Except, many people learned for the first time last year, it didn’t.
More than two-thirds of Germany’s gold reserves, valued at €137 billion, or $182 billion, is abroad, stored in vaults in Paris, London and above all New York. In fact, there is considerably more German gold in Manhattan than in Frankfurt.
On Wednesday, the German central bank said it would begin gradually repatriating some of the reserves, the second-largest stock in the world, after that of the United States. The Bundesbank was responding to a public outcry last year after a clash in Parliament about whether all the gold was properly accounted for.
The goal is to house more than 50 percent of German gold in Bundesbank vaults in Frankfurt by 2020, up from a little less than a third today, the bank said. About 45 percent of the reserves are 80 feet, or 24 meters, below street level in a vault at the Federal Reserve Bank of New York.
The move will include complete withdrawal of German gold stored at the Banque de France in Paris, about 11 percent of the total. Bundesbank officials were anxious to note that the decision was not a reflection of French trustworthiness. Rather, it is because France and Germany now share the euro, so there is no need for reserves as insurance against currency crises.
“The gold in Paris is in the best of hands,” Carl-Ludwig Thiele, a member of the Bundesbank executive board, said Wednesday. “We are thankful to the Bank of France for storing it.”
Still, news of the planned transfer caused some tongue-clucking in financial circles after news leaked out Tuesday. “Central banks don’t trust each other?” William H. Gross, a founder and managing director of the investment firm Pimco, asked on Twitter.
Mr. Thiele denied there was any mistrust. “We have no doubts about the integrity of other central banks,” he said. “We’re not aware of any irregularities.”
Moving the 300 tons of gold from New York and 374 tons from Paris is likely to be a logistical and security challenge, and there were questions from some German reporters about whether the transfer made financial sense. Citing security reasons, Mr. Thiele refused to say how the transfer would be accomplished or estimate the cost. But he said the Bundesbank had plenty of experience moving around large sums of money.
The presence of so much German gold abroad is a reflection of postwar German and geopolitical history.
After the end of World War II, vanquished Germany had no gold reserves. The Nazis used most of it to finance the war, and much of what was left vanished mysteriously in the postwar chaos.
But as its economy recovered and Germany became the export powerhouse it is today, the country accepted gold as well as dollars from the central banks of its trading partners to cover the financial imbalance created by German trade surpluses.
During the Cold War, West Germany followed a policy of storing its gold as far west as possible in case of a Soviet invasion. While that worry is gone, there is still an argument for keeping some gold in major financial centers like New York and London.
Gold remains the one currency that is accepted everywhere. If there were ever a currency crisis, the gold could be quickly deployed in financial markets to help restore confidence.
German reserves peaked in 1968 at about 4,000 tons, several years before the collapse of the so-called Bretton Woods system of fixed international exchange rates, which was underpinned by gold reserves. The end of Bretton Woods in 1973 eliminated some though not all of gold’s importance as a universal currency. The total has fallen to about 3,400 tons, after Germany transferred some of its treasure to international institutions in which it participates, including the European Central Bank and the International Monetary Fund.
Mr. Thiele acknowledged that Germans could get emotional about their gold, but he insisted that the Bundesbank made its decision to repatriate the treasure independently, and not because of a public outcry last year that followed reports suggesting the gold was not properly accounted for.
In a report to Parliament, the government auditing agency, the Bundesrechnungshof, called on Bundesbank officials to conduct an inventory of the thousands of bars of German gold that are stacked in foreign vaults.
Mr. Thiele said that he and other Bundesbank officials personally visited the German gold abroad, and was satisfied that it was all there.
At a packed press conference attended by armed security guards, Bundesbank officials demonstrated how they test the bars for quality and authenticity. No two bars have exactly the same weight and purity, so each must be assessed separately.
Even after Germany completes the transfer at the end of 2020, half of its gold will remain abroad — about 37 percent in New York. The Bundesbank does not plan to move any gold out of the Bank of England, which will continue to store 13 percent of the total.
The New York Fed stores the German gold without cost on the theory that the presence of foreign gold supports the dollar’s status as the global reserve currency. A spokesman for the New York Fed declined to comment.
The Bank of England, by contrast, charges about €550,000 a year for storage, Bundesbank officials said.
Despite the public criticism, the Bundesbank has not let go of its gold easily. It has continually rejected periodic attempts by political leaders to convert the reserves to cash, and has not sold any gold on world markets.
The central bank has, however, sold some of its holding to the public — in the form of commemorative deutsche marks.
Article source: http://www.nytimes.com/2013/01/17/business/global/german-central-bank-to-repatriate-gold-reserves.html?partner=rss&emc=rss
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