The Fed does not own gold

[William F Hummel]

From  http://www.federalreserve.gov/faqs/does-the-federal-reserve-own-or-hold-gold.htm --

The Federal Reserve does not own gold.

The Gold Reserve Act of 1934 required the Federal Reserve System to transfer ownership of all of its gold to the Department of the Treasury. In exchange, the Secretary of the Treasury issued gold certificates to the Federal Reserve for the amount of gold transferred at the then-applicable statutory price for gold held by the Treasury.

Gold certificates are denominated in U.S. dollars. Their value is based on the statutory price for gold at the time the certificates are issued. Gold certificates do not give the Federal Reserve any right to redeem the certificates for gold.

The statutory price of gold is set by law. It does not fluctuate with the market price of gold and has been constant at $42 2/9, or $42.2222, per fine troy ounce since 1973. The book value of the gold held by the Treasury is determined using the statutory price.

Although the Federal Reserve does not own any gold, the Federal Reserve Bank of New York acts as the custodian of gold owned by account holders such as the U.S. government, foreign governments, other central banks, and official international organizations. No individuals or private sector entities are permitted to store gold in the vault of the Federal Reserve Bank of New York or at any Federal Reserve Bank.

A small portion of the gold held by the U.S. Treasury (roughly $600 million in book value)--about five percent--is held in custody for the Treasury by the Federal Reserve Banks, as fiscal agents of the United States. The vast majority of this gold is located in the vault at the Federal Reserve Bank of New York, and a very small portion is on display in several Federal Reserve Banks. The remaining 95 percent of U.S. Treasury gold ($10.4 billion in book value) is held in custody for the Treasury by the U.S. Mint.

The Federal Reserve reports information on gold and gold certificates weekly in its H.4.1 statistical release. The "Factors Affecting Reserve Balances of Depository Institutions" table reports the book value of gold held by the Treasury under "Gold stock." The "Consolidated Statement of Condition of All Federal Reserve Banks" table reports the value of gold certificates held by the Federal Reserve under "Gold certificate account."

[William F Hummel]

Since the 1978 US gold reserves have been virtually constant. But what happened before then might surprise you.

See http://www.24hgold.com/english/contributor.aspx?article=4249489564G10020&contributor=Tim+Iacono

[Tom Paine II]

The chart is no surprise, the rise in the 30s showing the controversial national gold takings, and the post war decline showing drainage due to the int’l gold standard.

 

But the complete stasis since the late 70s raises three further questions:

 

Must the Tsy retain as much gold as the Fed bears certificates for?

 

What proportion of the Tsy stock is carried against Fed gold certificates?

 

Why the stasis?  (If the proportion is 100%, it would suggest legislated tranquility—the Fed can’t redeem the certificates, and the Tsy must hold the gold to back them.)

[Tom Paine II]

I’d like to see one of those Fed gold certificates.  Are they sui generis two-party instruments, or are they theoretically transferrable (to parties that presumably could redeem them for gold)?  If the Tsy must hold as much gold as the certificates lay claim to, I think it far more true to say that the Fed really owns the gold, than that the Tsy owns it.

 

I suppose the Fed would rather print money than surrender such intrinsically valuable certificates, even if those certificates are of suspended utility to itself.

[Tom Paine II]

Replying to myself

 

From: Tom Paine II

Sent: Thursday, August 13, 2015 3:54 PM

To: understan...@googlegroups.com

Subject: Re: The Fed does not own gold

 

The chart is no surprise, the rise in the 30s showing the controversial national gold takings, and the post war decline showing drainage due to the int’l gold standard.

 

But the complete stasis since the late 70s raises three further questions:

 

Must the Tsy retain as much gold as the Fed bears certificates for?

 

What proportion of the Tsy stock is carried against Fed gold certificates?  100%, based on the equality you began the discussion with.

[Tom Paine II]

Replying to myself.

 

From: Tom Paine II

Sent: Thursday, August 13, 2015 4:08 PM

To: understan...@googlegroups.com

Subject: Re: The Fed does not own gold

 

I’d like to see one of those Fed gold certificates.  Are they sui generis two-party instruments, or are they theoretically transferrable (to parties that presumably could redeem them for gold)?  If the Tsy must hold as much gold as the certificates lay claim to (which is the case, since the TSY constantly retains exactly that amount of gold), I think it far more true to say that the Fed really owns the gold, than that the Tsy owns it.

 

I suppose the Fed would rather print money than surrender such intrinsically valuable certificates, even if those certificates are of suspended utility to itself.

 

That the Mint holds the gold represents a curious reversal of the role played by the Fed in holding stacks of TSY coins, for which it issued Fedcreds to the Tsy.  The Mint doesn’t grouse about bearing that cost, like the Fed grouses about the cost of housing coins.

[William F Hummel]

The Fed article states unequivocally that it does not own gold.  It acts only as custodian of gold for those who leave gold in its possession. That includes foreign interests as well as a small (5%) portion of the Treasury's gold. The US Mint, an agency of the Treasury, holds the remainder, mostly in Fort Knox.

The article leaves a number of questions unanswered as you noted. The one that I find most puzzling is how the Fed can count gold as an asset on its balance sheet which it neither possesses nor owns. What is the significance of the gold certificates issued to the Fed by the Treasury?

[Tom Paine II]

My “theory” is that DE FACTO the Tsy is holding the Fed’s gold--that the certificates IN EFFECT say as much.  The Treasury legally owns the gold, but without any right to use it, in effect nullifying the label of owner. 

 

Isn’t that how Treasury gold certificates held by the public always have worked?  But the gold in this case is for all intents and purposes sandbagged.  It’s conceivable that the certificates are theoretically (but certainly not in practice) transferrable to other parties, who could redeem them.

[Tom Paine II]

Presumably the Treasury counts the Fed’s gold certificates as liabilities, precisely negating the gold assets (values at the statutory price).

 

On the other hand, the Fed presumably does not negate the gold certificates against any special liability?  Hence my claim that the Fed is the De FACTO gold-asset owner.

 

Is this reasonable speculation/a matter of accounting fact?

[William F Hummel]

One could reasonably argue that the gold certificates held by the Fed are claims on that much Treasury gold at book value. However I don't see any mechanism for exercising that claim. Nor do I see any reason to exercise the claim.

The Fed holds whatever gold it is liable for as custodian, and would not need Treasury-held gold for that purpose. Considering the history of US gold since 1979, it would appear that who owns the gold is a non-issue. And yet one hopes that accounting makes sense. 

[Joe Leote]

William,

If this link works it has a comprehensive discussion of the Federal Reserve balance sheet. See discussion of Federal Reserve assets, Gold Stock, on nominal page 58, which may or may not answer some of your open questions:

Essentials of Monetary and Fiscal Economics:

https://books.google.com/books?id=8Z1lLhyOMawC&printsec=frontcover#v=onepage&q&f=false

Joe

[Tom Paine II]

It’s all very well to say that in effect, “it would appear who owns the gold is a non-issue.”  But its your own subject line, together with an observation re the asset sides of both the Tsy and Fed balance sheets, and your asking for a solution to the apparent paradox, that makes this an issue and my analysis fully on point.  The supposition that whatever rights are involved can never be exercised is at best dubious.  Is the gold forever bound to sit untouched?  What would happen if there were a decision to sell the gold?  Would the money go to the Fed or the Tsy?  I think it would go to the Fed, based on the rights implicit in the Fed’s certificates.  A key question is not whether the Fed can own gold, but whether it can sell the gold certificates.  If it can, then the Treasury is bound to redeem them to the buyer, and the Fed holds the controlling and marketable interest, not the Treasury.

 

What I’m aiming at is where the gold certificate assets appear on the right-hand side of the TSY/Fed balance sheets.  I assume, like the Fed says, that the Fed is not itself allowed to own gold, and so cannot directly redeem the certificates in gold.  But it seems to me that the Fed owns the wealth that the gold represents—and certainly so if it could legally sell the certificates to the public, who are now allowed to own gold.  The Tsy/Fed balance sheet analysis is as follows.

 

For the TSY, there are the liabilities (expressed in the ounces of gold that the certificates lay claim to) that the gold certificates represent.  Because the certificates are not dollar but weight-of-gold claims, this is a real balance.

 

For the Fed, I construe the certificate assets as contributing to equity.  Should this equity line-item be assessed at the face dollar value of the certificates, or the market value of the gold that they lay claim to?  I would argue for the latter, far higher sum—and this would be mandated, if in the fact the certificates were transferrable.

[William F Hummel]

Joe,

Thanks for the reference. If the Treasury monetizes its gold by issuing certificates to the Fed, that implies it receives credit in its Fed account equal to the book value of the certificates. As it spends that credit, the aggregate reserves of banks would increase, with no reflux.

The Fed would have to capture those reserves by selling securities from its own portfolio in the open market to maintain control of the Fed funds rate. The Fed would thereby reduce its liabilities to banks by the amount they had increased to the Treasury, so the Fed comes out even. Note that in monetizing its gold, the Treasury would pay more interest on its outstanding debt.

From all this, I conclude that the Treasury and not the Fed owns the gold.

William

[Joe Leote]

William,

I think the reference also answers some old questions I have about SDR and Treasury currency entries in the flow of funds tables. However I need to make time to revisit the flow of funds tables and integrate the information in this reference.

 

Joe

[Tom Paine II]

red

 

From: William F Hummel

Sent: Friday, August 14, 2015 12:22 PM

To: Money Group

Subject: Re: The Fed does not own gold

 

Joe,

Thanks for the reference. If the Treasury monetizes its gold by issuing certificates to the Fed, that implies it receives credit in its Fed account equal to the book value of the certificates. As it spends that credit, the aggregate reserves of banks would increase, with no reflux.

The Fed would have to capture those reserves by selling securities from its own portfolio in the open market to maintain control of the Fed funds rate.

 

Not exactly true in today’s ongoing excess reserves regime.  You might argue that what counts are the circumstances that existed when the gold was monetized...the 1930s!?  At that time the Fed funds rate was not the Fed’s chosen control mechanism.  I’m simply looking at the situation as it now exists, not when the certificates were created, and certainly not at some intermediate period when the the FED chose to control the funds rate by reining in reserves.

 

The Fed would thereby reduce its liabilities to banks by the amount they had increased to the Treasury, so the Fed comes out even.

 

Let’s assume that the Treasury issues these bargain $42 per ounce certificates today, and the Fed does choose to recover the new reserves.  It can do so by selling those certificates at market value.  It need sell only a small fraction of them to recover the entire amount.  From all this, I conclude that the Fed owns the wealth that the Treasury’s gold represents.

 

Note that in monetizing its gold, the Treasury would pay more interest on its outstanding debt.

From all this, I conclude that the Treasury and not the Fed owns the gold.

 

William

 

[Tom Paine II]

I guess my basic point is that the Tsy has already monetized all its gold against firm redemption promises (the certificates), and that the monetization means it owns no gold that it can either sell or further monetize.  When the value of gold goes up, the TSY gains nothing, there being equal increases in its real liabilities.  Contrariwise, the value of the Fed’s certificates does increase (without any increase in liabilities).

 

From: William F Hummel

Sent: Friday, August 14, 2015 12:22 PM

To: Money Group

Subject: Re: The Fed does not own gold

 

[Tom Paine II]

In the below, you seemed to say that there exist gold certificates today, equal in sum to the Treasury’s current gold holdings.  Did I misinterpret this?  This link implies that was the case in the 1930s, but also reports the subsequent destruction of certificates, without making it clear whether such destruction implied prior redemption.    http://tfm.fiscal.treasury.gov/v2/p6/c300.html

 

 

From: William F Hummel

Sent: Thursday, August 13, 2015 11:49 AM

To: Money Group

[Tom Paine II]

If the Fed holds gold certificates, then it owns the gold, according to wiki:

 

“A gold certificate in general is a certificate of ownership that gold owners hold instead of storing the actual gold.”

 

Here is a $10,000 1934 gold certificate:

 

Wiki notes that “with the 1934 issue, the promise to pay was amended with the phrase ‘as authorized by law’, as redemption was now restricted to only certain entities.”

Which means the notes are not generally marketable.   But there seems an implication that the Fed could legally redeem the certificates?

If the Fed itself can’t redeem or sell the notes (are there any other entities that could redeem them?), the answer as to who owns the gold would seem to be either the Fed, per legal convention, or no-one, per the de facto total confiscation, without enabling any further use by the Treasury.

 

My guess is that there’s some sort of Mexican standoff in effect...

 

From: Tom Paine II

Sent: Friday, August 14, 2015 1:45 PM

To: understan...@googlegroups.com

[William F Hummel]

What I quoted below was verbatim from the referenced Federal Reserve website.

The reference that Joe provided is to a book titled "Essential of Monetary and Fiscal Economics" published in 1995. Following is a quote from the book (page 58):

"Gold stock consists of monetized and non-monetized gold. Monetized gold is that against which gold certificates have been issued by the Treasury. Non-monetized gold is that against which no gold certificates have been issued. Since January 1, 1975 every ounce of gold held by the Treasury has been monetized."

[Tom Paine II]

Thanks, I did read page 58, and that statement is what has lead me to my ultimate (I think) conclusion, namely, that the in conventional legal terms, the gold is owned by the Fed, per gold certificates.  At the same time, that gold remains totally confiscated by the Tsy.  That’s how I see matters.  The gold is equivalent to confiscated property, which the Tsy can’t do anything with except hold on to, for which the Fed retains the chit of possession, redeemable if and when the law is changed to allow it.

 

From: William F Hummel

Sent: Friday, August 14, 2015 2:23 PM

To: Money Group

[William F Hummel]

Not all of the gold was "confiscated" by the Treasury. Much of it could have been bought in the open market by the Treasury. It appears that about 6000  tonnes were acquired from the Fed in 1934 as a result of the Gold Act. The current amount held is about 8000 tonnes, which was very likely acquired from other sources.

[Tom Paine II]

I think essentially all of the presently retained “Treasury” gold must have been acquired/confiscated from the Fed, in that (as this discussion began) the Fed’s certificate-assets essentially equal the Treasury holdings.  Certificates held by the public would naturally have been swapped for gold after gold prices first rose.

 

And here’s the explanation re the destroyed paper certificates, from wiki--

Modern usage by the Federal Reserve System[edit]

Since the time of the gold recall legislation the United States Treasury has issued gold certificates to the Federal Reserve Banks. The Secretary of the Treasury is authorized to "prescribe the form and denominations of the certificates".^[11] Originally, this was the purpose of the Series of 1934 Certificates which were issued only to the banks and never to the public. However, since the 1960s most of the paper certificates have been destroyed,^[12] and the currently prescribed form of the "certificates" issued to the Federal Reserve is an electronic book entry account between the Federal Reserve and the Treasury.^[13] The electronic book entry system also allows for the various regional Federal Reserve Banks to exchange certificate balances among themselves.^[14] 

As of December 2013 the Federal Reserve reported^[15] holding $11.037 billion face value of these certificates. The Treasury backs these certificates by holding an equivalent amount of gold at the statutory exchange rate of $42 2/9 dollars per troy ounce of gold, though the Federal Reserve does not have the right to exchange the certificates for gold. As the certificates are denominated in dollars rather than in a set weight of gold, any change in the statutory exchange rate towards the (much higher) market rate would result in a windfall accounting gain for the Treasury.

I would add that such a change would amount to an arguably unconstitutional takings from the Fed banks.  Per the “confiscation” status quo, there’s really no doubt that the Fed “owns” the gold, per legally basic definitions.  Much like someone can own land within a city boundary, subject to ordinances (which just might at some future date be repealed) that preclude all ordinary usages,

[William F Hummel]

The fact that all of the Treasury's gold has been monetized does not imply that the 2,000 tonne increase between what it held in 1934 and what it now holds was all acquired from the Fed. It is unlikely the Fed bought the additional gold in the open market and transferred it to the Treasury to be monetized at current book value. Acquiring gold insofar as it affects exchange rates is the statutory authority of the Treasury.

[Tom Paine II]

Fair point.

 

I guess that the Fed at least acts as the Tsy’s fiscal agent in such currency exchange rate manipulations.  How does this work in practice?  The NY Fed buys gold on the open market (with new money?) which it automatically assigns to its Treasury holdings, at the same time creating new gold certificates?  That process would assure the ongoing equality of the Tsy and Fed gold and certificate assets.  (But what of the extra reserves thus created, ids the purchases are with new money?  Is there a reflux?  Or is the purchase cost deemed an operating expense—i.e. bought using extant money, deducted from profits?)

 

Or does the Fed deduct credits from the Tsy general account to buy the gold?  There isn’t a flexible gold budget that would allow this, is there?  So the above practice would seem more likely.

 

Maybe you know how it works?

[Tom Paine II]

I’ve seen many articles re the Fed manipulating the gold market and currency exchange rates—your saying that it’s the Treasury that must statutorily do this, and that the Fed can’t own gold seems up against the commonly reported reality, e.g.:

The Federal Reserve Is Selling Paper Gold and Buying Physical Gold--The good ole "American way"—through proxies

http://www.financialsense.com/contributors/rob-kirby/the-federal-reserve-is-selling-paper-gold-and-buying-physical-gold

[William F Hummel]

I don't know the mechanics in any detail. In exchange rate operations, the Treasury takes the official lead but always in consultation with the Fed. The actual lead probably depends on the circumstances and the personalities involved. I think the financing could be done either way you suggested since the end result appears to be the same in either case.

[Jean Erick]

     How much of the gold is listed as being at Ft. Knox and how much at the Fed (remember the Bruce Willis movie)?

I think the gold might be used at times to settle accounts between countries.   ???

 

James

[Jean Erick]

     The gold is owned by the entity that owns everything.  The oligarch.

 

James

 

----- Original Message -----

From: Tom Paine II

To: understan...@googlegroups.com

[Jean Erick]

    Maybe the certificates are just an accounting method to bolster keeping an accurate count.

Does anybody know what value the certificates are set at?  How much gold does each certificate

refer to?

 

James

[Joe Leote]

This link discusses the gold held in custody at Federal Reserve Bank of New York:

http://www.newyorkfed.org/aboutthefed/goldvault.html

Joe

[Tom Paine II]

The link states:

 

None of the gold stored in the vault belongs to the New York Fed or the Federal Reserve System. The New York Fed acts as the guardian and custodian of the gold on behalf of account holders, which include the U.S. government, foreign governments, other central banks, and official international organizations. No individuals or private sector entities are permitted to store gold in the vault.

 

Given that the Fed holds certificates for essentially all of the US government’s gold, and that this prevents the US government from disposing of any such gold, and that such certificates are ordinarily construed as certificates of ownership; this and like statements are at best incomplete and highly misleading.

[William F Hummel]

What is to prevent the Treasury from demonitizing some of its gold by purchasing the gold certificates it issued to the Fed with the funds it holds in the TGA? The gold should then be available for whatever use it chooses.

[Tom Paine II]

The Fed isn’t going to agree to sell the certificates at the statutory rate.

[William F Hummel]

In selling gold certificates back to the Treasury at face value, the Fed is breaking even. It has no reason to seek a profit in a transaction with the Treasury. The two institutions are joined at the hip. They are not financial adversaries as you seem to think.

[Tom Paine II]

Joined at the hip, or mated by Mexican standoff? 

 

It’s true that the Tsy is captured by the Fed, as is much of the government.  To that extent I agree with you as to the joinder.  (Take the 2008 bail-out.  Geithner as Tsy head was fully compliant with the plan to dupe the Congress into giving the Fed funds that it intended to bail out mortgagees, but which the Fed really sought to bail-out banks.)

 

Consider this particular point re gold.  History is rife with Tsy-Fed power-tussles and legislated compromises, as in Meltzer’s history of the Fed.  Profit is a bit of a misnomer for both governmental and banking purposes here.  Power is core.

 

Why in 1934 did the Fed alone not surrender its gold to the Tsy in exchange for money, but instead did so in exchange for certificates that effectively prohibited the Tsy from selling that gold and through which the Fed might in the indefinite future reclaim all that gold?  Why didn’t the government simply buy the gold from the Fed at the mandated price, like it bought everyone else’s gold?  At that time, the Fed would have broken far more even in that initial gold surrendering, than it would by finally resigning the certificates in 2015. 

 

Beyond money, I think the certificates represent a power play standoff.  The potentially irresistible force of government against the practically immovable object of bank property.

 

You began this by wondering why the Tsy didn’t sell the gold to reap a big windfall.  The answer is that the Fed won’t sell the certificates that prevent this, and that the Treasury can’t make it (and the Treasury doesn’t even want to make the Fed sell them anyway because its captured).  The gold isn’t the Treasury’s to sell--effective control over the gold resides in the Fed through those certificates, rather than in the Tsy, which retains the gold per a legislative mandate that prohibits direct Fed ownership.  I find it amusing that the Fed actually holds the gold that the Tsy holds for the Fed...

 

Thanks for raising the paradox, I hadn’t realized that the Fed owned unrehypothecatable certificates for all the so-called government’s gold.  The matter being new, I’m still open to learning that I am mistaken that the Fed’s possession of the certificates legally freezes the gold in place...but I’ll need a clear authority on this point.

[William F Hummel]

It is absurd to say that the US gold stock, having all been monetized, is now forever immobile because the Fed will not sell back gold certificates that it received from the Treasury in monetizing the gold. 

You overlook the fact that Fed is a creature of the government. It can be made to do whatever the government authorizes through legislation. That includes transferring a portion of its wealth to another agency of government, in this case transferring the gold it holds to the Treasury in accordance with the Gold Act of 1934.

Gold is monetized when the Treasury issues gold certificates at book value to the Fed in exchange for credits in the Treasury's general account at the Fed. The certificates are not eligible for use as circulating currency. However the gold can be demonetized as easily as it is monetized. That is done by the Treasury redeeming the certificates by paying off the credit it received from the Fed in whatever amount it chooses.

You claim that the Treasury cannot not redeem the certificates because the Fed would refuse for some reason. If you have a citation to that effect, you should present it. Otherwise I consider this issue closed.

[Tom Paine II]

red

 

From: William F Hummel

Sent: Sunday, August 16, 2015 2:27 PM

To: Money Group

Subject: Re: The Fed does not own gold

 

It is absurd to say that the US gold stock, having all been monetized, is now forever immobile because the Fed will not sell back gold certificates that it received from the Treasury in monetizing the gold.

 

That the US gold stock is immobile is a fact, shown by the chart you produced.  Nowhere have I said that this is a “forever” condition.  I am merely elaborating on the forces that cause the ongoing stasis.

You overlook the fact that Fed is a creature of the government. It can be made to do whatever the government authorizes through legislation. That includes transferring a portion of its wealth to another agency of government, in this case transferring the gold it holds to the Treasury in accordance with the Gold Act of 1934.

I plainly stated that one reason the Fed would want to hold on to the certificates would because in the future the government might offer to redeem them at their statutory exchange rate.  In other words, I recognize that future legislation could completely change the situation.

 

 

Gold is monetized when the Treasury issues gold certificates at book value to the Fed in exchange for credits in the Treasury's general account at the Fed. The certificates are not eligible for use as circulating currency. However the gold can be demonetized as easily as it is monetized. That is done by the Treasury redeeming the certificates by paying off the credit it received from the Fed

 

Exactly my point—except that the Fed would have to tender the certificates for exchange.

 

in whatever amount it chooses.

 

This would not be as easy, in fact it would be impossible for the Treasury to renege on the agreed exchange rate, or to compel any redemption, unless Congress enacted another controversial (and arguably unconstitutional) gold takings act.  But in principle, the government (but certainly not the Treasury per se) could do this.  But there are political factors that contribute to the longstanding stasis, that’s my argument.

You claim that the Treasury cannot not redeem the certificates because the Fed would refuse for some reason.

 

To redeem the certificates would be to return the Fed’s gold.  The Tsy cannot redeem them, even if it wanted to, since the Fed can’t own gold.  Nor can it order the Fed to exchange the certificates for Fed credits—the Tsy cannot unilaterally order someone to sell something, it does not exercise eminent domain powers, let alone for vastly less than what such a redemption would be worth on the market.

 

It’s a legal knot.  To untie it requires an act not of the Tsy but of Congress—and even an act by congress to that effect could be challenged (probably unsuccessfully) as an unconstitutional takings.

 

If you have a citation to that effect, you should present it. Otherwise I consider this issue closed.

 

On the contrary, it is for you to provide a citation showing that the Treasury has the power to compel the Fed to give up its gold certificates.

[Tom Paine II]

Here’s a citation--

A History of the Federal Reserve, by Meltzer, Vol. 1 456-459.

 

He details how the Fed banks were compelled to surrender their gold in exchange for gold certificates, per the 1934 Gold Reserve Act.  This act gave the Treasury the upper hand in deciding the nation’s monetary policy (re interest rates, money, debt) “until the March 1951 accord released the Federal Reserve from Treasury control.”

 

Footnote 90 notes that the Fed’s gold was transferred to the Tsy the day before a devaluation, so that the Tsy profited from the devaluation.  Most pertinent is the last sentence of the footnote--

“Devaluation did not change the monetary base.  The increase of $2.8 billion in the value of gold certificates offset an increase in the liability ‘general fund in gold’ included as part of the liability ‘Treasury cash’.”

 

I confess I don’t yet grasp all the nuances that these four pages are saying.  Can you explain this last sentence for me?

 

Certainly, there was a fierce fight over the replacement of gold with mere certificates, and the Tsy’s reaping the immediate windfall from the devaluation of the dollar.  I presume the certificates are now locked into the statutory $42 exchange rate—and that the Tsy would now reap the huge further windfall you anticipate were this statute to be updated by Congress.  That is, the certificates would require that the Tsy retain vastly less gold to (theoretically) redeem them, freeing up the bulk of the gold for the government. 

 

The question is, why hasn’t such a statutory exchange rate update been tabled in Congress?  Not enacting such an update provides an automatic excuse for necessarily retaining all of the gold, without raising any questions as to other uses...and at the same time the Fed must be happy with the extant (albeit useless) certificated control of the gold.  Maybe it is all a matter of merely mutual convenience and inertia.