the demand,
arguing that central banks do not usually check each others'
reserves. "The scope of the checks that the Bundesrechnungshof
wants does not correspond to the usual practices among central
banks," the Bundesbank said in a statement quoted by
the Frankfurter Allgemeine Zeitung newspaper. "There
are no doubts about the integrity and the reputation of
these foreign depositories."
Now the finance committee of the German
parliament, the Bundestag, has gotten involved. Parliamentarians
apparently demanded to see the Bundesrechnungshof's audit
report on the Bundesbank after they were alarmed by a report
in the influential tabloid daily Bild, which claimed that
the central bank had not checked its gold reserves in five
years.. The Bundesrechnungshof will now provide the committee
with its report, a spokesman for the federal auditors confirmed
on Monday.
Germany moved some of its gold reserves
abroad during the Cold War to protect them from a possible
Soviet attack. Some of the gold was moved back to Frankfurt
after the collapse of communism. But the Bundesbank argues
that it still makes sense to store some gold in major financial
centers so that it can be sold quickly if necessary. Although
the Bundesbank does not provide exact details about the
distribution, it has revealed that the largest share of
Germany's gold is held in New York, followed by Frankfurt,
London and Paris.
Skeptical about the Reserves
In times of uncertainty about the future
of Europe's common currency, gold is a hot topic, and some
Germans take a dim view of the fact that much of the country's
gold -- which theoretically belongs to the people -- is
held abroad. Some members of parliament have even expressed
doubts as to whether the foreign gold reserves really exist.
Philipp Missfelder, a member of the conservative Christian
Democratic Union (CDU), wanted to see the gold for himself
and traveled to New York in person to inspect the holdings,
according to the newspaper Frankfurter Rundschau. His trip
was apparently unsuccessful, though. When he visited the
Fed's safes in New York, staff were either unable or unwilling
to show him exactly which bars belonged to Germany.
Peter Gauweiler, a Bundestag member with
the CDU's Bavarian sister party, the Christian Social Union
(CSU), is also skeptical about the foreign gold reserves.
In recent years he has attempted to gain more information
about Germany's gold through parliamentary questions. Last
year, he had an economics professor prepare an expert report
on the subject, which concluded that the Bundesbank was
not fulfilling its inventory regulations by failing to physically
inspect the gold.
In July 2011, SPIEGEL reported that Bundesbank
employees had physically seen the gold in New York within
the previous six months. However, the last time it had been
checked before that was in June 2007.
Gauweiler doubts that the Bundesbank would
have immediate access to all its gold if necessary, suggesting
that part of the gold may have even been lent out -- a claim
that the Bundesbank rejects.
Bringing Back Home
Some Germans even want to bring the gold
reserves back to Germany. An initiative called "Gold
Action" is campaigning under the slogan: "Repatriate
Our Gold!" Its petition has been signed by prominent
industrialist Hans-Olaf Henkel and Frank Schäffler,
a parliamentarian with the business-friendly Free Democrats
who is known for his euroskeptic views.
The initiative alleges that there is an
"acute" danger that the German gold could be expropriated
as a result of the financial and debt crisis. They argue
that the German government could soon be forced to sell
gold to cover the costs of the crisis.
But the Bundesbank wants to leave the gold
where it is. Observers point out that apart from the high
cost of transporting the gold back to Frankfurt, the symbolic
effect of Germany repatriating its gold reserves might unsettle
the nervous financial markets, who could see it as a sign
of an impending collapse of the euro.