There have recently been repeated calls in the media for German gold reserves held in US Fed vaults to be returned to Germany as quickly as possible to protect them from unauthorized access. A full 37 per cent of Deutsche Bundesbank’s total gold reserves are held in the US. Whether the fears are justified remains to be seen. However, the question remains: why is a large portion of Germany’s gold reserves held in the US in the first place? For the hardest currency of all time, the reasons are historical.
Almost half of German gold reserves stored outside Germany
At 3,352 tons, German gold reserves are the second largest in the world next to US gold holdings. A large part, 1,236 tons, is stored in the vaults of the US Federal Reserve in New York, and a further 405 tons with the Bank of England in London. This accounts for 48.95 percent of Germany’s total gold reserves. In the past, some German gold holdings were also stored at the Banque de France in Paris, France, but returned to Germany since the introduction of the European single currency.
Cold War and German “Wirtschaftswunder”
After the Second World War, the global monetary system was stabilized by pegging the US dollar, the world’s leading currency, to gold, which meant that all countries participating in the so-called Bretton Woods system had to build or increase their gold reserves. Germany’s gold reserves in the US were accumulated in the 1950s and 1960s to offset massive current account surpluses of the German “Wirtschaftswunder,” or economic miracle. Under the Bretton Woods Agreement, other countries, especially those in the dollar zone, paid for German exports in gold or US dollars, reserves which in turn were often stored directly with the Fed in New York. Following the end of the Bretton Woods system in 1973, they remained with the Fed. During the Cold War, this was considered safer than storing all German gold reserves in Germany. The proportion of Bundesbank gold held by the Fed was originally even higher. A repatriation of 300 tons from the US to Germany was completed in 2017.