Did The Dutch Central Bank Lie About Its Gold Bar List?

Posted on 23 Jul 2017 by at https://www.bullionstar.com/blogs/koos-jansen/

Head of the Financial Markets Division of the Dutch central bank, Aerdt Houben, stated in an interview for newspaper Het Financieele Dagblad published in October 2016 that releasing a bar list of the Dutch official gold reserves “would cost hundreds of thousands of euros”. In this post we’ll expose this is virtually impossible – the costs to publish the bar list should be close to zero – and speculate about the far reaching implications of this falsehood. 

Recap

This story started a couple of years ago. As I am Dutch and concerned not only about my own financial wellbeing but of my country as well, I commenced inquiring my national central bank about the whereabouts and safety of our gold reserves in late 2013. One of my first actions was submitting the local equivalent of a Freedom Of Information Act – in Dutch WOB – to De Nederlandsche Bank (DNB) in order to obtain all written communication of the past decades between DNB and the Federal Reserve Bank Of New York (FRBNY). In 2013 I knew a large share of the Dutch gold was stored at the FRBNY, which I deemed to be an unnecessary risk. In a crisis situation, for example, the US government would be able to confiscate Dutch gold stored on American soil. Unfortunately, DNB responded it’s exempt from certain WOB requests under the banking law from 1998, article 3. (I thought the WOB hit a dead end, though recent developments have changed my mind regarding the legitimacy of the rejection. In a forthcoming post more on my WOB from 2013.)

Subsequently, on 21 November 2014 DNB shocked the financial world by announcing it had covertly repatriated 123 tonnes of gold from the FRBNY vaults. Did DNB question the trustworthiness of the FRBNY like myself? Most likely, as I see few other reasons for repatriating, next to losing trust in the international monetary system itself. The gold wasn’t sold in the Netherlands, as our gold reserves have remained unchanged at 612 tonnes since 2008. Apparently DNB felt safer having less gold stored at the FRBNY. Note, the FRBNY offers institutional clients to store gold free of charge, yet DNB favored to ship it home. From the FRBNY website:

The New York Fed charges account holders a handling fee for gold transactions, including when gold enters or leaves the vault or ownership transfers (moves between compartments), but otherwise does not charge fees for gold storage.

In the press release DNB stated repatriating gold “may have a positive effect on public confidence”. Suggesting the Dutch public – or central bank or government – does not have full faith in the FRBNY as a custodian.

The-Netherlands-Official-Gold-Reserves-Locations2
Exhibit 1. Locations Dutch gold before and after 21 November 2014.

My focus on the Dutch gold, in a way partially mine as our official gold reserves are not owned but merely managed by DNB, was sharpened in 2015. On 26 September of that year I visited the Reinvent Money conference in Rotterdam, the Netherlands. One of the speakers was Jacob De Haan from DNB’s Economics and Research Division. In his presentation, De Haan repeatedly emphasized the importance of transparency in central banking.

De Haan DNB 2015
Exhibit 2. Slide by Jacob De Haan DNB, Reinvent Money conference 26 September 2015. Red frame added by Koos Jansen.

Through my WOB experience, however, DNB appeared to be not transparent at all. Thereby, if DNB wants to be transparent and boost public confidence, why doesn’t it publish a gold bar list? The publication of this list would provide one of the most important checks on the existence of the Dutch official gold reserves, as the list can then be cross checked with the inventory lists of gold ETFs and alike, possibly exposing multiple titles of ownership on single gold bars. And this act of transparency could be accomplished within minutes by uploading an excel sheet to the DNB website. When I approached De Haan after the conference and asked why DNB doesn’t put out a gold bar list, he offered me he would look into it. He gave me his email address and we agreed to stay in touch.

Jan de Haan dnb
Exhibit 3. 26 September 2015 at the Reinvent Money conference. On the left Jacob De Haan, on the right in the orange sweater Koos Jansen.

Many months pasted, but after countless emails and phone calls DNB finally notified me it would not publish any gold bar list. So much for transparency! The following is what DNB wrote me on 11 August 2016 as the reason not to publish:

…we do not intend to publish a gold bar list. This serves no additional monetary purpose to our aforementioned transparency policy, however it would incur administrative costs.

Administrative costs? There hardly could be administrative costs as this list should be readily available in one or more spreadsheets, I reckoned. When confronting DNB with my logic they replied on 15 August 2016:

DNB has internal gold bar lists, however the conversion of internal lists to documents for publication would create too many administrative burdens.

DNB claims to have “internal lists”, but creating “documents for publication” would create too many administrative burdens. I couldn’t believe it. The only way this excuse would hold was if DNB’s internal lists are non-digital, which then need to be either physically copied or manually inserted in spreadsheet software. However, it’s highly unlikely DNB doesn’t have a digital gold bar list in this day and age. Computers have been widely used since the eighties; that’s more than thirty years ago. One the first applications that computers supported were spreadsheet programs designed for accounting.

Roughly 65 % of the international reserves of the Netherlands are held in gold. Would DNB still keep their precious gold records on pieces of paper?

In my professional opinion the Dutch gold must be meticulously recorded in digital documents and thus publishing a bar list should cost nothing. But showing proof will strengthen my perspective. Up till now this post has been more or less a summary of my previous writings. Down below we’ll zoom in on this material, and reveal why it’s virtually impossible for DNB to gain any administrative burdens for publishing a gold bar list.

The Dutch Gold Is Fully Allocated

Let us establish the Dutch gold is fully allocated. According to the London Bullion Market Association (LBMA), which sets the global gold wholesale standards, gold held in allocated accounts is [brackets added by Koos Jansen]:

Allocated Accounts: These are accounts held by dealers [/custodians] in clients’ names on which are maintained balances of uniquely identifiable bars of metal ‘allocated’ to a specific customer and segregated from other metal held in the vault. The client has full title to this metal with the dealer holding it on the client’s behalf as custodian.

Clients’ holdings will be identified in a weight list of bars showing the unique bar number, gross weight, the assay or fineness of each bar and its fine weight. 

Clearly, allocated accounts contain uniquely identifiable gold bars owned by one specific client.

DNB discloses the Dutch official gold reserves position according to the International Monetary Fund’s Balance of Payments and International Investment Position Manual version 6 (BPM6). From DNB [brackets added by Koos Jansen]:

De Nederlandsche Bank [DNB] publishes the balance of payments statistics according to the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) since October 2014.

More from DNB:

The figures for the Netherlands have been adjusted for the period since 2008.

BPM6 forces national authorities to distinguish between gold bullion and unallocated accounts, of which gold bullion can be held in allocated accounts. The German central bank wrote in June 2014 on adopting BPM6  [brackets added by Koos Jansen]:

The new rules are binding for the EU member states [which includes the Netherlands] by virtue of a Council regulation amended by the European Commission.

With regard to reserve assets, gold transactions and positions will in future be subdivided into [1] gold bullion, which includes gold bars and allocated gold accounts, and [2] gold receivables, to which no specific gold holdings are assigned [unallocated accounts].

In the next chart we can see the ratio between gold bullion and unallocated accounts of all the Eurosystem’s national central banks. The data has been sourced from the German central bank, as the BundesBank’s website has the most user friendly interface. The Netherlands is said to hold 100 % in gold bullion.

Official Gold Reserves Eurosystem May 2017
Exhibit 4. The Eurosystem’s official gold reserves. The exact accounting structure of BPM6 on unallocated accounts is beyond the scope of this post.

When asked directly, DNB replied all the Dutch official gold is indeed fully allocated. Accordingly, there should be lists from all custodians that show the uniquely identifiable gold bars owned by the Dutch state, as stipulated by LBMA guidelines.

….

Read the remainder of the article at https://www.bullionstar.com/blogs/koos-jansen/did-the-dutch-central-bank-lied-about-its-gold-bar-list/