The Domino Effect – Romania joins Gold Repatriation exodus

By Ronan Manly – March 5, 2019

Hot on the heals of Hungary repatriating all of its gold reserves from London last October, moves are now afoot in neighboring Romania to do likewise, via a parliamentary bill submitted by Romanian politicians Liviu Dragnea and Serban Nicolae which specifies that only 5% of gold reserves can be kept abroad.

Romania’s strategic gold reserves amount to 103.7 tonnes and are managed by the country’s central bank, the National Bank of Romania (NBR), with over 60 tonnes of the Romanian gold (or about 60%) claimed to be stored at the controversial gold vaults of the Bank of England in London.

Given that Dragnea and Nicolae are not just anonymous back-bencher politicians submitting a Bill for attention seeking purposes, this gold repatriation initiative out of Romania is one to watch.

Indeed, Liviu Dragnea is leader of Romania’s largest political party, the Social Democratic Party (PSD), which is the senior party of Romania’s current ruling coalition. Dragnea is also President of Romania’s Chamber of Deputies (the lower house of parliament). Likewise, neither is Serban Nicolae a low-key figure as he is leader of the PSD grouping in Romania’s Senate (upper house of parliament). You could perhaps not find two more senior politicians than these two to kick start a gold repatriation campaign in Romania.

Bring back the Romanian Gold: Liviu Dragnea and Serban Nicolae

Romania’s gold at the Bank of England arrived there about 20 years when 46 tonnes of London Good Delivery gold bars were transferred from Romania’s state treasury vaults in Bucharest to an NBR gold account at the Bank of England. These gold bar transfers happened in stages between April 1999 and March 2002. The gold was moved to London so as to, according to the NBR, “generate cash” and for use in “structured transactions with private banking and financial institutions” i.e. gold lending transactions with bullion banks and gold-backed collateralized financing transactions with bullion banks. In 2003, the NBR’s gold holdings in London rose from the original 46 tonnes to around the 60 tonnes mark which it claims to have stored at the Bank of England today.

Romanian gold 20 years in London

According to NBR’s 2017 annual report (the latest report available), just over 59% of Romania’s 103.7 tonnes of gold is held at the Bank of England in London, in what it terms “Gold deposits abroad”. Another 27% of the Romanian gold is still held in the NBR’s Bucharest vaults in what it calls “Bullion in Standard Form“, with the remaining 14% in the form of “Gold Coins”, which are also stored in the NBR’s vaults in Bucharest.

While “gold deposits abroad” sounds very much like “gold on deposit with bullion banks (i.e. gold lending)”, the Romanian central bank says in its 2017 annual accounts that in 2017 it did not derive any income on these gold deposits, however, it did incur a storage expense of 309,000 lei. Note: the ‘Leu’ is the national currency of Romania, with ‘lei’ being the plural for ‘leu’. Also note that the international currency code for ‘leu’ is ‘RON’.

According to the Bank of England Museum, the Bank of England charges 3.5 pence (or £0.035) in storage costs per gold bar, per night. Doing a rough calculation using the figure of 60 tonnes, with 80 Good Delivery bars in a tonne, that would roughly be equal to 4,800 gold bars that Romania has in custody storage in London. At 3.5 pence per bar per night storage, that would be £61,360 pounds of annual storage costs. At at average GBP/RON exchange rate of 5.13 in 2017, that would be 314,500 lei. Therefore, we can say that this 309,000 lei storage expense in the 2017 NBR accounts is pretty accurate and refers to the annual storage charge for about 60 tonnes stored in London at the Bank of England.

There may be up to 67.5 tonnes of Romanian gold at the Bank of England now

Given that there is a storage charge, this means that the Romanian gold in London is allocated, in other words, it is stored on a ‘set-aside’ basis, a.k.a.  ‘on an earmarked basis’. This means that the Bank of England knows all the serial numbers Romania’s gold bars. This also means that the first thing Dragnea and Nicolae should do is to demand a full and proper gold bar weight list from the Romanian central bank and from the Bank of England, complete with the refiner serial number of every single gold bar that Romania has stored in London. This full and proper weight list, which Dragnea and Nicolae should also then publish, will prevent any of the gold bars going missing, and in any event will also be needed for a gold bar repatriation transport operation back to Bucharest.

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