Statement by the Deutsche Bundesbank on the accounting treatment of the gold reserves
The Deutsche Bundesbank holds and manages the national foreign reserves of the Federal Republic of Germany with the greatest of care. Its foreign reserves included 3,396 tonnes of gold as at the balance sheet cut-off date of 31 December 2011. The function of this gold as a foreign reserve asset defines how it is stored; maximum security standards are in place.
The Bundesbank has stored parts of its gold reserves for decades at central banks in the Western world: the Federal Reserve Bank of New York, the Bank of England and the Banque de France. Every year, these central banks provide the Bundesbank with confirmation of its holdings of gold (measured in troy ounces) as a basis for its accounting. The integrity, reputation and security of these foreign depositories are beyond reproach. The safekeeping of these bars of gold at our partner central banks has no bearing on the ownership of the gold bars and is insolvency-proof. Moreover, the Bundesbank, as a central bank, enjoys particular immunity and thus also protection from enforcement measures. There is no possibility of confusion or commingling with the holdings of other parties.
The Federal Court of Auditors (Bundesrechnungshof, FCA) and the Bundesbank have differing views with regard to the scale of the physical inventory to be taken, for accounting purposes, of gold reserves stored abroad. The Bundesbank’s view is that, firstly, the scope of the audit requested by the FCA does not conform to common practice among central banks. Secondly, the book inventory, in use for years, and the accompanying confirmations by the depositories are in compliance with legal regulations and generally accepted accounting principles. The available documentation and procedures used mean that the records of the off-site gold holdings are complete and can be traced back over a period of decades. This procedure has been confirmed by all external auditors to date, who, without exception, have issued an unrestricted certification, which is published every year in the Bundesbank’s Annual Report. The FCA, too, which has been auditing the annual accounts since 2002, has to date never found fault with the Bundesbank’s accounting practices. The independent Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW) has explicitly confirmed the legality of the inventory procedure chosen by the Bundesbank for its gold holdings. Significant balance sheet items can be subjected to audit actions going beyond a simple book inventory. However, the integrity and independence of the custodian also need to be taken into account. There is no doubt whatsoever that the institutions acting as the Bundesbank’s depositories have the very highest of reputation and credit rating. Confidentiality regarding audit activities going beyond simple book inventories has been agreed with the Bundesbank’s partner central banks.
Irrespective of this existing judicial interpretation, the Bundesbank will take up suggestions by the FCA wherever possible. The character of the gold as a reserve asset, however, is the key factor in decisions regarding storage of the gold holdings. As in the past, the Bundesbank will have part of its gold reserves reviewed and verified in future, too. This could also involve relocating part of the holdings. To function as reserve assets, it would have to be possible for the gold holdings to be exchanged, if necessary, into a commonly used reserve currency without any logistical constraints. That is the reason for storing parts of the gold reserves at partner central banks in other countries.