Stacked gold bars in the vault of the Bundesbank

From our archive: Gold swaps in the 1960s

Thanks to the economic performance of West Germany, the Bundesbank accumulated significant gold reserves over the years through cross-compensation between central banks – in particular with partner central banks in the major industrial countries.

Gold swaps

Due to a surge in gold purchases in 1967 and 1968, the Fed amassed sizeable gold delivery obligations at the storage site in London. At the time, the Bundesbank provided the Fed with Good Delivery gold amounting to a total value of $1 billion in gold swaps at the London site.[1] In return, the Fed gave the Bundesbank “government stamped bars” of gold to the value of $350 million at the storage site in New York as well as Good Delivery gold in the amount of $650 million at the storage site in Ottowa (Canada). Overall, the swaps generated a return of $470,651.05 for the Bundesbank. The transaction was settled in seven instalments in the period from 5 April to 26 June 1968, with the Bundesbank holding the received bars at the storage sites in New York and Ottowa.

Quality checks during the transaction

handwritten table from 1968
handwritten table from 1968

Initially, the Fed only repaid one quarter ($250 million) of the amount due from the gold swaps with Good Delivery bars, as its reserve of Good Delivery bars had fallen strongly. The remaining bars with a countervalue of $750 million were of a different quality. In agreement with the Bundesbank, these bars were initially retained on a gold suspense account, to be booked as Good Delivery bars only after their weight had been assessed and they had been melted to form Good Delivery gold. After melting, a discrepancy of 18.412 ounces was established in the weight of the bars, which corresponded to a countervalue of $644.44. The Fed compensated the Bundesbank for both the costs incurred from the melting process, which amounted to 4519£ 7s 8p, and the discrepancy in the weight of the bars.[2]

Footnotes:

  1. Source: Historical Archives of the Deutsche Bundesbank, Frankfurt am Main, Signature: HA BBk B 330/20835
  2. A standard bar of gold that complies with the Good Delivery quality standard has a fineness of 995 ‰ and a nominal weight of 400 troy ounces, ie 12.44 kilograms, but it can vary in weight from 350 to 430 troy ounces. 1 troy ounce is equivalent to 31.1034768g.