World
Alexander Gorokhov
November 7, 2012
© Photo: Public domain

According to British media reports, the German central bank – the Bundesbank – has decided to recall 150 tonnes of gold from the U.S., Britain and France, which was transferred by the Germans for storage in these countries at the height of the Cold War. It would seem a small amount compared to the total weight of Germany`s gold reserves, amounting to 3.396,3 tonnes, which is the second in the world only to the stocks of the U.S.. However, if you did not know, only recently Germany returned «home» about 1,000 tons of the precious metal, and its future plans are to bring back another 500 tons and examine them physically (i.e., literally counting each ingot) of gold stored abroad …

* * *

The stability of national currencies has long been based on their reserves of precious metals – gold, silver and platinum. A discrepancy between the amount of printed money and gold reserves leads to currency devaluation. Thus, in the early twentieth century, the most reliable currencies in the world were the British pound and the Russian ruble, which were 100% backed by gold. London was a global issue center. However, in the 1940s, Britain's financial system, undermined by World War II, relinquished this position to the United States of America.

This was facilitated by a system of lend-lease, in which supplies of arms, equipment and strategic materials, to recipient countries were paid for in gold. As a result, the United States built up its gold reserves from 13,000 tons in 1938 to 21,800 tons in 1949, concentrating 70% of the world reserves of the yellow metal in one place.

The second source of gold income for the U.S, approved in 1944, was the Bretton Woods financial system, making the paper dollar equivalent to gold. This system included the creation of the International Monetary Fund and the International Bank for Reconstruction and Development; all settlements between them were either in dollars or in gold. The founding countries contributed in gold, and in dollars bought with gold.

The Federal Reserve Bank of New York, acting as a financial regulator, used the buying and selling of gold to establish a «Gold Pool», in which the central banks of seven Western European countries were forced to participate. Participants in the pool were compensated for excessive selling of gold by this organization from Americas own gold reserves, and profits were shared at a ratio of 50:50. Half went to the U.S., the other half to all the other participants in the pool. In 1959 France alone lost $ 3 billion by participating in this «Gold Pool».

Naturally, such a dependence of European countries on the United States could not avoid being anything but disturbing. Charles de Gaulle once said: «While the Western countries of the Old World are subordinated to the New World, Europe cannot be European».In 1965, he demanded that the United States exchange $ 1.5 billion dollars into gold. America had no choice but to agree. In two years, de Gaulle «made lighter» U.S. gold stores by 3,000 tonnes. Following this Germany and other countries made the same exchange. And by 1970, the gold reserves of the United States had decreased by more than half, to 9.838,2 tonnes.

Since that time the volume of issued cash and, most importantly, non-cash dollars, was impossible for the Americans to cover with precious metals, and in 1971, President Richard Nixon announced the «temporary» refusal to convert dollars into gold. Attempts to restore the security of the American currency by two devaluations of the dollar have failed, and in March 1973, the global financial system moved from a fixed exchange rate against the dollar and gold to a value defined on the basis of supply and demand. But gold has got the status of a commodity; the US dollar was now traded using a new standard of value.

* * *

From that moment the gold price began to rise. More precisely the dollar and currencies linked to it fell against the price of gold. At the moment the cost of an ounce of gold (about 35 grams) has risen above $ 1,700, and by 2013, European analysts predict a new frontier of $ 2200 per ounce. That is what makes this metal particularly attractive in guaranteeing a national currency.

Today many countries are increasing their gold reserves. Especially noticeable is the success of China and Russia, which respectively, hold first and sixth place in the world in terms of gold production. There has been another trend, which is well-established in the case of Russia, which is the gradual elimination of the dollar as the main component of international reserves. For some time Russian financial experts have talked about the need for structural changes in the «basket» that ensures the stability of the ruble, the replacement of the dollar and the euro with a natural measure of wealth.

It is believed in the U.S. that to ensure the growth and development of industry a stable national currency is required (whether this is true or not is another story). But for Russia, which experienced i deindustrialization shocks in the 1990`s and still has not reached the limits of vigorous industrial growth, the idea of introducing a «natural ruble» not secured against «green paper» is more promising,and considering the enormous natural wealth of the country, even fresh water is more valuable.

* * *

Deindustrialization has not spared Europe. The liquidation and transfer abroad of industrial enterprises from the EU has led to the fact that the average share of industrial production in the structure of the EU's GDP fell by 15%. Things are slightly better only in France, where the figure is 20%, and Germany where it is 30%. The head of «ThyssenKrupp» Heinrich Hiesinger has already stated at the congress of the European People's Party, his sharp criticisms of the European Commission, for seeking to wind-down industrial production: «Future generations will look to us for jobs, not just a clean environment».

This view is shared by some European commissioners. Thus, the European Commissioner Antonio Tajani insisted on a new industrial start for Europe: the share of the EU gross domestic product created by industrial enterprises “must be increased by 20% by 2020.» He is supported by Energy Commissioner Gunter Ettinger: «We need this 20% burst as a fourth» corner stone «along with adequate measures to reduce the emission of gases that contribute to the greenhouse effect, the achievement of the planned share of production of energy from renewable resources and energy conservation measures».

Comparing the fact that the German concentration of its gold reserves in its own its territory is rising in price by leaps and bounds, and considering the above statements, the conclusions suggest themselves.

Berlin was sharper than other European capitals in feeling that further development of the global financial crisis may at some point become the reason that the gold holdings of Europeans will not leave the vault of the Federal Reserve Bank of New York. They will not be stolen or expropriated – they will simply be «enslaved» by legislation in the basement at 33, Liberty Street. In view of this prospect the German elite must strive in every way to consolidate the industrial and financial dominance of Germany in a «united Europe». This calculation is done based on the proximity of Norway with its oil and gas resources, and even more commissioning in the «Nord Stream», and the pumping of gas from Russia, which must ensure the low sensitivity of Germany to the possible consequences of conflicts in the Middle East. To what extent, however, this will coincide with the interests of the US in Europe, which after seven decades, still considers Europe as a «protectorate» (Z. Brzezinski) is an open question.

The views of individual contributors do not necessarily represent those of the Strategic Culture Foundation.
German gold and the U.S.

According to British media reports, the German central bank – the Bundesbank – has decided to recall 150 tonnes of gold from the U.S., Britain and France, which was transferred by the Germans for storage in these countries at the height of the Cold War. It would seem a small amount compared to the total weight of Germany`s gold reserves, amounting to 3.396,3 tonnes, which is the second in the world only to the stocks of the U.S.. However, if you did not know, only recently Germany returned «home» about 1,000 tons of the precious metal, and its future plans are to bring back another 500 tons and examine them physically (i.e., literally counting each ingot) of gold stored abroad …

* * *

The stability of national currencies has long been based on their reserves of precious metals – gold, silver and platinum. A discrepancy between the amount of printed money and gold reserves leads to currency devaluation. Thus, in the early twentieth century, the most reliable currencies in the world were the British pound and the Russian ruble, which were 100% backed by gold. London was a global issue center. However, in the 1940s, Britain's financial system, undermined by World War II, relinquished this position to the United States of America.

This was facilitated by a system of lend-lease, in which supplies of arms, equipment and strategic materials, to recipient countries were paid for in gold. As a result, the United States built up its gold reserves from 13,000 tons in 1938 to 21,800 tons in 1949, concentrating 70% of the world reserves of the yellow metal in one place.

The second source of gold income for the U.S, approved in 1944, was the Bretton Woods financial system, making the paper dollar equivalent to gold. This system included the creation of the International Monetary Fund and the International Bank for Reconstruction and Development; all settlements between them were either in dollars or in gold. The founding countries contributed in gold, and in dollars bought with gold.

The Federal Reserve Bank of New York, acting as a financial regulator, used the buying and selling of gold to establish a «Gold Pool», in which the central banks of seven Western European countries were forced to participate. Participants in the pool were compensated for excessive selling of gold by this organization from Americas own gold reserves, and profits were shared at a ratio of 50:50. Half went to the U.S., the other half to all the other participants in the pool. In 1959 France alone lost $ 3 billion by participating in this «Gold Pool».

Naturally, such a dependence of European countries on the United States could not avoid being anything but disturbing. Charles de Gaulle once said: «While the Western countries of the Old World are subordinated to the New World, Europe cannot be European».In 1965, he demanded that the United States exchange $ 1.5 billion dollars into gold. America had no choice but to agree. In two years, de Gaulle «made lighter» U.S. gold stores by 3,000 tonnes. Following this Germany and other countries made the same exchange. And by 1970, the gold reserves of the United States had decreased by more than half, to 9.838,2 tonnes.

Since that time the volume of issued cash and, most importantly, non-cash dollars, was impossible for the Americans to cover with precious metals, and in 1971, President Richard Nixon announced the «temporary» refusal to convert dollars into gold. Attempts to restore the security of the American currency by two devaluations of the dollar have failed, and in March 1973, the global financial system moved from a fixed exchange rate against the dollar and gold to a value defined on the basis of supply and demand. But gold has got the status of a commodity; the US dollar was now traded using a new standard of value.

* * *

From that moment the gold price began to rise. More precisely the dollar and currencies linked to it fell against the price of gold. At the moment the cost of an ounce of gold (about 35 grams) has risen above $ 1,700, and by 2013, European analysts predict a new frontier of $ 2200 per ounce. That is what makes this metal particularly attractive in guaranteeing a national currency.

Today many countries are increasing their gold reserves. Especially noticeable is the success of China and Russia, which respectively, hold first and sixth place in the world in terms of gold production. There has been another trend, which is well-established in the case of Russia, which is the gradual elimination of the dollar as the main component of international reserves. For some time Russian financial experts have talked about the need for structural changes in the «basket» that ensures the stability of the ruble, the replacement of the dollar and the euro with a natural measure of wealth.

It is believed in the U.S. that to ensure the growth and development of industry a stable national currency is required (whether this is true or not is another story). But for Russia, which experienced i deindustrialization shocks in the 1990`s and still has not reached the limits of vigorous industrial growth, the idea of introducing a «natural ruble» not secured against «green paper» is more promising,and considering the enormous natural wealth of the country, even fresh water is more valuable.

* * *

Deindustrialization has not spared Europe. The liquidation and transfer abroad of industrial enterprises from the EU has led to the fact that the average share of industrial production in the structure of the EU's GDP fell by 15%. Things are slightly better only in France, where the figure is 20%, and Germany where it is 30%. The head of «ThyssenKrupp» Heinrich Hiesinger has already stated at the congress of the European People's Party, his sharp criticisms of the European Commission, for seeking to wind-down industrial production: «Future generations will look to us for jobs, not just a clean environment».

This view is shared by some European commissioners. Thus, the European Commissioner Antonio Tajani insisted on a new industrial start for Europe: the share of the EU gross domestic product created by industrial enterprises “must be increased by 20% by 2020.» He is supported by Energy Commissioner Gunter Ettinger: «We need this 20% burst as a fourth» corner stone «along with adequate measures to reduce the emission of gases that contribute to the greenhouse effect, the achievement of the planned share of production of energy from renewable resources and energy conservation measures».

Comparing the fact that the German concentration of its gold reserves in its own its territory is rising in price by leaps and bounds, and considering the above statements, the conclusions suggest themselves.

Berlin was sharper than other European capitals in feeling that further development of the global financial crisis may at some point become the reason that the gold holdings of Europeans will not leave the vault of the Federal Reserve Bank of New York. They will not be stolen or expropriated – they will simply be «enslaved» by legislation in the basement at 33, Liberty Street. In view of this prospect the German elite must strive in every way to consolidate the industrial and financial dominance of Germany in a «united Europe». This calculation is done based on the proximity of Norway with its oil and gas resources, and even more commissioning in the «Nord Stream», and the pumping of gas from Russia, which must ensure the low sensitivity of Germany to the possible consequences of conflicts in the Middle East. To what extent, however, this will coincide with the interests of the US in Europe, which after seven decades, still considers Europe as a «protectorate» (Z. Brzezinski) is an open question.