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Imagine if you wanted to make a withdrawal from your bank and your bank told you it would take a few years. As odd as that sounds it’s exactly what happened to Germany’s central bank, the Bundesbank, when they requested some of their gold back from the Federal Reserve Bank of New York. On paper the Fed has some 6700 tons of gold in their vaults; the gold represents deposits from central banks around the world. The Germans are requesting about 300 tons, a fraction of the total amount. Still, the Fed responded that it would be about seven years before they would be able to fulfill the withdrawal request.
This raises some serious questions. Sure 300 tons of gold is hefty and tough to move, but FedEx has insurable planes that could move that much mass to Europe in 6 or 7 flights. The US military has heavy lift assets that can move armored vehicles, but we cannot move the gold back to Germany? Something doesn’t pass the smell test here. Is the gold even there anymore?
This is Germany’s gold and they want it back. The nations of the world keep portions of their gold reserves secure in the vaults below the New York Fed because they think it’s safe there. How safe is it if we tell them they cannot have it back when they want it? The Fed does the same thing with its gold deposits that your bank does with your deposits, uses them as collateral for other lending in a process called hypothecation. This means the asset used as collateral is now hypothetically under the control of the creditor though the owner still has use of it.
Banks often will often “rehypothecate” the originally hypothecated asset to use as collateral on multiple deals. So this raises the question that perhaps the Fed has rehypothecated everyone’s gold so much, and among so many other parties, that they can’t segregate Germany’s gold to return it to them. It would be like you going to your bank to make an ATM withdrawal and the bank tells you that your money is currently spread out among a bunch of other people so they need some time to pull it all back. Put another way. Imagine if you gave some valuables to a friend you thought you could trust and then when you call to ask for your stuff back he mumbles incoherently and hangs up.
This move is part of a push from Germany to repatriate some 600 tons of gold currently stored in NY and Paris. That the Germans want it back is somewhat worrying, but would not be all that bad. Countries keep their gold in another central bank's vaults so it easier to purchase foreign currencies. Since France and Germany both use the Euro (for now) there is no reason to keep gold in Paris. This does us something of Germany’s motives for keeping less gold in New York. They must not see themselves wanting to purchase too many dollars in the future. Assuming we ever give them their gold back anyway.Germany wants its gold back, Fed says…maybe
This raises some serious questions. Sure 300 tons of gold is hefty and tough to move, but FedEx has insurable planes that could move that much mass to Europe in 6 or 7 flights. The US military has heavy lift assets that can move armored vehicles, but we cannot move the gold back to Germany? Something doesn’t pass the smell test here. Is the gold even there anymore?
This is Germany’s gold and they want it back. The nations of the world keep portions of their gold reserves secure in the vaults below the New York Fed because they think it’s safe there. How safe is it if we tell them they cannot have it back when they want it? The Fed does the same thing with its gold deposits that your bank does with your deposits, uses them as collateral for other lending in a process called hypothecation. This means the asset used as collateral is now hypothetically under the control of the creditor though the owner still has use of it.
Banks often will often “rehypothecate” the originally hypothecated asset to use as collateral on multiple deals. So this raises the question that perhaps the Fed has rehypothecated everyone’s gold so much, and among so many other parties, that they can’t segregate Germany’s gold to return it to them. It would be like you going to your bank to make an ATM withdrawal and the bank tells you that your money is currently spread out among a bunch of other people so they need some time to pull it all back. Put another way. Imagine if you gave some valuables to a friend you thought you could trust and then when you call to ask for your stuff back he mumbles incoherently and hangs up.
This move is part of a push from Germany to repatriate some 600 tons of gold currently stored in NY and Paris. That the Germans want it back is somewhat worrying, but would not be all that bad. Countries keep their gold in another central bank's vaults so it easier to purchase foreign currencies. Since France and Germany both use the Euro (for now) there is no reason to keep gold in Paris. This does us something of Germany’s motives for keeping less gold in New York. They must not see themselves wanting to purchase too many dollars in the future. Assuming we ever give them their gold back anyway.Germany wants its gold back, Fed says…maybe
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