Koos Jansen
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Koos Jansen
Posted on 8 Oct 2015 by

The Real Reason Belgium Sold 1,098 Tonnes Of Gold

Belgium sold 1,098 tonnes of its official gold reserves since 1978. 

For our global investigation how much physical gold central banks have stored at what location and how much is leased out, I decided to submit the local equivalent of a Freedom Of Information Act (FOIA) request at the central bank of Belgium, de Nationale Bank van België (NBB), to obtain information about the amount of Belgian official gold reserves, the exact location of all gold bars, the type of gold accounts NBB holds at the Bank Of England (BOE) and how much is leased out and to whom. The outcome of this research was not what I had expected.

History Of The Official Gold Reserves Of Belgium

Some of the questions I directed at the NBB I used a stepping stone, as this information is publicly available in part. At the end of August 2015 NBB was holding 227.4 tonnes of gold, down 0.04 tonnes from 227.44 tonnes in July, according to data from the Bundesbank that publishes the gold holdings of 19 European central banks and the ECB in compliance with the IMF’s most recent version of the Balance of Payments and International Investment Position Manual (BPM6). The Bundesbank (BuBa) publishes the fine troy ounces of the official gold reserves in ‘Gold bullion’ and ‘Unallocated gold accounts’. If we add up both categories the outcome for all countries equals the reserves disclosed by the World Gold Council.

From BuBa:

The balance of payments statistics will … be consistent with the framework set out in the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6). The application of the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) is binding for EU member states by virtue of a regulation adopted by the European Commission. 

Back in 1965 NBB was holding over 1,300 tonnes of gold. Since 1978 it has sold a whopping 1,098 tonnes, or 83 %.

Belgium official gold reserves

Belgium was one of the eight participating countries in the London Gold Pool, together with the US, Germany, the UK, France, Italy, the Netherlands and Switzerland, that operated from 1961 until 1968 to stabilize the gold price at $35 an ounce by selling/buying gold in the London bullion market. Eventually the pool collapsed in 1968 because the US had printed too many dollars and France was not willing to sell any more gold to defend the gold price at $35. Remarkably, Belgian official gold reserves dropped significantly after the Pool collapsed, from 1978 until 1999. Likely, NBB was partially seeking to diversify its reserves into higher yielding assets or to lower the national debt, in addition it could have sold metal to lower the price or to “equalize its holdings relative to other gold holding nations”. Let me explain that last quote. Belgium was not the only European country that has sold vast amounts of gold in the nineties and before. When the Dutch Minister Of Finance in 2011, J.C. De Jager, was questioned about the gold sales of the central bank of the Netherlands in the nineties he answered:

Question 6:  Can you confirm that since 1991 DNB [central bank of the Netherlands] has sold 1,100 tonnes of the 1,700 tonnes it owned…

Answer 6: Since 1991 DNB sold 1,100 tonnes. At the time DNB determined that from an international perspective it owned a lot of gold proportionally. It decided to equalize its gold holdings relative to other important gold holding nations.

So, the independent central bank of the Netherlands (DNB) had decided to sell gold because “from an international perspective it owned a lot of gold proportionally”. Clearly DNB was considering the amount of gold reserves of other central banks and weighed these against its own holdings before it decided to make a downward adjustment. Was this a unilateral decision for the sake of balanced gold reserves among central banks? I don’t think so.

In 1999 the Central Bank Gold Agreement (CBGA, also called the Washington Agreement On Gold) was signed by 14 European central banks, inter alia NBB, to jointly manage gold sales. This demonstrates central banks are not unfamiliar with managing their gold reserves in concert. First there was the London Gold Pool, then the Dutch sold gold to equalize their holdings relative to other central banks and then CBGA was signed.

Maybe NBB has sold part of its reserves prior to 1999 for the same reason De Jager mentioned; to equalize the chips. Allegedly this was the idea behind the euro. GoldCore wrote on 28 May 2013:

Belgium announced another sale of 203 tons of gold on March 27, 1996, stating that the sale had reduced the share of gold in total reserves to a level which would facilitate the participation of the National Bank of Belgium [NBB] in the process of European unification and which, corresponded to the proportion of gold in the total reserves of the Member States of the European Union.

More information about the Belgian gold reserves that was perviously known: most of it is stored at the BOE in London, the heart of the global gold lease market, hence my question at the NBB regarding the type of gold accounts it has with the BOE. From searching the internet and the website of NBB I could read Belgium had leased out 84 tonnes of its gold reserves in 2011, this decreased to 37 tonnes in 2012 (lent to 5 commercial banks) and 25 tonnes in 2013 (lent to 5 commercial banks).

Data from the Bundesbank shows Belgium has a steady 17 tonnes of ‘unallocated gold’ since January 2013 and 210 tonnes of ‘gold bullion’. Apparently reserves qualified as ‘gold bullion’ (allocated gold) can be leased out, as in 2013 NBB had leased out more than was unallocated (25 tonnes versus 17 tonnes). This makes me wonder why Belgium still has any unallocated gold. (It also makes me wonder how much of the allocated gold held by other central banks is leased out.)

Belgium official gold reserves unallocated

The Verdict

In response to my FOIA, the NBB notified me it is exempt from any such requests regarding its gold reserves – click here to read the reply from NBB in Dutch. This response was similar to that of a FOIA request I submitted to DNB in 2013 in order to obtain the list of bar numbers of the Dutch official gold reserves, which bounced as well.

NBB wrote me that aside from the rules they aim to be as transparent as possible by disclosing all information to the public about their official gold reserves that is not sensitive. NBB wrote me (my translation):

– Total NBB gold reserves amount to 227.4 tonnes (7,311,955.9 fine ounces).

– The majority of this stock is stored at the Bank or England [BOE]. The remainder is at the Bank of Canada and the Bank for International Settlements. A very tiny amount is stored at the NBB.

– The storage and safekeeping abroad happens according to standards and practices that are common among central banks.

– Against a guarantee covering 101.5 % of the credit NBB had an average of 15.7 tons of gold leased out in 2014. The counterparties are commercial banks with high creditworthiness. The NBB will not enter into any new gold leases and leave the existing book until it’s fully unwound in February 2018.

Because I sensed to be in touch with an employee from NBB that knew all about the Belgian gold, I asked why they had sold 1,098 tonnes of gold since 1978? Was it to diversify reserve assets, reduce the national debt or to be accepted to the Eurosystem. NBB replied (my translation):

The sales in question took place in the context of a more balanced composition of the reserves of NBB with regard to its integration into the European System of Central Banks, although it was not the result of a legal obligation.

Next I asked what the reason was to sell the gold if there was no legal obligation, was there a verbal agreement among central banks? NBB replied (my translation):

The aspects of the management of the foreign reserves that have not been communicated by the NBB through its annual reports and press releases constitute confidential information that can not be disclosed on the grounds of professional secrecy laid down in Article 35 of the law of 22 February 1998 establishing the Statute of the NBB.

So indeed there was a secret agreement among central banks to sell gold and balance reserves, but NBB is not required to disclose this information based on “Article 35 of the law of 22 February 1998 establishing the Statute of the NBB” – a law that was passed right before CBGA was signed and the euro was launched. Actually, the details of the agreement are secondary because NBB’s statement “the sales in question took place in the context of a more balanced composition of the reserves of NBB with regard to its integration into the European System of Central Banks”, is very clear to me. Especially when we add De Jager’s statement from 2011, “DNB determined that from an international perspective it owned a lot of gold proportionally. It decided to equalize its gold holdings relative to other important gold holding nations.”

I can’t be a coincidence both central banks sold gold prior to 1999 for “more balanced reserves” while the sales would not have been executed in conjunction of each other. My conclusion is that the gold sales of European central banks prior to CBGA have been jointly managed in secret.

Here you can read the full email exchange between me and NBB in Dutch. 

Koos Jansen
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  • Matt

    “So indeed there was a secret agreement among central banks to sell gold and balance reserves”

    How do you conclude this from their comment? All they said was they wouldn’t tell you any more than was in the annual report.

    • JanNieuwenhuijs

      Because they told me “The sales in question took place in the context of a more balanced composition of the reserves of NBB with regard to its integration into the European System of Central Banks”, but they couldn’t give me any more details. In the annual report I couldn’t find this reason for gold sales.

      • Matt

        But that is quite a bit different than a ‘secret agreement between central banks’. For example they might have concluded that they needed far less international reserves of all types because a) the euro would be an international currency and so could substitute, b) their external trade as a % of GDP would be far smaller (as intra-union trade now becomes domestic trade).

        • JanNieuwenhuijs

          Could be. But, am I mistaken or did the NBB just tell me it sold gold for reasons not mentioned in the annual report?

          Besides, the sales in light of the euro introduction should indeed be a legal obligation no? Or was euro integration all a verbal operation?

          (I’ll read through the annual report one more time 🙂

          • JanNieuwenhuijs

            The 1996 annual report states (that I’m aware of) NBB sold gold to lower the national debt. In addition, 40 tonnes of gold was transferred to the ECB.

  • http://roacheforque.blogspot.com Roacheforque

    So indeed there was a secret agreement among central banks to sell gold and balance reserves, but NBB is not required to disclose this information based on “Article 35 of the law of 22 February 1998 establishing the Statute of the NBB” – a law that was passed right before CBGA was signed and the euro was launched.

    And right AFTER the LBMA first publicly disclosed its daily (paper gold) clearing volumes. Note that by this time, Asia had already begun to corner the physical market. We both should know paper claims per ounce are even higher than the low 200’s (recognized today yet more than double what was recognized just 5 years ago?).

    “The oil “understanding” was broken by the Asians. More gold has been sold than can ever be covered! This market is not the same as the past. One day gold will start up and BIS will deal with it the only way possible!”

  • Pieter Cleppe

    Rumour has it that Belgium (central bank governor Alfons Verplaetse) was selling its gold to South Africa in the 1990s (in a bid to prop up shaky government finances), unsettling markets who didn’t know what’s going on while obviously breaking the secret deal with other countries. This may be one of the reasons for European countries to sign a public deal in 1999…

  • jor

    In studying Koos Jansen’s paper I found the following clarifying quotations in the website “Central Bank Gold Agreements | World Gold Council”:

    Quote: “…central banks have immense pricing power in the gold markets. In recognition of this, major European central banks signed the Central Bank Gold Agreement (CBGA) in 1999, limiting the amount of gold that signatories can collectively sell in any one year.”

    The following quotations seems to be rather sarcastic and ironic to me:

    Quote: “The agreements have been beneficial to all aspects of the gold market from gold producers, fabricators, investors and consumers and in particular to heavily
    indebted poor countries (HIPC), several of whom are large exporters of gold. The Agreement, the fourth of its kind, marks a continued commitment from some of the world’s largest gold reserve holders to preserve the clarity and transparency that this agreement provides for gold market participants.”

    The following statement seems to contradict Bernanke’s “barbarous relic”-idea:

    Quote: “It also firmly reasserts the importance of gold as an asset in global monetary reserves.”

    Before the official launch of the European single currency on 1st January 1999, the central banks of the prospective euro area transferred foreign reserve assets to the
    new institution. In this decision gold played a mayor role (although it contradicts Bernanke’s “barbarous relic”-idea):

    Quote: “Of the initial transfer of assets, which amounted to nearly €40 billion,the ECB agreed that 15 per cent should be in gold, a clear demonstration of the fact that European policymakers continued to believe that gold strengthened the balance sheet of a central bank and enhanced public confidence.”

    Before launching the Euro countries had to decide how the had to take care of the remaining 85 per cent in “foreign currency assets”:

    Quote: “The ECB indicated clearly that these transfers of gold would not affect the total consolidated gold holdings of the Eurozone. The remaining 85 per cent was transferred in foreign currency assets, but there was no implication that the ratio would remain the same. ”

    In CBGA1 (dated 1999) the management claims gold sales had to be restricted to relieve “the pain for gold producing countries”, especially the “Heavily Indebted Poor Countries”, although they didn’t care for “the pain for gold producing countries” by selling unlimited amounts of paper gold:

    Quote: “The central banks of Western Europe in particular held—and still hold—substantial stocks of gold in their reserves. Those in the Netherlands, Belgium, Austria, Switzerland and the UK, had already sold gold or announced their intent to do so. Others were taking advantage of rising demand for borrowed gold and increasing their use of lending, swaps and other derivative instruments. An increase in lending typically resulted in additional gold being sold, meaning that the trend was adding further supplies to the market. In addition to the destabilising effect of these sales, market fears about central bank intentions were causing further falls in the price of gold. This was causing considerable pain for gold producing countries. Among these were a number of developing countries, including a significant number of those classified as HIPCs (Heavily Indebted Poor Countries).

    Gold is still to be considered as an “important asset in global monetary reserves”:

    Quote: “Despite a number of sales, gold’s share of the ECB’s total reserves has grown considerably since then, due to the sharp increase in the gold price. As at September 2010, the ECB had 26 per cent of its reserves in gold.” (from: “The ECB and gold”)

  • Tuur Demeester

    I agree that the main reason why European central banks in the late nineties started selling gold in concert, was to boost the credibility of the euro by “demonetizing gold”.

    There are several actual founders of the euro project who have written about this:

    Alexandre Lamfalussy, the central banker named by many as the godfather of the euro, in 1969:

    “On the one hand, I would like to see gold lose its monetary function; on the other, however, I would not like a national currency to assume the role of a reserve and international currency, that is to say, that the unsteady gold-exchange standard be replaced by the .dollar standard. Consequently, I would like that the demonetization of gold takes place alongside with the creation of an international reserve currency.”

    (From: The role of monetary gold over the next ten years)

    Tommaso Padoa-Schioppa, another euro founding father, in 1999:

    Our new currency unites not only economies, but also the people of Europe. The euro is the first currency which has abandoned not only its anchor to gold, but also its anchor to the State. For hundreds and, indeed, thousands of years, currencies have had both these anchors. They severed the last link to gold less than 30 years ago, and they have ‘disanchored’ themselves from the State only with the advent of the euro. To have this latter feature in a currency which, being not anchored to gold, has no intrinsic value, which is just a piece of paper has a special significance. It is so because the fact that people exchange goods and services against something which has no other value than the confidence placed in it, is – in my view – one of the most striking manifestations of the bonds which unite a society. The society with these unifying bonds is now the European society, and not only a national society: this, I think, represents a profound change in human history.

    And Willem Duisenberg, the first chairman of the ECB, in his 2002 acceptance speech:

    The euro, probably more than any other currency, represents the mutual confidence at the heart of our community. It is the first currency that has not only severed its link to gold, but also its link to the nation-state. It is not backed by the durability of the metal or by the authority of the state. Indeed, what Sir Thomas More said of gold five hundred years ago – that it was made for men and that it had its value by them – applies very well to the euro.

  • wazsah

    That was about the same time Australia sold 167t gold too –

    Reserve Bank’s gold sale cost us $5bn

  • Danielvr

    Koos, do you happen to know which part of official Dutch gold reserves has been pledged to the ECB and to the IMF? I wonder how much of our 612.5 tonnes of gold is still unencumbered and at the immediate disposal of the Dutch State, and how much is on the balance sheets of these supranational organisations? Secondly, what potential dangers could this pose to our national gold holdings – e.g. do the charters of these organisations grant them the right to liquidate our gold, or to demand more?

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