A federal court in Germany has recommended the central bank to conduct annual audits and send teams to directly verify its gold reserves in other countries, including those held at the New York Federal Reserve, according to CNBC. In addition to New York, Bundesbank has gold stored in London, Paris and Frankfurt.
For decades, the Bundesbank was trusting the written confirmation of gold reserves in New York, London and Paris. According to an audit report by the German court, the Bundesbank has never undertaken a direct verification of the gold.
The German central bank seems, however, quite happy to believe the word of other central banks on its gold reserves, says CNBC. The institution has submitted that the court does not agree with the audit recommendation but it will observe it.
Bundesbank is right about the value of direct inspection, says CNBC. In reality it does not matter at all if the Federal Reserve (Fed) in New York has Germany’s gold in its vault or if it has the necessary purity. As long as the Fed says it is there, it is sufficient for all practical purposes it can be used. It can be sold, used as collateral for liabilities and counted off of capital, whether or not it’s there.
The physical existence of gold would only count if, for example, the Bundesbank would like to use it in a practical purpose, such as the manufacture of watches, says CNBC.
Even if the decision of German federal court does not seem practical, it is possible for Bundesbank officials to visit soon the Fed vault, at about 75 feet below the street and 45 feet below the sea level. The vault is accessible only through elevators controlled by an operator from an unknown location. A source said for CNBC that the operator might not even be in New York City. This information can not be confirmed as Fed refuses to comment on the subject.
The vault where the gold is stored is divided into 122 compartments assigned to countries or international organizations. Countries with smaller storage get shelves in joint compartments. Only a few Fed people know the numbered compartments which correspond to different countries. The reason for this is the protection of owners.
This practice makes, however, less certain the outcome of an inspection. Germany has no way of knowing if what it’s shown is its gold or belongs to another country, according to CNBC.
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