Germany doesn’t trust the Federal Reserve with its gold reserves

My colleague over at Digital Journal reported on a very interesting story consisting of gold, Germany and the United States Federal Reserve System – these are certainly topics that ECN enjoys.

Anyway, the German government had ordered the Bundesbank, the nation’s central bank, perform an audit of its gold reserves at the Fed.  Apparently, a physical audit of its gold bars in Great Britain, France and the U.S. has not taken place in several decades.

Knowing the Federal Reserve’s coy and supercilious behavior, Germany certainly has the right to be cautious and worried about its gold reserves.  When was the last time the U.S. performed an audit of Fort Knox?  Also, since a lot of countries, like the UK, have sold off their gold to other countries, now would be a perfect time to undergo an audit and see how much there is.

Here are some excerpts from the very interesting article:

“There are historical reasons for Germany not having its own Fort Knox. According to German historian Professor Werner Abelshauser, while, superficially, these might be related to the Cold War, that would not explain why some of Germany’s gold reserves are held in Britain and France.

“Abelshauser says the reasons are more complex. In the 1950s and 1960s, Germany was a leading exporter of goods resulting in a massive balance of payments surplus. In contrast, the United States, France and the UK were regularly running balance of payments deficits and were regularly short of cash, reports Deutsche Welle.

“As well as Germany lending to its debtor allies, Abelshauser speculates on there being informal agreements between NATO allies along the lines of, “We’ll store our gold in your country, and that creates trust. In return, we can help you if you’re in a tight spot.”

“The quid pro quo for (West) Germany was allied troops being stationed in West Germany long after the Second World War had ended. Professor Abelshauser explains, ‘Stationing troops in Germany was an effective lever to draw on Germany to compensate for their own problems with balancing payments,’ he says. ‘The Germans needed American troops in the country, if they didn’t want to run the risk of becoming a nuclear battlefield.'”

“With only about 30% of Germany’s gold reserves being held on German soil and the remainder far away from Frankfurt, Germany’s National Audit Office – the organisation independent of government that keeps an eye on Germany’s finances – has queried whether the German central bank, the Bundesbank, has been regularly keeping tabs on German gold bullion.”