Interview: German gold repatriation not an issue for Federal Reserve
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E-mail Xinhua, January 18, 2013
The decision of the German central bank to repatriate part of its gold reserves from New York and Paris is not an issue for the Federal Reserve and the position of the U.S. dollar, a German economist has said.
"I don't think the Bundesbank's decision to repatriate parts of German gold will affect the Federal Reserve," Professor Horst Loechel, professor of economics at the Frankfurt School of Finance and Management, said in an interview with Xinhua.
The German central bank, or Bundesbank, on Wednesday announced it would transport 300 tonnes of gold from New York and 374 tonnes of gold from Paris to Frankfurt by 2020. By then, half of Germany's gold reserves will be stored in its own vaults in Germany, with the other half still stored in central banks in New York and London.
"With this new storage plan, the Bundesbank is focusing on the two primary functions of the gold reserves: to build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold trading centers abroad within a short period of time," stated Loechel.
"Countries store their gold reserve at the Federal Reserve for security, technical or exchange reasons. The main benefit of storing gold reserves in foreign countries is that they can be exchanged into other currencies immediately," Loechel said.
In times of currency crisis, for example, German companies or banks might run out of U.S. dollar reserves. Then, they can immediately exchange gold into U.S. dollars, explained Loechel. "It's obvious that Germany's gold reserve in Paris can also be stored in Germany because the two countries are using the same currency now," he added.
As the United States does not have ownership of the gold, the storage of gold reserves at the Federal Reserve does not actually affect the position of gold, the current account or any other positions.
But Loechel said "bringing the gold reserves back to Germany will not be an issue for the Federal Reserve. The discussion between the Federal Reserve and the Bundesbank is probably more about costs. Storage, control and transportation of gold can be pretty expensive."
According to the economist, safety was the main reason behind the Bundesbank's decision to relocate its gold reserves. There was a discussion about whether Germany's gold reserve was still safe during the euro crisis in the past two years and particularly last year. He added the public realized for the first time that most of the gold reserves were not stored in Germany but abroad.
"The German public was concerned about the safety of the gold stored in foreign countries and the German central bank decided to repatriate part of its gold reserves as a result," said Loechel.
The Bundesbank has the second largest gold reserves in the world and its moves will be important to other central banks, according to Loechel, who added there was a possibility other central banks could follow the Bundesbank and ask for repatriations.
"The repatriation of gold reserves by the Bundesbank is not likely to affect exchange rates of the U.S. dollar. Perhaps, it will have an impact on gold prices," Loechel said.
"In times of crisis, people consider gold to be the last anchor of any value," he said. "The Bundesbank's move could exert an upward pressure on gold prices." Endi
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