Gold Definitions

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Monetary gold

Definition Gold held by governmental authorities as a financial asset.

NON- MONETARY GOLD

Definition: Non-monetary gold covers exports and imports of all gold not held as reserve assets (monetary gold) by the authorities. Non-monetary gold is treated as any other commodity and, when feasible, is subdivided into gold held as a store of value and other (industrial) gold.

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Monetary and Non-Monetary Gold

The U.S. Army and the Discovery, Accountability, and Security of German Monetary Gold

When the American armies entered Germany in the spring of 1945, they discovered large amounts of gold hidden by the Germans, particularly at the Merkers salt mines, where the Reichsbank had shipped about 400 million Reichsmarks in gold in an effort to hide it from the Allies closing in on Berlin. The gold had been looted from central banks in German-occupied countries, individual civilians and victims of Nazi persecution. By that summer much of it was stored in the Reichsbank building in Frankfurt in the custody of the Foreign Exchange Depository (FED), a section of the Office of Military Government United States (OMGUS) of the American occupation force in Germany. Between 1945 and 1948 the FED collected, guarded, inventoried, and distributed to various countries nearly $300 million in gold bullion and gold coins ($2.9 billion today). The FED worked with Allied governments, occupation authorities, and the Tripartite Gold Commission in inventorying this collection (consistent with official definitions of monetary and non-monetary gold) and making distributions as agreed.

Discovery and Disposition of Non-Monetary Gold From the Victims of Nazi Persecution

Within months after the occupation of Germany by Allied troops, U.S. military authorities learned that the German Reichsbank had incorporated gold looted from the occupied nations of Europe into its gold reserve, as well as some gold (including jewelry, watches and even smelted dental gold) that the Nazi SS stripped from Jews and other persecutees. An elaborate Reichsbank program of converting the gold and valuables of camp victims into official German accounts was known to American authorities after the war. The Reichsbank established the "Melmer" account, named for SS-Hauptsturmfuehrer Bruno Melmer, into which the SS deposited looted gold and other assets confiscated from Holocaust victims and other civilians. Whatever might be the total amount of victim gold in the German gold reserve, the scale of the SS plundering of camp victims was made clear by the amount of SS gold and other valuables uncovered by the U.S. Army at the Merkers mine in 1945. Some of the victim gold in the Reichsbank gold reserves came from persecutees killed in concentration camps or elsewhere, while some was taken by the Nazis from other civilians. There is clear evidence that gold looted by the Nazis from individuals and camp victims was systematically received, classified, sold, pawned, deposited, or converted and smelted by the Reichsbank into gold ingots and sent to the Reichsbank monetary gold reserve along with gold looted elsewhere in Europe. The smelted SS gold was indistinguishable in appearance from gold bullion stolen from central banks across Nazi-occupied Europe.

Some of this victim gold has been traced as part of German wartime gold sales to Switzerland and Italy. An analysis of one Prussian Mint smelting of looted Dutch guilders in 1943 notes that 37,000 fine grams of gold from the SS loot were added to that particular smelting. Of the bars that resulted from this smelting, 83 percent were traded to the Swiss National Bank, the rest to Italy. Thus, it is clear that the bullion traded to Switzerland and other neutral countries included some of this victim gold. At the same time, there is no evidence that the Swiss or other neutrals knowingly accepted victim gold. According to captured German records, packages of jewelry identified in documents as coming from Jewish victims were sent by diplomatic pouch to the German Legation in Bern for pickup by German agents, who then traded the jewelry for industrial diamonds and currency critical to the German war effort.

It is also clear that victim gold entered the postwar Gold Pool organized by the Tripartite Gold Commission. Caches of smelted victim gold, including gold teeth, jewelry and Jewish religious items--along with gold coins taken from individuals--were recovered at the Merkers mine and elsewhere in Germany. This study provides no evidence that American officials ever assayed (analyzed chemically) the gold bars to be added to the Pool, despite a 1946 dispatch from U.S. diplomat Livingston Merchant raising the issue. Instead, they allowed appearance rather than origin to define gold as monetary when in fact some of it was derived from gold valuables taken from concentration camp victims and other civilians. In deciding to include gold coins and bars without mint markings, there is no doubt that the U.S. Government consciously contributed gold and coins at Merkers belonging to concentration camp victims and other civilians to the TGC Gold Pool.

The amount of victim gold misdirected into the Gold Pool and subsequently distributed by the TGC to claimant countries has not been quantified. Nor can it be established from our study how much victim gold was seized by the Nazis, how much entered the German gold reserve and was used in wartime transactions, or later fell into Allied hands. It was likely that a relatively small proportion of the total gold looted from central banks and recovered by the Allies after the War was victim gold, but that scarcely lessens the sense of a final grim indignity added to the toll of Nazi barbarity. Paradoxically and poignantly, the hasty measures taken by the U.S. and its Allies to distinguish between monetary gold supposedly taken from central banks, and non-monetary gold supposedly taken from individuals, were motivated in part by a decision by the Paris Reparations Conference in January 1946 to ensure that non-monetary gold would be used to provide immediate assistance to Jews and other stateless refugees.

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Monetary gold (F.11)

5.26 . Definition:

The sub-category monetary gold (F.11) consists of all transactions in monetary gold (AF.11) that is gold held as a component of foreign reserves by monetary authorities or by others who are subject to the effective control of the authorities.

5.27 . The monetary authorities sector, which is based on a functional concept, consists of the sub-sector the central bank (S.121) and central government institutions, which carry out operations usually attributed to the central bank. Such operations include the issue of currency, maintenance and management of international reserves and the operation of exchange stabilisation funds.

Therefore, gold can normally be a financial asset only for the central bank or central government. However, in some circumstances, other financial corporations may hold title to gold that can only be sold with the specific consent of the monetary authorities. In such restricted circumstances, the concept of effective control can be applied to the gold holdings of financial corporations other than the central bank.

5.28 . Monetary gold normally takes the form of bars with a purity of at least 995/1000.

5.29 . Transactions in monetary gold consist predominantly of sales and purchases of monetary gold among monetary authorities. Purchases of monetary gold are recorded in the financial accounts of the domestic monetary authorities as increases in financial assets. The counterpart entries are decreases in financial assets of the rest of the world.

5.30 . Transactions in non-monetary gold, that is in gold other than monetary gold, are treated as acquisitions less disposals of valuables (if the sole purpose is to provide a store of wealth) and otherwise as final or intermediate consumption and/or change in inventories. Transactions in non-monetary gold include transactions by the monetary authorities in gold that is not a component of their foreign reserves.

5.31 . If monetary authorities add non-monetary gold to their holdings of monetary gold or release monetary gold from their holdings for non-monetary purposes, they are deemed to have monetised or demonetised gold, respectively. Monetisation or demonetisation of gold does not give rise to entries in the financial accounts; instead, the change in balance sheet positions is accounted for by entries in the other changes in the volume of assets account as a reclassification, i.e. the reclassification of gold as valuables (AN.13) to monetary gold (AF.11) (see paragraph 6.32.). Demonetisation of gold is recorded symmetrically.

5.32 . Deposits, securities and loans denominated in gold are treated as financial assets other than monetary gold and are classified along with similar financial assets in foreign currency in the appropriate category.

Non-monetary gold swaps, that is arrangements involving the temporary exchange of non-monetary gold for deposits, are treated as collateralized loans (see paragraph 5.81. e).

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Gold standard

The gold standard is a monetary system in which the standard economic unit of account is a fixed weight of gold.

Under the gold standard, currency issuers guarantee to redeem notes in that amount of gold. Governments that employ such a fixed unit of account, and which will redeem their notes to other governments in gold, share a fixed currency relationship.

Supporters of the gold standard system claim it is more resistant to credit and debt expansion. Unlike a fiat currency, the money backed by gold cannot be created arbitrarily by government action. This restraint prevents the artificial inflation by the devaluation of currency. This is supposed to remove "currency uncertainty", keep the credit of the issuing monetary authority sound, and encourage lending. Nevertheless, countries under the gold standard underwent debt crises and depressions throughout the history of its use.

The gold standard is no longer used in any nation, having been replaced completely by fiat currency. It is still in private use by private institutions in the supply of digital gold currency, which use gold grams as money.