Calling In Their Gold-Chips

Monday, January 20th, 2014

Gold: it’s not just for money anymore. Actually, it’s not much about money anymore! Yes, people always watch the gold price, but that’s more about gold as a commodity subject to price speculation. And gold remains a central bank reserve asset into which such national authorities can dip when they want to intervene in the currency markets – again, by selling their gold-as-commodity in order to gain supplies of the currency they want to strengthen – but they will sooner do that using reserves of other foreign currencies they have accumulated.

This is a far cry from those long-ago days of the gold standard, when the value of a nation’s currency was determined by the precise amount of actual gold it claimed to represent, so that balance of payments surplusses and deficits were settled by transfers of gold from one central bank to another. There was a dirty little secret there, however: it was rare that the gold was actually physically transferred when settling such national accounts. It’s heavy stuff, after all, and thus costly to ship, especially when you factor in the extra need for security. Plus, you could never rule out the trade winds reversing next year – so to speak – so that deficit country became surplus country and the gold would then have to be shipped back the other way.

No, it was much easier just to slap a new ownership-label on a certain section of a pile of gold sitting safely and cozily in some certifiably safe place – the vaults of the New York Federal Reserve, say, or a similar place in London, which has long been the center of the world’s gold market anyway and the source of the daily gold fixing that sets its price.

However, that may not be good enough anymore:

This brief piece from Germany’s Huffington Post reports how the Bundesbank’s official in charge of transatlantic relations, Philipp Mißfelder, has demanded that all of his institution’s gold be shipped back to German physical control by the year 2020. Apparently, that has already occurred with the German gold that used to be held in Paris – note how we’re only allowed to find out about this after it already happened – and now Mißfelder is demanding a repatriation of the 674 tons of Germany’s gold in New York and London.

One has to wonder: Why this? Why now? Granted, it’s always a better feeling to have a valuable asset like that – even if less important than it was before – under your own lock-and-key, unseizable by others barring invasion, yet, again, the trouble and costs involved in that physical transportation are such that things were run up to this point in such a way as to avoid them entirely. It’s true that Germany itself is a bit safer of a place, now that it is not divided in two anymore with Warsaw Pact armies massed just on the other side of the inter-German border, but then that has been the case for over twenty years.

What it comes down to is Trust, right? And what sort of recent cellphone-listening, snooping-on-citizens* developments have we seen lately to throw Trust into question?

* Recall that this has involved both the US and the UK, the former operating from the privileged position of its embassy, allotted by the Berlin authorities upon reunification a high-status location right beside the Reichstag.

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