The development of the Bundesbank’s gold reserves
Germany holds the second largest reserve of gold in the world after the United States, with these holdings accounting for two-thirds of Germany’s foreign reserves. Pursuant to Part 1 (3) of the Bundesbank Act, the Bundesbank shall hold and manage the foreign reserves of the Federal Republic of Germany, including gold reserves, which are distributed among four storage sites worldwide: Deutsche Bundesbank, Frankfurt am Main (BBk); Federal Reserve Bank of New York (Fed); Bank of England, London (BoE); and Banque de France, Paris (BdF). Almost half of these gold reserves are stored at the central bank of the United States – better known as the "Fed", in New York. The storage of German gold reserves both in Germany and abroad emerged for historical and market-related reasons, as some of the gold was transferred to the Bundesbank at these trading hubs.
Bundesbank gold reserves
Distribution over the different storage locations
|tonnes||€ million||tonnes||€ million||tonnes||€ million|
|Bundesbank, Frankfurt am Main||1,036||42,013||1,073||30,048||1,192||37,869|
|Federal Reserve Bank, New York||1,536||62,298||1,531||42,896||1,447||45,950|
|Bank of England, London||445||18,047||441||12,349||438||13,908|
|Banque de France, Paris||374||15,154||342||9,583||307||9,747|
The development of Germany’s gold reserves can be broken down into five phases.
1945 to 1950: the post-war years
During the post-war years from 1945 to 1950, Germany did not hold any gold reserves. However, gold, like the US dollar, was already a much sought after form of international reserve at the time.
In the summer of 1944, the Bretton Woods agreement was signed by 44 states, establishing a gold standard with fixed exchange rates. Germany only joined the Bretton Woods System later in 1952. At the core of the system was the US dollar, to which all other currencies were pegged. In addition, a fixed exchange rate was agreed upon, tying the dollar to gold ($35 per troy ounce). As part of the agreement, the Fed was obliged to exchange the dollar reserves of each member state for gold at this fixed rate.
1951 to 1968: Germany’s “economic miracle”, the European Payments Union and the Gold Pool
Germany accumulated the vast majority of its gold reserves during the time of the gold standard, which coincided with the years of the German Wirtschaftswunder (“economic miracle”), and began in 1952. Thanks to thriving exports, Germany recorded an increasing current account surplus, which rose from 0.79 million ounces at the end of 1951 to 129.69 million ounces at the end of 1968. From 1953 to 1957, retained fiscal surpluses led to a full public purse (referred to in Germany as the “Juliusturm”), a level which has not been reached since.
In the 1950s, the methods of settlement within the European Payments Union (EPU) played an important role in the accumulation of gold reserves. The bilateral surpluses and deficits of each member state were offset against those of other member states in the system, with an ever-increasing part of the outstanding net amounts having to be settled in gold or in dollars. As Germany was in a surplus position in the EPU from 1951 onwards, the Bundesbank received a total of 48.7 million ounces of fine gold before the EPU was dissolved in 1958.
In addition to inflows of gold from the EPU, by the end of the 1950s the Bundesbank had also received large quantities of gold from the Federal Reserve Bank of New York, the Bank of England and the Bank for International Settlements (BIS), which acted as a clearing house within the EPU.
In order to meet payment obligations (25% in gold), the Bundesbank transferred 0.94 million ounces of gold to the International Monetary Fund (IMF) in 1952 and 0.234 million ounces to the European Investment Bank, which was founded in 1958.
Subsequent transfers of German gold reserves can be attributed to the establishment of the Gold Pool, which was an agreement reached by eight Western central banks in Autumn 1961. The Gold Pool aimed at preserving the gold parity of $35 per troy ounce – as had been set out by the Bretton Woods system – by means of sales and temporarily also purchases. However, in 1968, a loss of confidence in the pound sterling and the US dollar resulted in the Gold Pool being discontinued and the gold market becoming divided. The most significant central banks in the Gold Pool decided to continue to conduct transactions among themselves at the official gold price. In the free market, private buyers and sellers of gold carried out their transactions based on prices that had been established independent of government intervention in the gold market.
At the end of 1968, Germany’s gold reserves reached their peak at 129.69 million ounces.
1969 to 1978
In 1969, the Bundesbank sold gold reserves to the Fed, reducing its holdings by 14 million ounces. Following slight increases between the years 1970 and 1973, the gold reserves stabilised at 117.6 million ounces. Between the collapse of the Bretton Woods system in 1973 and 1977, there were no significant changes to the gold reserves. In 1977, the Bundesbank had a large quantity of gold transferred from its account at the Bank of England to the BIS account at the Bank of England and in return received credit on its gold sight account held at the BIS in Basel. However, this did not affect the overall gold reserves.
1979 to 1998: European Monetary System
With the introduction of the European Exchange Rate Mechanism (ERM) in March 1979, the Bundesbank transferred 23.8 million of its gold reserves to the European Monetary Cooperation Fund (EMCF). In return, the Bundesbank received claims visà-vis the ECU. These, however, were reported separately in the Bundesbank’s balance sheet up until the end of 1998. From there on, the Bundesbank’s gold reserves remained constant at 95.18 million ounces. With the changeover to the EMU and the dissolution of the ERM, the reserves that had been made available to the EMCF, were temporarily transferred back to the Bundesbank.
1999 to present: European Economic and Monetary Union
At the end of 1998, Germany’s gold reserves stood at 118.98 million ounces. In January 1999, the Bundesbank transferred the German share of the ECB’s foreign reserves, which amounted to €12.2 billion and consisted of 15% physical gold (7.46 million ounces) to the ECB. Since then, the gold reserves have been drawn upon regularly, but only in small amounts for the minting of gold coins, and stood at 109 million ounces at the end of 2014.