There must be snickers in the NY Federal Reserve as they make a fool out of their too-trusting depositor: Germany. Imagine lending 300 tons of gold to a bank which never gets audited, and coming back 6 decades later and asking for your deposits — only to be told something like, “Sorry, but now’s not really a good time“.
Over one year later, less than 10% of the deposits have been returned to Germany, and the evidence is mounting rapidly that the deposits simply aren’t there. Germany’s response to the humiliating refusal has been an all-too-obvious acquiescence.
It all began last year with this small release from Germany’s Bundesbank, announcing Germany’s plan to repatriate it’s gold reserves from foreign banks:
Deutsche Bundesbank’s new storage plan for Germany’s gold reserves
By 2020, the Bundesbank intends to store half of Germany’s gold reserves in its own vaults in Germany. The other half will remain in storage at its partner central banks in New York and London. With this new storage plan, the Bundesbank is focusing on the two primary functions of the gold reserves: to build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold trading centres abroad within a short space of time.
The following table shows the current and the envisaged future allocation of Germany’s gold reserves across the various storage locations:
31 December 2012 31 December 2020 Frankfurt am Main 31 % 50 % New York 45 % 37 % London 13 % 13 % Paris 11 % 0 %
To this end, the Bundesbank is planning a phased relocation of 300 tonnes of gold from New York to Frankfurt as well as an additional 374 tonnes from Paris to Frankfurt by 2020.
The withdrawal of the reserves from the storage location in Paris reflects the change in the framework conditions since the introduction of the euro. Given that France, like Germany, also has the euro as its national currency, the Bundesbank is no longer dependent on Paris as a financial centre in which to exchange gold for an international reserve currency should the need arise. As capacity has now become available in the Bundesbank’s own vaults in Germany, the gold stocks can now be relocated from Paris to Frankfurt.
Except, that didn’t really work out as planned. Here we are in 2014 and less than 10% of the 300 tons of gold has been returned. So rather than get angry, and simultaneously admit to a massive hole in their balance sheet – Germany decides to go along with the charade — thereby preserving the paper-value of their “asset”.
Bloomberg picked up this story and gave it an expected “spin” as a victory for the “establishment” against Euro-doubters — but it’s not hard to see who the real loser is here: Germany. After all, they still don’t have their gold, and it’s existence is now even more questionable than it was last year.
Surging mistrust of the euro during Europe’s debt crisis fed a campaign to bring Germany’s entire $141 billion gold reserve home from New York and London. Now, after politics shifted in Chancellor Angela Merkel’s coalition, the government has concluded that stashing half its bullion abroad is prudent after all.
“The Americans are taking good care of our gold,” Norbert Barthle, the budget spokesman for Merkel’s Christian Democratic bloc in parliament, said in an interview. “Objectively, there’s absolutely no reason for mistrust.”
Riiiight. Who could see any reason for mistrust when one asks for one’s deposits back and the request is politely denied. In the “real world” of retail banking, such blatant actions typically cause a very rapid run-on-the-bank as depositors panic and race to recover their assets. But not Germany. Instead, the embarrassment has been hastily papered over with statements about “trust” and a victory against “Euro doubters”.
As they say, “Steal a thousand dollars and you make an enemy. Steal a billion dollars and you have a partner”.
So long Germany. And thanks for the gold, suckers.