It’s a common misconception that the world’s major central banks and
monetary authorities own large quantities of gold bars. Most of them do not.
Instead, this gold is owned by the sovereign states that have entrusted it to
the respective nation’s central bank, and the central banks are merely acting
as guardians of the gold. Tracing the ownership question a step further, what
are sovereign states? A sovereign state is an entity with legal personality
that is represented by one government. And with each government representing
the people of that sovereign state, in essence, the large gold hordes managed
by the central banks are in fact pools of gold owned by the state for the
benefit of its citizens.
Owned by the State
When ownership of gold reserves resides with the associated sovereign
state, the central bank or monetary authority is officially appointed to act
on behalf of the state in holding and managing that state’s gold reserves.
For example, the Deutsche Bundesbank has
stated that:
“The Deutsche Bundesbank holds and manages the national foreign
reserves of the Federal Republic of Germany”
Likewise, as per its Statutes, the Banque
de France highlights that it:
“shall hold and manage the State’s gold and currency
reserves and shall enter them on the asset side of its
balance sheet pursuant to the terms and conditions of an agreement it enters
into with the State.”
The United Kingdom’s gold reserves are held in the Exchange Equalisation
Account (EEA). The EEA is a “government account administered by Her
Majesty’s Treasury (HMT)” which holds UK Government’s official
international reserves, including its gold.
HMT is the UK government’s economic and finance ministry. According
to the Bank of England, the Bank “acts as HMT’s Agent in the
day-to-day management of the EEA” under an annual Service Level
Agreement between HMT and the Bank.
The US
Government Gold Reserves, officially claimed to consist
of 8133.5 tonnes of gold, are held by the US Department of the
Treasury. The US Mint, which administers the US gold reserves’
storage facilities, is a part of the US Treasury.
China’s official gold reserves are owned by the Chinese State and managed
by the Chinese central bank, the People’s Bank of China (PBoC). One of the PBoC’s stated
functions is:
“Holding and managing the state foreign exchange and gold reserves“
The Russian Federation’s central bank, the Bank of Russia, manages
the official Russian gold reserves, however the Bank of Russia is
under ownership of the Russian Federation:
“The authorised capital and other property of the Bank of Russia shall
be in federal ownership. In pursuance of its purposes and in
accordance with the procedure established by this Federal Law, the Bank of
Russia shall exercise its powers to own, use and manage its property,
including the gold and currency (international) reserves of the Bank of
Russia”
The Russian State Fund of Precious Metals and Precious Stones, a.k.a The Gokhran, may also hold Russian gold
reserves. However, it doesn’t report its investments to the public. The
Gokhran too is under Russian state control, since the Gokhran reports to the
Russian Ministry of Finance.
The official gold reserves of the Netherlands are owned by the Netherlands
state, not by the De Nederlandsche Bank (DNB). The DNB merely manages these
gold reserves:
“The Dutch central Bank manages more than 600 tonnes of gold. That
gold is of the State and is in essence our national nest egg.”[De
Nederlandsche Bank beheert ruim 600 ton goud. Dat goud is van de staat en is
in wezen ons nationale appeltje voor de dorst.]
Austria’s central Bank, Oesterreichische Nationalbank (OeNB) states
that it “invests and manage the national monetary and gold reserves”
of Austria in accordance with the bank’s “stability mandate”. This
mandate is derived from Austria’s NationalBank Act and various EU and ECB
statutes. The (OeNB) is itself, fully owned by the central
government of Austria.
Switzerland’s national gold reserve policy, through which the Swiss
National Bank (SNB) holds Switzerland’s
gold reserves, is derived from the Swiss Federal Constitution. The
Constitution grants the SNB its independence and mandate, and Article 99 of
the Constitution requires that the SNB hold sufficient currency reserves /
foreign exchange reserves, part
of which must be in the form of gold.
Banca d’Italia and ECB
One notable exception to the above ownership pattern is
Italy. Ownership of Italy’s gold reserves resides directly with the
country’s central bank, the Banca d’Italia (Bank of Italy). According
to the Bank:
“La proprietà delle riserve ufficiali è assegnata per legge alla Banca
d’Italia” – (Ownership of official reserves is assigned by law to the
Bank of Italy)
Banca d’Italia is also exceptional in that its
share capital is held by a diverse range of Italian banks and other financial
institutions as well as by the Italian state, so, unlike many other
central banks, the Bank of Italy is not fully state-owned.
Another exception is the European Central Bank (ECB). In January
1999, when the Euro was first introduced and the then newly established ECB
became responsible for a common monetary policy in the Euro area, each
national central bank (NCB) participating in the Euro was required to
transfer foreign reserves to the ECB so as to populate the ECB’s balance
sheet with foreign reserves. Each NCB transfer was required to be in the form
of 15% gold, and 85% in a combination of US dollars and Japanese yen.
The initial NCB transfers in 1999 provided the ECB with 750 tonnes of gold,
but left the combined gold holdings of participating NCBs and the ECB
unchanged. These ECB’s foreign reserves, including gold, which now total 5050
tonnes, are managed
on a decentralised basis by the NCBs. See BullionStar blog “European
Central Bank gold reserves held across 5 locations. ECB will not disclose
Gold Bar List” for full details.
Since the ECB is owned by its member NCBs, the ECB gold is therefore not
owned by any particular state. However, it could be argued that since most of
the ECB member central banks are owned by European states, then the ECB gold
is collectively owned mostly by European states.
With the majority of central banks also fully owned by the state, overall
this means that even in cases where a central bank ‘owns‘ the gold
that it holds, that central bank will likely be under state ownership, which
essentially means that the gold it controls is ultimately owned by the state.
Gold market FOIA request? – Smash it
Friction between State and Central Bank
Although central banks are usually independent from their respective
country’s governments, a relationship status which provides them with a
degree of day-to-day control over the management of official gold reserves,
the States’ finance ministries, government auditors and government
legislation will, to various extents, require input into major decisions
about a country’s gold reserves, such as gold sales, gold storage location
plans, and the auditing of the nation’s gold reserves.
This can sometimes cause tension between the central bank and the
government, as was the case between the Deutsche Bundesbank and the
German Federal court of auditors, and also seen in the case of the Austrian
central bank and the Austrian Court of Auditors.
In 2011, the German Federal Court of Auditors, the Bundesrechnungshof,
wrote a highly critical report concerning the Bundesbank’s lack of oversight
of German gold stored at the Federal Reserve Bank of New York, the Bank of
England and at Banque de France. The Federal Auditors specifically took
exception to the lack of physical audits by the Bundesbank of its foreign
held gold. This report, which was initially confidential but which became
public in October 2012, led to the Bundesbank announcing a gold repatriation
program that same month, a program which was subsequently expanded in scope
in January 2013.
In February 2015, the Austrian Court of Auditors issued a report
addressing the Austrian central bank’s (OeNB’s) gold reserves. That report
was critical of the ‘high concentration risk’ of storing over 80% of
Austria’s gold at the Bank of England vaults in London. The Court of Auditors
also asserted that the gold storage contract with the Bank of England
was deficient and that the OeNB’s internal auditing for the gold was also
deficient. Three months later the OeNB announced a program to repatriate 140
tonnes of its gold from the Bank of England back to storage sites in
Austria and Switzerland.
Conclusion: Central Bank Secrecy and Arrogance
It’s well
documented on this website and others that central banks are
non-cooperative in disclosing important details about gold reserves which
they hold and manage, details such as weight lists and auditing details. It
has now been demonstrated that the majority of these central
banks only ‘manage’ this gold on behalf of their respective sovereign
states. The most common excuse of the central banks in their non-cooperation
is confidentially, with a close second being deflecting the question, and a
common third being to ignore the question.
But given that the sovereign states own the gold and that the sovereign
states are represented by governments which claim to represent the citizens
of those states, this secrecy and arrogance from a bunch of aloof unelected central
bank bureaucrats is misplaced, unacceptable and needs to be highlighted,
called out and challenged. Likewise for the elected bureaucrat finance
ministers who connive and endorse this central banker behaviour or are merely
ignorant and uninterested in how the central bankers conduct themselves in
the gold market and towards the public who have legitimate questions about
this market.
For full details of gold related policies of most of the central
banks mentioned in this article, please see the following BullionStar Gold
University profiles of Central Bank Gold Policies:
United States Treasury https://www.bullionstar.com/gold-university/c...ies-us-treasury
Deutsche Bundesbank target="_blank" https://www.bullionstar.com/gold-universit...sche-bundesbank
People’s Bank of Ch target="_blank"ina https://www.bullionstar.com/gold-univer...ples-bank-china
Banque de target="_blank"France https://www.bullionstar.com/gold-uni...anque-de-france
Banca target="_blank" d’Italia https://www.bullionstar.com/gold-...s-banca-ditalia
De Nederlandsch target="_blank"e Bank (DNB) https://www.bullionstar.com/go...ndsche-bank-dnb
Bank of Russia https://www.bullionstar.com...ies-bank-russia
S target="_blank"wiss National Bank https://www.bullionstar....s-national-bank
Oesterreichisch target="_blank"e Nationalbank (OeNB) https://www.bullionst...tionalbank-oenb
Ronan Manly
E-mail target="_blank" Ronan Manly on:
Follow target="_blank"@BullionStar
Follow @ronanmanly
