In a highly unusual legal case, the country of Venezuela is suing the Bank of England (BoE) for around $1 billion. Venezuela’s central bank says it wants Venezuela’s gold back from the BoE, where it is stored, to be routed to the UN Development Programme (UNDP) for it to sell, so that the country can buy necessary kit to combat Covid-19. The BoE has declined to say why it is not handing the gold back. What has aroused the wrath of Venezuela, some 7,500 kilometres distant from London? And what’s the relevance for Glint Pay clients?
Venezuela, like many other countries, keeps its gold reserves in storage at the BoE because, in more than 320 years of its existence, no-one has ever stolen gold from the BoE vaults, which are deep underground in the heart of London.
The BoE website says it holds around 400,000 bars of gold, worth more than £200 billion. The BoE is the world’s second largest keeper of gold. Its website says it holds gold on behalf of central bank customers “to support financial stability by providing central banks with secure custody.” Gold is held in storage on “an allocated basis” (very similar to how Glint customers own their gold) which means that “the customer retains the title to gold bars in our vaults…”
The Banco Central de Venezuela owned 332 tonnes of gold in 1950, increased that to 356 tonnes by 1986 and since then (up to 2018) bought another 156.71 tonnes according to its website. At the BoE it probably stores some 31 tonnes.
In 2018 Venezuela started bartering its gold for food supplies from Turkey, as a general economic crisis deepened. Venezuela’s GDP has shrunk by some 60% in the past seven years. Venezuela’s Presidency is currently held by Nicolas Maduro but it has been disputed since January 2019. Since August 2019 the US has placed sanctions on Venezuela. The International Monetary Fund (IMF) puts annual inflation in Venezuela today at 15,000%. In Venezuela there has been an outbreak of small-scale hunting for gold, sanctioned by the state. There are suggestions that some of this small-scale gold mining is connected to violent criminal activity. Juan Guaidó, who contests the presidency, and has been recognised by more than 50 countries, has called on the European Union to label this artisanal gold mining in Venezuela as “blood gold”.
What it means for Glint customers
There are several relevant strands to the Venezuela case.
The most obvious is that gold is highly prized in desperate times. Venezuela shows that when paper currencies become worthless, then gold can still be used to either buy or barter.
The central bank’s lawyers have said there is a “moral imperative” to return the gold. But it’s not just a case of morality – it’s a matter of who legally owns the gold. If the case hinges on that alone then it’s an open-and-shut matter. If the BoE succeeds in resisting giving Venezuela back its gold, it will make a mockery of its claim that it physically allocates the gold it holds to its owners.
No doubt President Maduro has overseen the collapse of his country’s economy and its people’s wellbeing. We neither defend nor attack Maduro.
But the BoE will set a terrible precedent if it decides the ownership of the gold in its vaults is on a moral, rather than a legal basis. And if it wins the case, then expect a flood of demands from other central banks to get their gold out of the BoE’s coffers.
Physically allocated gold, for Glint, is not some kind of subjective moral matter – the gold you have in your account is really owned by no-one else but you. Be glad that it’s not held by the BoE but is safely in a Swiss vault.