Like the Russian proverb says: Доверяй, но проверяй... Trust, but verify!A large portion of Germany's massive gold reserves are stored abroad, mainly in the Federal Reserve in New York. But are the bars really where they are supposed to be? A dispute has broken out over whether the central bank needs to check on its gold, or if Germany can trust its international partners.
Germany has gold reserves of just under 3,400 tons, the second-largest reserves in the world after the United States. Much of that is in the safekeeping of central banks outside Germany, especially in the US Federal Reserve in New York.
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According to German media reports, the Bundesrechnungshof has now recommended in its confidential annual audit of the Bundesbank for 2011 that Germany's central bank check its foreign gold reserves with yearly spot checks.
The Bundesbank has rejected the demand, arguing that central banks do not usually check each others' reserves.
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In times of uncertainty about the future of Europe's common currency, gold is a hot topic, and some Germans take a dim view of the fact that much of the country's gold -- which theoretically belongs to the people -- is held abroad. Some members of parliament have even expressed doubts as to whether the foreign gold reserves really exist. Philipp Missfelder, a member of the conservative Christian Democratic Union (CDU), wanted to see the gold for himself and traveled to New York in person to inspect the holdings, according to the newspaper Frankfurter Rundschau. His trip was apparently unsuccessful, though. When he visited the Fed's safes in New York, staff were either unable or unwilling to show him exactly which bars belonged to Germany.
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Gauweiler doubts that the Bundesbank would have immediate access to all its gold if necessary, suggesting that part of the gold may have even been lent out -- a claim that the Bundesbank rejects.
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The initiative alleges that there is an "acute" danger that the German gold could be expropriated as a result of the financial and debt crisis. They argue that the German government could soon be forced to sell gold to cover the costs of the crisis.
But the Bundesbank wants to leave the gold where it is. Observers point out that apart from the high cost of transporting the gold back to Frankfurt, the symbolic effect of Germany repatriating its gold reserves might unsettle the nervous financial markets, who could see it as a sign of an impending collapse of the euro.
The simplest way for the Bundesbank to allay fears and doubts regarding the effective availability of physical gold that Germany entrusted to the US Federal Reserve... is to organize an independent audit of those gold reserves, with journalists on board. (*)
If the Bundesbank is in a position to do so, that is.
(*) Possibly not coincidentally, in those times when Germany and other nations which entrusted the bulk of their gold reserves to the US Federal Reserve display signs of nervosity that everything is in order, the Banque de France which holds the totality of French gold reserves recently (March 2012) opened up their bunker to journalists and demonstrated the protection and the existence of the Paris-located gold reserves. A discreet message...
