Central bank gold reserves: Monetary economics with a vengeance

ON WEDNESDAY morning, the Bundesbank, Germany’s central bank, announced that it would move 674 tonnes of its gold reserves (currently worth about €30 billion) from vaults in New York and Paris to its home base in Frankfurt. That night, HBO2, the American premium television channel, aired Die Hard with a Vengeance. These two events may not have been planned to coincide, but it is fortunate that they did. They both help teach us something about central bank gold reserves, and maybe even the future of the euro area.

 
For those who do not know, the film is about an attempt to steal hundreds of billions of dollars worth of gold bullion from the vaults underneath the New York Fed, which provides custodial services for many of the world’s central banks. The plan relied on a continuous series of diversions meant to confuse the police. Towards the end, the villains pretended to dump the gold into the Hudson River while posing as Marxist revolutionaries. (They had actually loaded the bullion onto trucks headed for Canada.) In a recorded message left for the Coast Guard, the leader declares that he raided the vaults to “level the playing field” between the poor and rich worlds. Ostensibly, leaving the gold at the bottom of the river would cripple the rich nations that depended on bullion reserves to support their financial systems. This makes no sense.