The BIS and Gold - A Bit of History

The Bank of International Settlements (BIS) in Switzerland is sometimes referred to as "the central bank of central banks" given it's role in the global monetary system. The BIS has an interesting history that includes a long involvement with gold. Today, most financial media ignore gold and any involvement with it at the BIS or other central banks around the world. 

Since gold is no longer utilized to anchor currencies in the present monetary system, most people under 50 years old likely don't have much knowledge of the days when gold was a major focus of activity at the BIS. The purpose of this article is to provide some educational resource links for anyone who wants to learn about some interesting history related to BIS gold operations. 

The BIS itself published informational notes on its gold transactions with Germany before, during, and after World War II. You can find a summary of their report here with some more detailed information here. 

For those wondering - What was the purpose for the BIS? - they answer that question themselves in the summary report linked above as follows:

"The Bank for International Settlements (BIS) was established as an international financial institution, enjoying special immunities, pursuant to the Hague Agreements of 20th January 1930. The founder shareholding members were the central banks of Belgium, France, Germany, Italy, Japan, the United Kingdom and the United States (the Federal Reserve did not take up its rights as founder member until 1994). Within two years of its founding, nineteen other European central banks had subscribed to the Bank's capital. The Bank opened its doors in Basle, Switzerland on 17th May 1930. 

Its main objects were the following: 

1 - to act as trustee or agent in regard to international financial settlements, particularly in regard to German reparations under the so-called Young Plan adopted at the 1930 Hague Conference 

2 - to promote central bank cooperation 

3 - to provide additional facilities for international financial operations."

For those wondering if the BIS was involved in any gold transactions, the answer is yes. In fact, they were heavily involved in gold transactions as they explain in this excerpted quote:

"gold transactions undertaken by the BIS on behalf of its members as well as for its own account became very important during the second half of the 1930s. Several central banks deposited gold with the BIS at different locations, both as "earmarked" gold and on gold sight accounts (it should be stressed that the BIS at its offices in Basle did not have - and still does not have - facilities of its own for storing and handling gold). These central bank deposits allowed the BIS to carry out numerous gold transactions for its customers, namely sales, purchases, exchanges and transports of gold in and between the various gold markets. While many gold claims and gold obligations of the different central banks were simply offset in the BIS's books, the Bank, on numerous occasions, also organised the physical transport of gold from one depository to another. Thus, in the financial year 1936-1937 alone, nearly 100 tonnes of gold were either exchanged or transported between markets by the BIS. From late 1938, against the background of the growing threat of war, the BIS was instrumental in shipping large amounts of gold from the European continent to New York. From October 1938 to June 1940 the BIS transported approximately 130 tonnes of gold to New York on behalf of the central banks of Belgium, Estonia, France, the Netherlands, Norway, Poland, Switzerland and the United Kingdom. After May-June 1940 the number and importance of the gold transports organised by the BIS declined rapidly."

The BIS report goes on to describe in detail the gold transactions that took place between the BIS and Germany before and during World War II. Not surprisingly, this activity raised some questions about what kind of relationship existed between the BIS and Nazi Germany. This 1997 article in the New York Times asked these kinds of questions, but left them mostly unanswered. Here are two brief excerpts from the article:

"During the war, the bank's (BIS) board of governors included British, German, Italian and Japanese central bank officials, and there was considerable suspicion in Washington that it was controlled by Nazi sympathizers."

. . . . .

"Indeed, some American officials called for the bank's liquidation immediately after the war, accusing it of being dominated by Nazi interests. It is not clear from today's (BIS) statement whether the wartime transactions listed by the bank were a front for other financial transfers linked to the German war effort."

Like many things related to gold, there are often more questions than answers in regards to central bank transactions involving gold. Even today, when we are told that gold is not relevant to a modern monetary system, central banks own tens of thousands of tons of it and engage in the purchase and sale of many tons of it every year. Apparently, it does have some kind of importance to central banks (and the BIS) despite the fact it no longer serves as an anchor to national currencies as it did in the past. But exactly what role gold now plays remains somewhat of a mystery, much like the purpose of the BIS gold transactions with Germany during World War II.

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Added note of interest for readers: I sent this article to Jim Rickards to get his reaction. Jim replied and referred me to pages 207-214 of his book, The Death of Money (2014). Here is a brief excerpt from pages 212-213 with his comments related to this bit of history:

"Indeed, the IMF's distribution of SDR's is not limited to IMF members. Article XVII of the IMF's governing Articles of Agreement permits SDR issuance to "non members . . . and other official entities," including the United Nations and the Bank for International Settlements (BIS), in Basel, Switzerland. The BIS is notorious for facilitating Nazi gold swaps while being run by an American, Thomas McKittrick, during the Second World War, and is commonly known as the central bank for central banks. The IMF can issue SDR's to the BIS today to finance it's ongoing gold market manipulations."

Additional added note: The BIS offers some of it's perspective on this World War II era history on their web site here. They imply that the BIS was unaware of the source of the German gold involved in some of the transactions at that time. It contains this interesting excerpt:

"In July 1944, a United Nations conference met at Bretton Woods in the United States to discuss the postwar international monetary system. The Bretton Woods Conference adopted a resolution calling for the abolition of the BIS "at the earliest possible moment", because it considered that the BIS would have no useful role to play once the newly created World Bank and International Monetary Fund were operational. European central bankers held a different opinion, and successfully lobbied for maintaining the BIS. By early 1948, the BIS liquidation resolution had been put aside. It was understood that henceforth the BIS would focus foremost on European monetary and financial matters."

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