Current issues related to economy, (responsible) investment, pension and income: every week an expert at APG gives a clear answer to the question of the week. This time: chief economist Thijs Knaap on why De Nederlandsche Bank keeps more than 35 billion euros’ worth of gold in storage.
Since 1968, part of the Dutch gold stock was stored under the headquarters of De Nederlandsche Bank (DNB) in Amsterdam. In recent weeks, the fourteen thousand gold bars and one thousand cases of gold coins were moved, from their temporary storage in Haarlem to the so-called DNB Cash Center on a heavily secured defense site near Zeist. Thirty-one percent of the total Dutch gold supply of 612 tons is now stored there. An equal percentage is in New York, while 20 percent is kept in Canada’s capital Ottawa and 18 percent in London. Why does the Netherlands have this stockpile, which has a current value of over 35 billion euros?
In 1936, the Netherlands was one of the last European countries to go off the gold standard. From that moment on, you could no longer exchange your guilders for gold. Nobody did that anyway because paying in gold is inconvenient. But the fact that the possibility existed created confidence in the stability of the currency, Knaap explains. “However, it is very bad for monetary policy, because tying a currency to the gold standard means you can’t create additional money unless you buy additional gold. And the amount of money available is an important variable in an economy. In the late 19th, early 20th century, the economy was growing fast, and that is when you want to be able to print extra money, but you couldn’t do that. Dropping the price level, the only other solution, caused economic stagnation. Sticking to the gold standard was thus one of the causes of the Great Depression of the 1930s.”
It led to more and more central banks abandoning the gold standard, after which the “fiat system” was born. In this system, money has no intrinsic value. It is created only by the fiat of the government issuing the currency. “As a legacy of the gold standard, the central banks were still left with a large amount of gold they did not know what to do with. The Netherlands therefore sold a large portion in the 1990s: some 30 years ago we still had 1,700 tons of gold, now ‘only’ just over 600.” In retrospect, some of that gold was sold at a rock-bottom price. “Perhaps there is some regret about that and no government wants to risk making that mistake again.”