US Gold Reserves Reach Lowest Level in Decades

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In what some economists consider a move by Europe to reassert its financial independence from the U.S., European Central banks keep requesting their gold bullion be returned to them from the Federal Reserve Bank of New York’s vault leaving the gold stockpile kept in a secure place under the streets of Manhattan at its lowest level in over two decades.

Europe Withdrawing

The trend was started by Germany, which requested its gold repatriated by the U.S. in 2012. The move was quickly followed by the Netherlands, France, Belgium and Austria. Since those requests were issued, 250 tons of gold have been taken back, leaving the amount still stored at the NY Fed vaults at 5,950 tons. The last time a repatriation of this proportion occurred was just before the financial crises, as foreign central banks withdrew close to 400 tons from U.S. vaults.

Gold Pool

In the past, precious metals determined the stability of national currencies. In cases of faltering economies, central banks would turn back to the security of gold. This changed during World War II as the dollar assumed the position as the most reliable currency. The process was helped by purchase and leasing of massive amounts of equipment, arms and strategic materials were compensated for in gold causing U.S. gold reserves to swell from 13,000 tons to 21,800 by 1949.

Another source for gold for the US came from Bretton Woods which made the paper dollar equal to gold. This system included the creation of the International Monetary Fund and the World Bank, with all settlements being done in either dollars or in gold. Countries who funded these institutions contributed in gold or in dollars bought with gold.

To regulate these organizations, the Federal Reserve Bank of New York established a Gold Pool consisting of seven Western European countries. Countries participating in the pool were remunerated for sales of gold from U.S.’s own gold reserves, with the profits shared 50:50, with half going to the U.S., and the rest to the other participants.

However, with gold now a global commodity, maintaining a national reserve has become less important with many countries selling off their reserves over time in order to put the funds to other uses. What Germany and the other countries plan to do with their repatriated gold is still a mystery but with gold still holding its value well they may be planning to do the same.

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