Hidden Gold

NEW YORK’S GOLDEN SECRET
More than a quarter of the world’s gold is stashed away in just a single bank vault 80 ft (24 m) below the streets of New York City, USA, inside the Federal Reserve Bank of New York (FRBNY). Countries buy and sell billions of dollars worth of gold in secret, simply by shifting it around the vault.

The Federal Reserve Bank of New York contains more than 8,000 tons (7,250 metric tons) of gold. The exact amount is not known because some countries do not release details of how much gold they have.


Most of the gold in the FRBNY is in the form of bricklike bars. Each is worth at least $160,000, weighing
400 troy ounces (27 lb/12.4 kg). A troy ounce is a unit of weight used for measuring precious metals.


In addition to the bricks, there are tiny bars of gold made from the leftovers from each casting. These are
nicknamed “Hershey bars” because they look like the bars of chocolate produced by US confectioner Hershey


The gold in the FRBNY is owned by 122 countries. Each country has its own gold store in the vault, in
which bars of gold are piled up in overlapping layers like brick walls.


Countries put their gold in the FRBNY because it allows them to trade gold very easily—without the
risk of transporting it across the world.


When one country wants to sell its gold to another country, it simply asks the FRBNY to shift the right
number of gold bricks from its store to the store of the other country. That way no one has to worry
about moving gold around the world. It’s simply shuffled around the FRBNY vault.


Every time a gold bar is brought into the vault, it is weighed and checked by bank officials to ensure it is pure gold.

The largest single compartment in the bank contains 107,000 gold bars. You can’t tell which country it belongs to, since every country’s vault is identified only by a secret code number.


Bank officials enter the vault through a door in a narrow passage in a giant 100-ton (90-metric ton) steel cylinder, which rotates to block off the passage and seal the vault.

No one person knows all the combinations for the eight bolts that secure the cylinder. Eight people have to be present to add the code they know in order to open it.

NOTEWORTHY CHANGE
In the past, gold was widely used as money. Over time, people began to put their gold in banks for safekeeping. In return, the bank gave them paper receipts that said the bank “promise to pay” back their gold should they ever want it. Soon people began to buy things with these receipts, instead of actual gold, and they became the first bank notes. Even today, since bank notes are actually worthless paper, they are
simply a “promise to pay.”


MONEYMAKING
Since bank notes were just receipts for gold in the bank, the value of notes in circulation matched the amount
of gold in the banks. For economies to grow, more money needs to be in circulation. So banks simply print
more bank notes—regardless how much gold they actually have in reserve. This is called “fractional reserve
banking,” because the gold reserve is just a fraction of the value of the notes in circulation. It’s a neat way for
banks to literally make money. Minted!


BREAKING THE BANK
Fractional reserve banking works fine as long as all the people with bank notes don’t actually ask for their gold. But in troubled times, such as war, they sometimes did. Then the bank would go bust because it didn’t have enough gold to pay everyone. To stop people from losing out when banks collapsed, governments set up central banks. The central bank holds most of the country’s reserves of gold, and issues bank notes. The US Federal Reserve Bank and the Bank of England are central banks like these.

THE GOLD STANDARD
When banks print money regardless of how much money they have in reserve, you can’t be sure how much gold the bills actually buy. This is a problem when you want to pay for things in another country where they have different currency. So, in the 1800s, governments in countries such as Britain and the US set up a “gold standard.” This ensured a pound or a dollar would always be worth a particular amount of gold.


SPEND, SPEND, SPEND
In the last century, economic depression and world wars encouraged governments to print more money to spend their way out of trouble. It seemed to work, regardless of how much gold they actually had in reserve. So in 1971 the world’s governments decided to get rid of the gold standard. Now governments can print as much money as they want. They still keep some gold in reserve, but it’s only a small proportion of the amount of money in circulation.

A MATTER OF INTEREST
The amount of money in circulation today depends not on gold reserves, but entirely on the heads of each country’s central bank, who meet regularly in secret. They decide how much money is worth in their country by setting the percentage of interest to be paid on bank loans. In this way, they have a profound effect on how well-off we all are.