The power and secrets of gold, central banking and what not: A case from Deutsche Bundesbank…

This is an interesting post by Norbert Häring which questions/exposes the secret world of central banking across the world. Just like the politicians who show they oppose each other, central banks too express their displeasure at monetary policy of other central banks. But in the evening just like warring politicians the central bankers too chill out with each other. It is a secretive murky world given how together they control the fortunes of so many.

Häring writes how recent Bundesbank announcement of shipping their own gold from NY Fed is being spinned nicely. The German bank portrays it like a victory but in reality it also calms the nerves of their American counterpart:

With big fanfare, Deutsche Bundesbank announced on February 9 that ahead of plan they had repatriated 300 tons of gold from New York. This put a positive spin on a rather disturbing fact –1236 tons of gold that is supposed to be part of Germany’s currency reserve will continue to be kept outside of German control in New York – indefinitely.

The German gold in question is being kept in storage at the New York Fed, an institution that is owned and controlled by Wall-Street-banks, in a country, whose current president considers it an imposition that the law and so-called judges tell him what he is allowed to do and not allowed to do.

I am not criticizing the Bundesbank for storing 37 percent of Germany’s official gold in in a place there it has no control over it. It seems clear that they negotiated hard with the US and acted rather shrewdly. Their negotiation position was much enhanced in 2012 by the leakage of a report of the German Court of Auditors, which was very critical of the conditions under which German gold was being held in New York. This created public and political pressure on the Bundesbank to renegotiate and to get that gold out of New York….

….

When the Bundesbank had announced their plan of where to keep how much gold in the future, it was craftily sold as a message to the German people and politicians that they would get a chunk of the gold that was in New York under their control and store half of the official German gold in Germany. This, however, was not the main message.

The main message had New York and Washington as addressees. It consisted in the promise that in exchange for getting those 300 tons, they would leave four times as much in New York and stop forever fussing about it. This is my reading anyway, based on what I understand is usual diplomatic custom and lingo in such affairs. This way of reading it is bolstered by the fact that the conveniently critical Court of Auditors has gone completely silent since the Bundesbank announced their new plan for where to store the gold. This is not what one should have expected. None of the concerns of the auditors has been addressed in any significant way. The Bundesbank can still not go in and check or count the gold. There are still the terms and conditions of the New York Fed, which say that they give no guarantee. If it should turn out that the gold has been stolen in some mysterious way, that’s bad luck. None of the other problems were fixed and no convincing reason was provided why it should be in Germany’s interest to keep such a large portion of its gold outside its control. The fact that a fifth of the gold that used to be kept in New York under such unfavorable conditions has been retrieved, is not a very convincing reason for the auditors to fall completely silent. After all, they had clearly said that the way that the German national treasure is stored there, is against the law.

These issues are so much deeper. How US ended up having the highest gold reserves post WW-II and USD the defacto currency of the world. The way gold is stored in NY Fed (written wonderfully by Peter Bernstein in Power of Gold) of not just US but several other countries is quite something.

Fascinating to read all this…

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