Since You Asked

The Bundesbank takes back its doughnuts

In repatriating its gold, the German central bank shows it doesn’t trust foreigners

‘Germany’s central bank is planning to shift 54,000 gold bars worth €27bn from Paris and New York to its base in Frankfurt, one of the biggest publicly announced shipments of the precious metal on record.’
Financial Times, January 16

What’s the thinking behind that?

There is no thinking behind that. This is gold we’re talking about, so we’re entering the asylum.

Really? Gold has been a pretty good investment over the past 10 years.

It’s been an excellent investment. But there’s no logic behind the gold bubble.

Bubble? That’s a controversial word to use. How do you know the gold price will collapse?

I don’t mean the gold price will collapse. When I say “bubble”, I’m thinking of a more technical category: gold is a bubble because its investment value isn’t connected to the stream of income it produces. Housing produces rent. Bonds produce interest payments. Shares produce dividends, or at least the prospect. But gold doesn’t produce any income stream, and its value as jewellery or for industrial uses is inconsequential. Gold merely offers the prospect of resale to somebody who also wants to hold gold. Therefore it is a bubble. It may remain an excellent investment: any bubble that has persisted for 4,000 years has to be pretty resilient.

There are plenty of good reasons to expect the gold price to rise – most notably that central banks are printing money by the hundreds of billions.

Whatever. If we actually get some decent inflation – and it has been conspicuous by its absence in much of the developed world – then of course the price of anything denominated in the inflating currency will rise. For example, the price of balloons should rise.

But this is all a distraction. The point is not that Germany is buying up gold but that it’s physically moving the gold it already has. So something else is going on.

Indeed. To change the subject for a moment, did I ever tell you about the Island of Yap?


There’s no need to snap. Be polite and you might learn something. Yap is in Micronesia in the West Pacific. Its coins, the rai, look like stone doughnuts. Some are fairly portable, the size of actual doughnuts, but others weigh as much as a couple of cars. The process of producing these things, 250 miles across the sea in the quarries of Palau, used to be a gigantic effort – a Victorian naturalist witnessed a tenth of Yap’s adult male population digging these things out of the ground and sailing them back to Yap.

Gosh. Couldn’t they have been more profitably employed producing something with practical value?

Tell me again that gold isn’t a bubble.

I see your point. But I’m curious – how did the Yap islanders use a 4-tonne coin? It sounds like something dreamed up by Douglas Adams.

You’re thinking of the Triganic pu. In Adams’s fertile imagination, this was worth eight ningis – but as the ningi was a rubber coin 6,800 miles long on each side no one ever got enough together to own a pu.

Couldn’t you just have accumulated credit for the eight ningis in a bank account?

No, the banks didn’t want to bother with small change. But you have the solution to the islanders’ problem here. They didn’t actually move the 4-tonne coins around, they just gave each other credit. If we lived on Yap and you paid me for something – say, land or a dowry – with a huge coin, everyone would simply agree the coin in question had a new owner. It would remain the one leaning against the tree behind the garden shed. But when once it had been yours, now it would be mine. The islanders even used a coin at the bottom of the ocean as money. It sank in a storm on the way back from Palau but everyone knew whose it was.

That’s absolutely insane.

Now you’re thinking like the Bundesbank. Most of the world’s gold is in vaults with labels on it: “That’s Auric Goldfinger’s gold”; “That’s the Bundesbank’s gold”. Usually, when it is bought and sold, we just change the labels. You and the Bundesbank think differently. The Germans are behaving like a Yap islander who actually wants to move the 4-tonne stone doughnut to his own back garden.

Socially awkward.

Quite. The message is simple: the Bundesbank doesn’t really trust foreigners. Diplomatically, that will ruffle some feathers. But it is a sentiment that will reassure many Germans.

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19th of January, 2013Since You Asked • Comments off