In January of this year, the German government announced that it would transfer a large amount of its gold reserves from foreign banks back to its native soil.
Originally, Germany strived to store as much gold as possible outside of the country for reasons of safety and convenience. During the Cold War, the German government shipped its gold as far west as possible for fear of a Soviet invasion. Additionally, Germany has suffered significant currency problems in the past. By keeping the majority of its gold stores near important foreign currency markets, it could use the gold to quickly and easily buy up stronger currencies in case of a crisis. As a result, more than two-thirds of Germany’s gold has been kept at the Federal Reserve Bank of New York, the Banque de France in Paris, and of course, the Bank of England in London – also home of the London Fixing.
Today, any advantages Germany gained from keeping its gold stored on foreign soil are mostly moot. Both Germany and France have converted to the euro, so currency exchanges in that country are a thing of the past. And of course, there is no longer a threat of hostile takeover by another country. Still, moving several hundred tons of gold represents a great expense and security risk. What else is motivating Germany to transfer so much gold?
There are many other possible factors prompting the move. Germany’s government auditors have suggested that keeping so much gold abroad makes it poorly accounted for. Additionally, the faltering of so many economies around the world has put much of the German public on edge about the stability of Germany’s economy, which in turn puts pressure on the government.
In all, Germany is moving 674 tons of gold. All 374 tons of Germany’s gold reserves stored at the Banque de France will head back to its native country. The remaining 300 tons will come from the Federal Reserve. In total, the gold is worth about $36 billion. For security reasons, the gold will not be moved all at once and should be completed by 2020. Once the move is complete, the Bundesbank of Germany will hold 50 percent of the country’s gold reserves, with the Federal Reserve holding 37 percent and the Bank of England holding the remaining 13 percent.