Central banks in Western Europe hold large stocks of gold bullion, accounting on average for 35% of their total foreign currency reserves. These gold reserves are a legacy of the 19th century Gold Standard, when national currencies were fixed against a certain quantity of gold, and could be exchanged for it. By the late 20th century, however, these gold reserves were deemed too large.
Central banks in Europe began to sell as the price fell through the 1980s and ’90s, with the Swiss deciding in a referendum to sell 1,300 tonnes in 1999. The UK then shocked the market by announcing it would sell half its national gold reserves that same year. Fearing a sharp drop in prices, European central banks quickly agreed to give advance notice of their sales, capping their joint disposals to 400 tonnes per year until 2004. They also agreed not to lend any more gold to the market, where mining companies were borrowing and selling it to hedge their future production.
That first Central Bank Gold Agreement was signed by 15 official-sector institutions, including the European Central Bank, all of its then members, and also the Swiss National Bank and the Bank of England. It was renewed with a new, higher annual limit of 500 tonnes in 2004. The third CBGA was signed in September 2009, but again with an annual cap of 400 tonnes after sales had almost ended amid the global financial crisis.
CBGA-3 is set to expire in September 2014. By the autumn of 2013, only 20 tonnes had been sold out of a possible limit of 1,600 tonnes.« Back to Glossary Index