Photo: St. Louis Fed
Germany is repatriating 374 tons of its gold held in Paris and a further 300 tons of gold stored in New York by 2020.At current prices this is valued at $36 billion and represents 19 per cent of Germany’s gold reserves.
The news has sparked some conspiracy theories about the safety of the Federal Reserve and German-U.S. relations.
But in a Financial Times editorial PIMCO’s Mohamed El-Erian writes that this is just about internal pressures growing in Germany ahead of elections:
“Since the start of the European debt crisis in 2009-10, citizens have gotten increasingly concerned about other countries’ ability to access their income. It is one thing for Germany to commit to a one-off loan to Greece. It is another for it to be part of recurrent bailouts, both direct and indirect, for a potentially expanding set of European countries.
Germans also realise that the more loans they make to struggling economies, the less likely they are to get fully repaid. Already, there is — understandable and realistic — talk that official creditors will have no choice but to forgive part of their financial claims on Greece.
It is not unusual for concerns about open-ended income transfers to evolve into broader worries about the integrity of the nation’s wealth and well-being. …Over the last few months, there has been a debate in Germany about the safety of the country’s gold stock held in other countries – amplified by recognition that the historical case for holding the gold abroad is no longer as valid.”
But El-Erian warns that this does carry an international risk since it could pressure other countries to repatriate their offshore gold holdings.
And this could in turn spark larger political tensions, “then the world would find itself facing even greater difficulties resolving payments imbalances and resisting beggar-thy-neighbour national policies”.
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