Gnomes Of Frankfurt

The Deutsche Bundesbank wants its gold back. At least they want back half of their gold reserves presently held by the New York Fed.

Will we soon be talking about the "gnomes of Frankfurt" instead of the "gnomes of Zurich?"

Do I hear echos of The Hobbit? "My precioussss!"

What is the Bundesbank up to? Economist Antonio Fatas wonders.

"I am really curious," Fatas writes,  "about what (doomsday) scenarios [Bundesbank Board member Thiele]...has in mind"  when he explains:"to hold gold as a central bank creates confidence. We build trust at home and have the possibility to exchange gold at short notice into foreign currency abroad."  Fatas asks what circumstances the Germans fear "where the gold reserves of the Bundesbank would become crucial to restore confidence. By the way, the gold reserves of the Bundesbank which at 130 Billion Euros are large compared to other central banks seem small compared to many other magnitudes that matter in financial markets, more so during crisis time. And I am assuming that these scenarios are catastrophic, otherwise why would gold be needed to buy foreign currency. And given that they are thinking that those scenarios are likely, is there anything that they are planning to deal with them?"

John Maynard Keynes is supposed to have observed ninety or so years ago, that "gold is a barbarous relic."

The "gold bugs" of his day and of our own have never forgiven him.

The Washington Post offers one possible explanation for the Bundesbank's action. The Post article also explains why such a move is quite rare. It turns out to be much easier to move some gold bars from one nation's cage to another cage to keep track of transactions than to ship the bars across oceans.

So the actual gold bars are used much like poker chips or other tokens.

The natives of Yap figured out a similar scheme long ago:

 

It turns out that stone tokens work just as well as gold bars.