Who Owns the Public Gold: States or Central Banks?

by
Ronan Manly
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It’s a common misconception that the world’s major central banks and monetary authorities own large quantities of gold bars. Most of them do not. Instead, this gold is owned by the sovereign states that have entrusted it to the respective nation’s central bank, and the central banks are merely acting as guardians of the gold. Tracing the ownership question a step further, what are sovereign states? A sovereign state is an entity with legal personality that is represented by one government. And with each government representing the people of that sovereign state, in essence, the large gold hordes managed by the central banks are in fact pools of gold owned by the state for the benefit of its citizens.

Owned by the State

When ownership of gold reserves resides with the associated sovereign state, the central bank or monetary authority is officially appointed to act on behalf of the state in holding and managing that state’s gold reserves.

For example, the Deutsche Bundesbank has stated that:

“The Deutsche Bundesbank holds and manages the national foreign reserves of the Federal Republic of Germany”

Likewise, as per its Statutes, the Banque de France highlights that it:

“shall hold and manage the State’s gold and currency reserves and shall enter them on the asset side of its balance sheet pursuant to the terms and conditions of an agreement it enters into with the State.” 

The United Kingdom’s gold reserves are held in the Exchange Equalisation Account (EEA). The EEA is a “government account administered by Her Majesty’s Treasury (HMT)” which holds UK Government’s official international reserves, including its gold.

HMT is the UK government’s economic and finance ministry. According to the Bank of England, the Bank “acts as HMT’s Agent in the day-to-day management of the EEA” under an annual Service Level Agreement between HMT and the Bank.

The US Government Gold Reserves, officially claimed to consist of 8133.5 tonnes of gold, are held by the US Department of the Treasury. The US Mint, which administers the US gold reserves’ storage facilities, is a part of the US Treasury.

China’s official gold reserves are owned by the Chinese State and managed by the Chinese central bank, the People’s Bank of China (PBoC). One of the PBoC’s stated functions is:

“Holding and managing the state foreign exchange and gold reserves“

The Russian Federation’s central bank, the Bank of Russia, manages the official Russian gold reserves, however the Bank of Russia is under ownership of the Russian Federation:

“The authorised capital and other property of the Bank of Russia shall be in federal ownership. In pursuance of its purposes and in accordance with the procedure established by this Federal Law, the Bank of Russia shall exercise its powers to own, use and manage its property, including the gold and currency (international) reserves of the Bank of Russia”

The Russian State Fund of Precious Metals and Precious Stones, a.k.a The Gokhran, may also hold Russian gold reserves. However,  it doesn’t report its investments to the public. The Gokhran too is under Russian state control, since the Gokhran reports to the Russian Ministry of Finance.

The official gold reserves of the Netherlands are owned by the Netherlands state, not by the De Nederlandsche Bank (DNB). The DNB merely manages these gold reserves:

“The Dutch central Bank manages more than 600 tonnes of gold. That gold is of the State and is in essence our national nest egg.”[De Nederlandsche Bank beheert ruim 600 ton goud. Dat goud is van de staat en is in wezen ons nationale appeltje voor de dorst.]

Austria’s central Bank, Oesterreichische Nationalbank (OeNB) states that it “invests and manage the national monetary and gold reserves” of Austria in accordance with the bank’s “stability mandate”. This mandate is derived from Austria’s NationalBank Act and various EU and ECB statutes. The (OeNB) is itself, fully owned by the central government of Austria.

Switzerland’s national gold reserve policy, through which the Swiss National Bank (SNB) holds Switzerland’s gold reserves, is derived from the Swiss Federal Constitution. The Constitution grants the SNB its independence and mandate, and Article 99 of the Constitution requires that the SNB hold sufficient currency reserves / foreign exchange reserves, part of which must be in the form of gold.

Banca d’Italia and ECB

One notable exception to the above ownership pattern is Italy. Ownership of Italy’s gold reserves resides directly with the country’s central bank, the Banca d’Italia (Bank of Italy). According to the Bank:

“La proprietà delle riserve ufficiali è assegnata per legge alla Banca d’Italia” – (Ownership of official reserves is assigned by law to the Bank of Italy)

Banca d’Italia is also exceptional in that its share capital is held by a diverse range of Italian banks and other financial institutions as well as by the Italian state, so, unlike many other central banks, the Bank of Italy is not fully state-owned.

Another exception is the European Central Bank (ECB). In January 1999, when the Euro was first introduced and the then newly established ECB became responsible for a common monetary policy in the Euro area, each national central bank (NCB) participating in the Euro was required to transfer foreign reserves to the ECB so as to populate the ECB’s balance sheet with foreign reserves. Each NCB transfer was required to be in the form of 15% gold, and 85% in a combination of US dollars and Japanese yen. The initial NCB transfers in 1999 provided the ECB with 750 tonnes of gold, but left the combined gold holdings of participating NCBs and the ECB unchanged. These ECB’s foreign reserves, including gold, which now total 5050 tonnes, are managed on a decentralised basis by the NCBs. See BullionStar blog “European Central Bank gold reserves held across 5 locations. ECB will not disclose Gold Bar List” for full details.

Since the ECB is owned by its member NCBs, the ECB gold is therefore not owned by any particular state. However, it could be argued that since most of the ECB member central banks are owned by European states, then the ECB gold is collectively owned mostly by European states.

With the majority of central banks also fully owned by the state, overall this means that even in cases where a central bank ‘owns‘ the gold that it holds, that central bank will likely be under state ownership, which essentially means that the gold it controls is ultimately owned by the state.

Gold market FOIA request? – Smash it - Click to enlarge

Friction between State and Central Bank

Although central banks are usually independent from their respective country’s governments, a relationship status which provides them with a degree of day-to-day control over the management of official gold reserves, the States’ finance ministries,  government auditors and government legislation will, to various extents, require input into major decisions about a country’s gold reserves, such as gold sales, gold storage location plans, and the auditing of the nation’s gold reserves.

This can sometimes cause tension between the central bank and the government, as was the case between the Deutsche Bundesbank and the German Federal court of auditors, and also seen in the case of the Austrian central bank and the Austrian Court of Auditors.

In 2011, the German Federal Court of Auditors, the Bundesrechnungshof, wrote a highly critical report concerning the Bundesbank’s lack of oversight of German gold stored at the Federal Reserve Bank of New York, the Bank of England and at Banque de France. The Federal Auditors specifically took exception to the lack of physical audits by the Bundesbank of its foreign held gold. This report, which was initially confidential but which became public in October 2012, led to the Bundesbank announcing a gold repatriation program that same month, a program which was subsequently expanded in scope in January 2013.

In February 2015, the Austrian Court of Auditors issued a report addressing the Austrian central bank’s (OeNB’s) gold reserves. That report was critical of the ‘high concentration risk’ of storing over 80% of Austria’s gold at the Bank of England vaults in London. The Court of Auditors also asserted that the gold storage contract with the Bank of England was deficient and that the OeNB’s internal auditing for the gold was also deficient. Three months later the OeNB announced a program to repatriate 140 tonnes of its gold from the Bank of England back to storage sites in Austria and Switzerland.

Conclusion: Central Bank Secrecy and Arrogance

It’s well documented on this website and others that central banks are non-cooperative in disclosing important details about gold reserves which they hold and manage, details such as weight lists and auditing details. It has now been demonstrated that the majority of these central banks only ‘manage’ this gold on behalf of their respective sovereign states. The most common excuse of the central banks in their non-cooperation is confidentially, with a close second being deflecting the question, and a common third being to ignore the question.

But given that the sovereign states own the gold and that the sovereign states are represented by governments which claim to represent the citizens of those states, this secrecy and arrogance from a bunch of aloof unelected central bank bureaucrats is misplaced, unacceptable and needs to be highlighted, called out and challenged. Likewise for the elected bureaucrat finance ministers who connive and endorse this central banker behaviour or are merely ignorant and uninterested in how the central bankers conduct themselves in the gold market and towards the public who have legitimate questions about this market.

For full details of gold related policies of most of the central banks mentioned in this article, please see the following BullionStar Gold University profiles of Central Bank Gold Policies:

United States Treasury https://www.bullionstar.com/gold-university/central-bank-gold-policies-us-treasury

Deutsche Bundesbank https://www.bullionstar.com/gold-university/central-bank-gold-policies-deutsche-bundesbank

People’s Bank of China https://www.bullionstar.com/gold-university/central-bank-gold-policies-peoples-bank-china

Banque de France https://www.bullionstar.com/gold-university/central-bank-gold-policies-banque-de-france

Banca d’Italia https://www.bullionstar.com/gold-university/central-bank-gold-policies-banca-ditalia

De Nederlandsche Bank (DNB) https://www.bullionstar.com/gold-university/central-bank-gold-policies-de-nederlandsche-bank-dnb

Bank of Russia https://www.bullionstar.com/gold-university/central-bank-gold-policies-bank-russia

Swiss National Bank https://www.bullionstar.com/gold-university/central-bank-gold-policies-swiss-national-bank

Oesterreichische Nationalbank (OeNB) https://www.bullionstar.com/gold-university/central-bank-gold-policies-oesterreichische-nationalbank-oenb
Ronan Manly

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About Ronan Manly

Ronan Manly is an investment professional and research analyst with an interest in the monetary gold market. His career has taken him from Dublin to London, New York, and Frankfurt, in roles spanning portfolio management, stockbroking, and technology, working for companies including Dimensional Fund Advisors and Morgan Stanley. In his time, Ronan has collected various economic and finance degrees, most recently a Master's in Finance from London Business School.

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