Reserve Bank of Australia & The Missing Bar Numbers

Early in 2014 I lodged a Freedom of Information (FOI) Request with the Reserve Bank of Australia (RBA) to release the list of Gold bars that make up Australia's official reserves. After initial rejection, an appeal with The Office of the Australian Information Commissioner resulted in the RBA providing the list (melter/assayer, gross weight, assay and fine weight), but without revealing the serial numbers.

With 99.9% of Australia's Gold reserves being stored with the Bank of England (BoE) it pleased me to see that in 2014 the RBA had performed an audit on Australia's Gold reserves. I wrote another FOI Request to gather more information on the audit as the single line of text in the Annual Report was lacking in detail, "During the year in review, the Bank audited its gold holdings, including that portion held in safe custody at the Bank of England."

The result of the second FOI Request was a small cache of emails including communications with the BoE prior to the audit.

Something I had read, but overlooked the importance of, when the Gold bar list was originally provided was the difference between the BoE's bar number and the refiner bar number (I'd initially assumed that they were one and the same).

"The only information we will withhold from release are the individual bar numbers, as this information remains confidential (in the opinion of both the Bank of England and the Reserve Bank of Australia). The Bank of England (as our custodian) use their own numbering system to uniquely identify each bar and have reaffirmed to us that these numbers should not be disclosed to third parties as the information is confidential." RBA

Though an anonymous comment on my post had picked up on the difference.

"What a joke from BoE and RBA re serial numbers. Each bar has it own number from the refiner, that is what should have been disclosed and could have without any confidentiality breach. The BoE special internal numbers did not have to be disclosed and are useless anyway in terms of ensuring the validity of the bar list.

Is the RBA saying that it and the BoE do not know the refiner bar numbers or have never recorded it? I find that hard to believe and if true is damning on their vault management."

Warren James at Screwtape Files followed up with an article on the emails from the audit. Amongst the humour (audio conversation between the RBA & BoE is a must listen) he highlights that the email communication mentions the BoE number.

"Each bar is marked with a unique BoE number" Maybe that was what BoE & RBA got confused with and why they didn't supply the serial numbers. If that were the case then the mixup would be gross incompetence in the whole matter. Definitely the BoE should not disclose their own internal tracking number since it would reveal detail about how the bank functions.

To clarify there was a difference between the two numbers (and if so to question why the refiner number couldn't be released) I wrote to the RBA again. If the BoE catalogues and tracks their Gold bars using an internal number, then what legitimate reason does the RBA have for withholding the refiner bar number following the original FOI Request? I received a response to my questions last week (questions in bold, RBA response in italics):

Is the unique Bank of England bar number different to the refiner bar number? It is our understanding that the Bank of England bar numbers are different to any markings that are placed on bars by the bar manufacturers. All bar lists relating to the RBA’s gold holdings show only one serial number per bar, the BoE serial number.

If so, why was the refiner bar number withheld from publication (oversight, on purpose or not present on the bar list)? N/A, for the reason detailed in answer to question 1.

If so and the refiner bar number is not used internally by the BoE (as a unique identifier, which their internal bar number acts as), can these be released as an extension of RBAFOI-131418 or would I need to submit a new request?  This question is based on the assumption that there are two unique numbers on each bar, being the Bank of England bar number and a ‘refiner bar number’. As noted above, all documentation provided to the RBA has only one unique serial number per bar, which we understand to be the Bank of England’s own numbering system.

When I discussed the above response with Warren James via email he suggested that it could be seen as the BoE intentionally withholding key information. I disagreed at the time, pointing out that there are benefits to having a unique BoE number such as no chance of duplicating serial numbers (something Warren highlighted occurs with some refiners restarting a number sequence) and providing multiple bar numbers may result in confusion or errors. At my request Warren provided some interesting stats from his bullion bars database indicating that for 248,063 Gold bars, there was only 206,403 unique serial numbers, so it can be estimated that roughly one in five bars could share a serial number with another. In my eyes this highlights the need for a BoE internal number that can be unique to each bar they manage, but Warren wrote further:

"The serial number is specifically named by LBMA as one of the marks required to be London Good Delivery, so I had always counted it as part of the 'standard' - at least it has been since year 2000 (ref. p44 of 'The London Good Delivery List, building a global brand 1750-2010 by Timothy Green').. it's just one of those key bits of metadata which cannot not be casually discounted. 

From a data design perspective ... 

•Even for their own internal systems they would still be capturing every marking on the bar, and for most London Good Delivery bars it will be there. 

•Bar Serial number is definitely stored in their database (or spreadsheet?), because it's a part of the LGD System they would need it on their inter-transfers. 

•In terms of data extraction, it's a trivial matter to include an extra column of data. 

•They weren't just culling redundant information > otherwise it is possible to remove GrossWeight or FineWeight, since Assay can be used to determine one or the other.

The absence of the serial number is deliberate, the only question is why? There shouldn't be an issue if it is actually allocated.

I think the BoE just decided they didn't want the detail out in the wild, because it allows the bars to be traced with high accuracy."

In a comment on Screwtape Files he concludes:

"So the industry standard for LBMA good delivery is Serial+Refiner+Weight+Assay, and the BoE leave out the serial number. Not only that, but the RBA don't question the omission. Without that key bit of differentiating information it isn't possible to track or trace the bars in any meaningful way. This appears to be the intent of BoE.

Definitely they store the information > Serial Number is always present in any other industry 'weight list'. Makes you wonder about the quality of the audit which was conducted - open for abuse since the key information is controlled by Bank Of England."

I think Warren raises some solid points and after giving it further thought I do agree that the refiner bar number should be provided to the RBA (and any other central bank or party that the BoE is custodian for) and don't see why it shouldn't also be available to the public given that it differs to the unique internal number that BoE uses to identify and manage each of the bars they store.

It does cast doubt on the veracity of the RBA's audit of Australia's Gold. Can you think of any other audit scenario where an internal reference number is accepted (by an external auditor) in place of the manufacturers own (which doesn't get checked at all)? One might hope that if they take the opportunity to audit Australia's Gold again (something they were invited to do), that they do so more thoroughly. I think the likelihood of them finding a discrepancy (such as a missing bar) is slim, but a half-baked audit negates the rationale for performing one in the first place.

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Reserve Bank of Australia Audits Our Gold Reserves

Gold Bars Stored at the Bank of England

Two years ago the news was publicly broken on this site that 99.9% of Australia's Gold reserves are stored by the Bank of England in the United Kingdom. Attempts by another blogger, interested in the whereabouts of Australia's Gold, had been rejected by the RBA only several months earlier, "The Bank does not publish the location of its gold reserves."

Decisions like this don't happen in a black hole. Something changed the RBA's mind, between August 2012 and December 2012, on making the location of Australia's Gold reserves public.

From my observation, the RBA tends to follow the lead of other Central Banks, so the decision to release information on the location of Australia's Gold may have been a result of Germany's Central Bank (Deutsche Bundesbank) deciding to do so in October 2012 (interview containing the information originally released is no longer published on the site, but available via Web Archive). Only a month later, in November 2012, the Austrian Central Bank released the location of their Gold reserves, revealing that 80% resided in the UK, 3% in Switzerland and 17% in Austria. Cue the RBA feeling comfortable to release the location details of Australia's Gold around 1 month later.

A recent experience of mine with the RBA further highlighted their desire to follow in the footsteps of other Central Banks rather than to think for themselves. An FOI request I made for the Gold bar list was initially rejected, but after lodging an appeal with the OAIC, highlighting that the United States published a list of their Gold bars details (sans the serial number), the RBA decided to follow suit (Reserve Bank of Australia Releases Gold Bar Details).

Earlier this year I spotted a line in the RBA's annual report indicating an audit had been performed (not something I have seen mentioned in previous years):

A question posed by email to the RBA earlier in the year suggested that RBA officials had performed the audit themselves.

I decided to lodge another FOI request.

"I request that a copy of the following documents be provided to me: All documents pertaining to the audit of the RBA's gold holdings performed during the 2013/14 financial year, as was specified in the 'Operations in Financial Markets' section of the Reserve Bank of Australia Annual Report 2014 ("During the year in review, the Bank audited its gold holdings")."

Two months later (decision on the documents was delayed due to consultation with the Bank of England) I received the following list of documents that would be provided (on payment of fees, which were reduced from an original quote due to the small number of documents that could be released):

And today the documents arrived. Here's what we know...

In February 2013, the Assistant Governor (Financial Markets) requested Audit Department include in its audit program a review of the Bank’s gold holdings at the Bank of England (BoE). The Chief Representative in EU approached the BoE to facilitate this review and in late May 2013 initial planning discussions were held with BoE staff with tentative agreement that the review would take place in September 2013.

The audit included:

• An on-site physical verification commencing 23 September 2013, which will take 4-5 days to complete, assuming two RBA auditors are involved given the proposed scope.
• Inspecting a sample of RBA Gold bars (list to be provided in advance), including checking the details of these bars against the Bank’s inventory list and weighing of the bars by BoE staff using their equipment.
• Randomly selecting additional Gold bars from the inventory list and observing these bars being located and retrieved from their vault (plus verifying the details and weighing them).
• Obtain a high level understanding of the BoE gold safe custody service.
• Continuing discussions for a comprehensive safe custody agreement between the RBA and BoE.

As the above document list shows, those relating to final audit results were not provided. I would assume the audit was successful, but no doubt that would be a highly contested opinion in the Gold blogosphere. The following reason was provided for denying access to the report:

Documents 10, 11 and 12 are drafts of the report prepared by the RBA’s Audit Department detailing the findings of the audit and document 13 is the final of that report.

Denial of access to these four documents in terms of s33(a)(iii) is appropriate because release of the information (which relates to procedures for the conduct of the audit with the BoE and the subsequent results) ‘would, or could reasonably be expected to, cause damage to’ the relationship between the RBA and the BoE.  This belief is soundly held by us on the basis that we are aware that the BoE provides safe custody services not only to the RBA, but also to other central banks around the world.  Disclosure of the information in these documents could damage the relationship between the BoE and its other central bank clients, and by extension (as the source of the information), the relationship between the BoE and RBA.  As foreshadowed to you in earlier correspondence, we consulted with the BoE in relation to these documents and they affirmed the views we held regarding the damage that would be done to the relationship between the BoE and RBA if the redacted information were disclosed.

Denial of access to these four documents is also appropriate in terms of s47E(a) (‘disclosure would, or could be reasonably expected to, prejudice the effectiveness of procedures or methods for the conduct of tests, examinations or audits’ by the Bank) and (b) (‘disclosure would, or could be reasonably expected to, prejudice the attainment of the objects of particular tests, examinations or audits conducted, or to be conducted’, by the Bank).  The documents in question concern the ‘procedures and methods’ within both the RBA and the BoE regarding the conduct of the physical check of a sample of gold bars (for the purpose of conducting the audit).  Disclosure of this information would, of course, reveal those procedures and methods, and by logical extension render them less effective. Also, the ability of the Bank to attain the objects of the audit (which is to reveal whether the Bank’s arrangements are robust and secure) would be prejudiced. These considerations apply to both the audit currently the subject of your FOI request and also any other audits undertaken by the RBA. A key requirement for undertaking a successful audit (of any aspect of the RBA’s work) is that there is as little opportunity as possible for individuals to take steps to predict what an auditor may choose to focus on, and/or how they will conduct the audit. It is self-evident that if such procedures and methods are revealed, then the opportunity to circumvent them is greatly increased.  As s47E is a public interest conditional exemption, I must take into account whether the giving of access is in the general public interest (in terms of s11A(5)).  When deciding whether access is in the public interest, I must take into account the following from s11B(3) and have noted my views in each case:

Section 11B(3) factors favouring access to the document in the public interest include whether access to the document would do any of the following:

(a) promote the objects of this Act (including all the matters set out in sections 3 and 3A); release would be contrary to some sections, particularly sections 2(a) and 3(3)

(b) inform debate on a matter of public importance; the Bank’s gold holdings, while important and of interest to some, are not a matter of public importance generating any level of debate

(c) promote effective oversight of public expenditure; release of the information would not do this

(d) allow a person to access his or her own personal information; the request is not seeking personal information.

Taking into account these factors, and the implications release of the information would have on the Bank’s audit processes, I have decided that it is clearly not in the public interest to disclose the information in these four documents (10, 11, 12 and 13).  Disclosure of these documents would manifestly harm the public interest by way of reducing the ability of the RBA to successfully conduct audits and tests of its operations going forward.

The released documents (mostly a chain of various emails) also suggested the RBA have been invited back for another review in 12 months.

One interesting point from the documents, the Bank of England was emailing clients in June 2013 (those for whom they're providing custodial services) inviting them to audit samples of their Gold:

Click Above Text To Enlarge

However discussions on the RBA audit were already well advanced at that time.

Given that the RBA has followed the lead of other countries to release reserve location details, perform audits and release (some) bar list details, it will be interesting to see whether they go further and follow the lead of the many countries now deciding to repatriate some or all of their Gold reserves...

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Bitcoin Gets Capital Gains Tax Break, Why Not Gold?

Late last year ('Glenn Stevens Talks Bitcoin & Competing Currencies') I pointed out that Bitcoin effectively can't be used as a competing currency (likewise for foreign currency or other assets such as Gold) given that it is subject to Capital Gains Tax (CGT) and monitoring the value of Bitcoins as they are acquired and disposed of would not be practical:

"Can you just imagine the administrative nightmare that would result from performing regular transactions in a foreign currency and having to maintain a record of whether you made a gain or loss as a result of fluctuation in the currency markets? It is simply not practical. Bitcoin is not immune from the same requirements." - Bullion Baron

However, earlier today the Australian Tax Office (ATO) released a statement (ATO delivers guidance on Bitcoin) in regards to Bitcoins and their tax treatment. Further information is available on the following page 'Tax treatment of crypto-currencies in Australia – specifically bitcoin' which specifies the following in regards to Bitcoins used in personal transactions:

Using Bitcoin to pay for personal transactions

Generally, there will be no income tax or GST implications if you are not in business or carrying on an enterprise and you simply pay for goods or services in bitcoin (for example, acquiring personal goods or services on the internet using Bitcoin). Where you use bitcoin to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded (as a personal use asset) provided the cost of the bitcoin is $10,000 or less.

The 'personal use asset' exemption would normally be reserved for items such as a boat, furniture, electrical goods or other household items which are exempt from CGT if purchased for less than $10,000.

The wording on the ATO website is somewhat ambiguous. Does the limit apply per year or can I buy low (to a maximum of $10,000 worth of Bitcoin) and spend high several times in the same financial year and still avoid CGT?

I think this is a good start and would like to see a similar CGT exemption for Gold (as I suggested last year in 'Let Australians Save in Gold Instead of Debt'). That said, I think the limit imposed is patronizing, why impose a limit at all if the Bitcoins are being purchased with the intention of spending them at a later time? Putting a $10,000 cap on the exemption limits the spending of Bitcoins to novelty use only, it wouldn't be adequate for someone having their income paid in Bitcoins, which was also covered on the site:

Paying salary or wages in bitcoins

Where an employee has a valid salary sacrifice arrangement with their employer to receive bitcoins as remuneration instead of Australian dollars, the payment of the bitcoins is a fringe benefit and the employer is subject to the provisions of the Fringe Benefits Tax Assessment Act.

In the absence of a valid salary sacrifice agreement, the remuneration is treated as normal salary or wages and the employer will need to meet their pay as you go obligations as usual.

I would like to see any monetary asset (Bitcoin, Gold or otherwise) that is saved for future consumption be exempt of Capital Gains Tax. That would allow us to truly have competing currencies in Australia. Being forced to save in a currency whose value is purposefully devalued (via central bank mandate to target 2-3% annual inflation) is madness, especially when interest earned on those savings is taxed and with the real cash rate already below 0.

Those who have purchased and sold Bitcoin specifically for investment are subject to CGT (or taxed as part of your income if traded in the business of regular profit-making):

Disposing of bitcoin acquired for investment

If you have acquired bitcoin as an investment, but are not carrying on a business of bitcoin investment, you will not be assessed on any profits resulting from the sale or be allowed any deductions for any losses made (however, capital gains tax could apply – although see the comments above about personal transactions). However, if your transactions amount to a profit-making undertaking or plan then the profits on disposal of the bitcoin will be assessable income.

There are no GST consequences where the bitcoin is not supplied or acquired in the course or furtherance of an enterprise you are carrying on.

There is another section for those in the business of mining Bitcoins:

Mining Bitcoin

Where you are in the business of mining bitcoin, any income that you derive from the transfer of the mined bitcoin to a third party would be included in your assessable income. Any expenses incurred in respect to the mining activity would be allowed as a deduction. Losses you make from the mining activity may also be subject to the non-commercial loss provisions.

Your bitcoin is trading stock and you are required to bring to account any bitcoin on hand at the end of each income year.

GST is payable on the supply of bitcoin made in the course or furtherance of your bitcoin mining enterprise. Input tax credits may be available for acquisitions made in carrying on your bitcoin mining enterprise.

The section that deals with ATMs and exchanges is probably the most off putting with an indication that businesses in this area will need to charge Goods and Services Tax (GST), likewise in the supply via mining as mentioned above:

Taxpayers conducting a bitcoin exchange (including bitcoin ATMs)

Where you are carrying on a business of buying and selling bitcoin as an exchange service, the proceeds you derive from the sale of bitcoin are included in assessable income. Any expenses incurred in respect to the exchange service, including the acquisition of bitcoin for sale, are allowed as a deduction. In these circumstances, the bitcoin is trading stock and you are required to bring to account any bitcoin on hand at the end of each income year.

GST is payable on a supply of bitcoin by you in the course or furtherance of your exchange service enterprise. Input tax credits are available for bitcoin acquired if the supply of bitcoin to you is a taxable supply.

This seems to put local Bitcoin exchange and supply businesses at a competitive disadvantage if they have to charge buyers a 10% premium. It would be likely to drive Australian Bitcoin buyers to international sources which don't charge GST.

It is good to see that the ATO has finally addressed Bitcoins for tax purposes, but I don't think they've done a particularly good job here.

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Reserve Bank of Australia Releases Gold Bar Details

A few months ago I wrote about an FOI request that I had applied for with the Reserve Bank of Australia (RBA):

BoE Tells RBA: Don't Release Gold Bar Details (FOI)

It had been rejected based on the Bank of England (BoE) claiming the information was confidential, the RBA used this response to suggest that release of the information would cause damage to the international relations of the Commonwealth.

I lodged an appeal with the OAIC (as recommended by Peter Timmins of Open and Shut) and it was successful (mostly, as explained further down).

The argument for review of the decision was as follows:

My request for a list identifying the gold bars that form Australia’s 80 tonnes gold reserves was denied on the basis that it would divulge information shared in confidence between a foreign government (or authority of) and Government of the Commonwealth (or authority of), however the custody arrangement of Australia’s Gold between the Reserve Bank of Australia (RBA) and the Bank of England (BoE) is purely a commercial relationship, rather than a governmental relationship. Furthermore the RBA has revealed to multiple individuals via general enquiry that “at 30 June 2011, 99.9% of the gold is held in the United Kingdom, at the Bank of England”, which is inconsistent with the exemption claim that correspondence between the RBA and the BoE regarding their commercial custody arrangement is confidential. Given that the RBA has openly revealed the location of the gold, further to the total physical amount, there is no reason to expect that revealing the physical properties of the bars would in any way risk the security of the asset.

Releasing the document/s requested is in the matter of the public interest. How can the BoE restrict the ability of the RBA to comply with a valid FOI request regarding a matter of public interest in the stewardship by the RBA of the Australian public’s gold?

The US Government has published a bar list of deep storage gold reserves in the matter of transparency and public interest and I think it’s a reasonable expectation that Australia follows this lead in order to allay any fears of the public, proving that the gold is there and physically accounted for.

The review process took some time, it was around 7 weeks from initial contact with the OAIC to this point.

I'm pleased to inform readers that upon reconsideration (the RBA contacted the BoE again in relation to the request), details of the bars have been released (minus the serial number). The FOI Officer provided this reasoning on retaining confidentiality of the serial number:

We are in a position to release to you melter/assayer, gross weight, assay and fine weight information relating to the bars in the inventory.  The only information we will withhold from release are the individual bar numbers, as this information remains confidential (in the opinion of both the Bank of England and the Reserve Bank of Australia). The Bank of England (as our custodian) use their own numbering system to uniquely identify each bar and have reaffirmed to us that these numbers should not be disclosed to third parties as the information is confidential.

We note that this information is broadly consistent with the example you quote in your application for review (namely the US inventory of deep storage gold reserves), although our list is not aggregated into groups of bars.

The Bank is of the view that withholding of the bar details is required, to ensure that our obligations to the Bank of England (in terms of confidentiality of their information) are maintained.  This also accords with the burdens placed on the Bank in terms of section 33(a)(iii), which exempts information the disclosure of which would, or could reasonably be expected to, cause damage to the international relations of the Bank.  Section 33(b) also exempts ‘any’ information exchanged in confidence between the Bank of England and the Reserve Bank of Australia.

You can access the file which contains the records below:

RBAFOI - Inventory of Gold holdings

Further to the bar list, Warren from Screwtape Files (who has constructed a Bullion Bars Database, the largest known public repository of historical bar lists on the internet) provided the following information showing the refiner breakdown compared with a much larger data set he has compiled from various sources:

... If a refiner is not listed in the RBA document, then it's not shown in the other columns.

(i.e. you'll note the GLD comparison will not add up to 100%, neither does the 'Universe'.)

Explanation of the other columns:

PercentageUniverse = every single gold bar we have on record (247,477)
PercentageGLDHistorical = every gold bar ever seen across 700+ GLD bar lists (157,593)
PercentageGLDCurrent = every single gold bar currently in GLD (approx 64,000 in this sample).

Basically what you can see is that the BoE composition is somewhat different.

I haven't yet checked for any direct matches for weight, fineness + refiner, but a few random checks on the Royal Mint bars were negative, it's my guess the only matches to ETF data would be coincidental (i.e. expected from statistics).

* NULL means there are no matches

Click Table To Enlarge

While it's not a complete record of each bars attributes (lacking serial number), it does confirm that Australia's Gold reserves are held in allocated form as identifiable bars (which to the best of my knowledge wasn't already publicly known). The below is a description from the IMF on allocated vs unallocated Gold (from a central bank reserve asset perspective):

Allocated gold

4. Allocated gold is gold deposited under a safe-keeping or custody arrangement. It is “a specific and uniquely numbered physical piece of gold, which remains in the ownership of the individual or institution placing it for safe custody with a bank” (paragraph 15 of Philip Turnbull, BOPTEG issues paper # 27A). The owner of allocated gold keeps legal ownership over the allocated gold even if it is deposited with a custodial facility provider. In the economic system, it remains an asset without a counterpart liability.

Unallocated gold

5. Unallocated gold represents a claim on a fixed quantity of gold. “Account providers hold title to a reserve base of physical (allocated) gold and issue claims to account holders denominated in unallocated gold. The account holder does not hold title to physical gold but instead holds an unsecured claim against the account provider, in effect a deposit with the account provider” (paragraph 13 of Chris Wright and Stuart Brown, issues paper for the fourth AEG meeting). The account holder does not have legal ownership of the physical gold but is an unsecured depositor. The account holder is a creditor to the account provider, and so in the economic system this asset has a counterpart liability. Unallocated gold targets the professional gold market.

6. In many cases, similar to deposits, an account holder of unallocated gold account deposits its physical gold to its account provided by, for instance, a bullion bank. Then, the account holder undertakes gold transactions (outright purchase/sale, gold swaps, and gold deposits) via the account. But specific gold bars are not ascribed to the holder unless the holder takes delivery of the gold. The bullion bank can use the deposited physical gold for its own trading purpose and so does not necessarily have 100 percent backing in physical gold for the unallocated gold accounts.

A positive result from the OAIC review which I will be closing (despite the lack of serial number). Unfortunately the process for such a review will become more difficult in the near future due to the government announcing that the OAIC will be abolished. Peter Timmins wrote about the issue when first announced in the budget:

The changes wipe the review model adopted in the reform package of 2010, and it's back to where things used to be and we know they didn't work properly then. Not to mention the gaps: in effect no one has the leadership function so essential to the culture change talked about for 30 years but still a long, long way off and going in the wrong direction under this government; and no mention also of the what happens regarding the role the OAIC played in moving towards a government wide information policy. The AAT cannot provide inexpensive FOI review - the flagfall is $816, refundable but for $100 if the applicant meets with some success.

Not likely to have been an amount I would have risked for the information that was provided to me in this case. With the OAIC being wound up at the end of this year, I would encourage you to get any FOI requests lodged soon if you want the opportunity to have any rejections reviewed by the OAIC given the lengthy process it took for my results.

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BoE Tells RBA: Don't Release Gold Bar Details (FOI)

Two months ago I wrote a Freedom of Information (FOI) request to the Reserve Bank of Australia (RBA). Here is the crux of my email:

This is a request under the Freedom of Information Act.

I request that a copy of the following documents [or documents containing the following information] be provided to me: An inventory (bar) list forming the 80 tonnes official Gold reserves (stored with the Bank of England), including details which identify the individual bars by refiner, weight, finesse, serial number and any other identification recorded for audit purposes.

In order to help determine my status to assess fees, you should know that I am a representative of online media and this request is made as part of news gathering and not for a commercial use.

While Gold holdings do fall under the operations of the bank, the position held has remained unchanged and published for well over a decade and I see no risk in providing details of the bars which underpin this position.

The RBA does state they are exempt from the FOI Act in relation to banking and market operations:

The Reserve Bank is exempt from the FOI Act in relation to documents in respect of its banking operations (including individual open market operations and foreign exchange dealings) and in respect of exchange control matters.

I assumed that Gold reserves sit within this exempt area given that it is detailed in the 'Operations in Financial Markets (Reserves Management)' section of the annual reports. However, given that their Gold holdings are public knowledge, as is the RBA's activity in the Gold leasing market, I could think of no logical reason that providing the information would be damaging to the institution or their operations.

The two (primary) responses I received are below.

February 28th (in aid of extending their deadline):

This email is intended to provide you with an update in relation to the processing of your request under the Freedom of Information Act 1982 (the Act).  It is also a formal notice as required under s27 (see below).

In terms of s27, (consultation – business documents) of the Act, the Reserve Bank of Australia is required to consult with a ‘person, organisation or undertaking’ in the event that (they) might reasonably wish to make an exemption contention that the document is exempt from release in terms of s47 (business).  Consistent with the terms of the consultation process provided for in s27, we have determined in writing that consultation is required, and therefore an extension of processing time (by a further 30 days) to enable consultation to take place (s15(6)) is provided for by the Act.

April 1st (today, April Fools?!):

Further to earlier correspondence regarding your FOI request, I wish to advise you that we have received a response from the Bank of England regarding information about the Reserve Bank of Australia’s gold inventory (as held by the Bank of England).

The Bank of England has advised us that it regards the information about the gold holdings that has been exchanged with the RBA to have been exchanged in confidence.  This is consistent with the Reserve Bank of Australia’s own view about our interactions with the Bank of England in relation to the gold holdings (i.e. we also regard our exchanges with the Bank of England to have been made in confidence).

Accordingly, I have decided to deny access to the information sought in terms of section 33(b) of the Freedom of Information Act 1982 (the Act) ‘as information or matter communicated in confidence by or on behalf of a foreign government [or] an authority of a foreign government … to an authority of the Commonwealth’ (being the Reserve Bank of Australia). Further, I have decided to deny access to the information sought also in terms of section 33(a)(iii) of the Act, which pertains to documents affecting international relations of the Commonwealth. I have decided that disclosure of the information sought by you would, or could reasonably be expected to, cause damage to the international relations of the Commonwealth.

So basically the situation is as follows:

99.9% of Australia's Gold reserves, 80 tonnes, are stored with the Bank of England (BoE), news of which first came to light on this site in December 2012.

Petitions to repatriate Australian Gold have garnered public support, but not to a critical level needed for it to become a political issue (you can still sign it here).

Supposedly this Gold belongs to Australia (managed by the RBA), yet when a member of the public requests a list of the Gold bar details (of which revealing would pose no risk that I can think of), the RBA says that they are unable to. Why? Because the BoE (who are merely a custodian of the Gold) said that it needs to be kept a secret.

In the final email, along with the advice that they would withhold the information, I was provided a document which detailed some options should I choose to challenge the decision. Included (amongst various options) are requesting an internal review, review by Administrative Appeals Tribunal, Review by Federal Courts or complaining to the Ombudsman. If anyone has any experience with challenging an FOI decision or ideas on what grounds I could do so then I would welcome your thoughts in the comments below (in a timely fashion as I only have around a month for any challenge). Alternatively you are welcome to email me (address at top right of blog under social media buttons).

Any other opinions or comments on the outcome so far are welcome, as are any thoughts on risks or reasoning the Bank of England may have for keeping the Gold bar details a secret.

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BB.

 

Glenn Stevens Talks Bitcoin & Competing Currencies

Some topics of interest were raised in an interview with Glenn Stevens (Governor, Reserve Bank of Australia) which was published on Friday at the AFR. 

The conversation on competing currencies stems from an initial question about Bitcoin (my emphasis):

Stutchbury: What do you make of Bitcoin and does that potentially have any effect on operation of monetary policy if those sort of artificial currencies or means of exchange became prevalent?

Stevens: I’m still trying to understand it to be honest but as best I can see it would be open to you to create a currency called the Michael and get people to buy it and you could promise to, you know, only issue so much of it and if people had confidence in that they could use that as a kind of numeraire. You could measure things in Michaels. You could buy and sell them.

Stutchbury: We call them “Stevens”.

Stevens: Yes. Well, and it might or might not hold its value depending on whether you keep the promise. You could also get speculative excesses in it I would imagine where its market value went up and down as people speculated on its future value and we see elements of that, I guess, with Bitcoin. I – and I think there are several other, aren’t there, similar things around so it’s a very interesting space. I don’t think it has caused us a material problem yet. I suppose it’s possible that any of these potential – these innovations financially potentially if they take off enough could – it will come back to, does it become an object of speculation with a lot of leverage behind it like a tulip mania or not. I don’t know the answer to that. I don’t know. It is certainly fascinating.

Stevens later clarifies (rightfully so) that cryptocurrencies are limited by a computer algorithm. So, unlike the initial example Stevens provides, there isn't need to worry about them holding value based on whether the issuer keeps a promise on how many will be created as it is built into the protocol. 

Fiat currencies (money declared by government to be legal tender) on the other hand are not limited by an algorithm or physical backing, so are at risk of losing their value as central banks engage in various monetary policies which either directly increase the money supply or are intended to encourage borrowing which results in the same. In fact the RBA's monetary policy includes a promise to devalue the currency (with no end date):

"The Governor and the Treasurer have agreed that the appropriate target for monetary policy in Australia is to achieve an inflation rate of 2–3 per cent, on average, over the cycle." RBA

Furthermore the measure that the RBA uses as the basis of inflation is the 'Consumer Price Index' (CPI) rather than an accurate measure of the increase in Australian Dollars circulating (which are mostly borrowed into existence through private and public debt at a higher rate than the CPI).

Bitcoin has an inflation rate (increase in total Bitcoins, not a cost of living index), which is currently higher than many fiat currencies. However, the rate is known in advance, it will drop over time so that within the next decade it will be lower than the RBA's measure and there will come a time when no further Bitcoins will be created.

[Click Chart To Enlarge] Source

In the response above Stevens goes on to say that cryptocurrencies may become an object of speculation 'with a lot of leverage behind it'. I would suggest there is already a lot of speculation behind the recent rise in many of their prices, but unlike traditional assets it is very difficult to do so using leverage. A bank won't lend you money to speculate on the price of Bitcoin (at least not knowingly, you may get away with using an unsecured personal loan or credit card), but they will allow you to leverage 20:1 (i.e. 95% LVR) to purchase a house. Which object of speculation using leverage is more likely to pose a risk to Australia?

In the next question the interviewer poses a question around competing currencies...

Stutchbury: Could it be that the new technology will potentially take us back to a world where there were competing currencies in any one economic system?

Stevens: Well, there are competing currencies now. I mean, you know, you can hold US dollars or Euros or whatever in Australia completely freely if you want to and there would be nothing to stop people in this country deciding to transact in some other currency in a shop if they wanted to. There’s no law against that so we do have competing currencies. Maybe – maybe there will be a world in which currencies based on some computer algorithm to limit supply as opposed to physical gold or something. There have been many such currencies through the ages. The Pacific Islands used to use shells, didn’t they? So there have been many bases for currencies and in the end, I suppose, the ones that will, and this will be a good note to finish on, the ones that survive will be the ones that hold their value which is why we have an inflation target which we’re hitting.

For starters, Australia does not allow competing currencies. The Reserve Bank Act 1959 clearly states:

Other persons not to issue notes
             (1)  A person shall not issue a bill or note for the payment of money payable to bearer on demand and intended for circulation.

And even prior to this Act the issuance of private notes was discouraged through the Bank Notes Tax Act of 1910 which imposed a tax of 10% per annum on all banknotes issued (by private banks).

Granted Bitcoin and other cryptocurrencies don't circulate in the form of notes, however I suspect if the creation and circulation of Bitcoin was specific to a single country then regulatory authorities would crack down on it (if they were able to, take for example the recent shutdown of physical Casascius Bitcoins in the US). It's only Bitcoin's globally distributed & digitally stored/transmitted nature that allows it to circulate outside the control of regulatory bodies.

If we ignore the fact that it's not legal to circulate private currencies and concentrate on Stevens reference to using foreign currencies in Australia, it still remains largely impractical if we are to remain within the bounds of the law. It's true that a business or individual may legally agree to transact in a currency other than the Australian Dollar:

"Every sale, transaction or dealing relating to money, or involving the payment of, or a liability to pay, money in Australia is to be done in Australian currency unless it is done, or the parties to the sale, transaction or dealing agree that it will be done, in the currency of another country." RBA

However, all parties involved are also required to report any capital gains or losses that occur as a result of foreign currency transactions. Foreign currencies are not considered a personal use asset or collectible, so fall under the title 'other assets' and are not excluded from Capital Gains Tax (CGT). Here is what the ATO has to say on foreign currency transactions:

Forex realisation event 1 occurs when there is a disposal from one entity to another (that is, a change in the beneficial ownership happens - capital gains tax (CGT event) A1 - of foreign currency, or a right or part of a right to receive foreign currency.

The time of the event is when the foreign currency, or the right or part of the right is disposed of.

You make a foreign exchange (forex) realisation gain if you dispose of foreign currency, or a right or part of a right to receive foreign currency for more than you paid for it, to the extent that the gain is due to fluctuations in the value of the foreign currency. This will usually be when the proceeds on disposal of the foreign currency, measured in Australian dollars, are more than the cost of acquiring the foreign currency, measured in Australian dollars.

You make a forex realisation loss if you dispose of foreign currency, or rights or parts of rights to foreign currency for less than you paid for them. This is to the extent that a loss is due to fluctuations in the value of the foreign currency. ATO

Can you just imagine the administrative nightmare that would result from performing regular transactions in a foreign currency and having to maintain a record of whether you made a gain or loss as a result of fluctuation in the currency markets? It is simply not practical.

Bitcoin is not immune from the same requirements, earlier this year the ATO commented specifically on the topic (although the comments have a business focus, it does not exempt individuals from the same requirements):

"The tax legislation that applies to conventional commercial transactions also applies to transactions undertaken via the internet or with emerging payment systems.

Paying for goods and services with new types of payment tokens still means that the seller may need to account for GST or include the income in their business tax return.

The buyer may also need to keep records of the value of the purchase if it represents a business expense or if the purchase is an asset which may be subject to a capital gain or loss.

The value used by the buyer and the seller in these transactions needs to be identical and consistent with market prices.

It is most important that people engaged in any type of transaction with Bitcoin or other payment systems keep detailed records and evidence about what trades they make and the source of any assumptions about the value of any transaction in Australian dollars.

This will minimise the risk of there being a difference of opinion between a taxpayer and the ATO over the correct valuation and treatment of a transaction for taxation purposes." Business Insider

Ironically Stevens ends his interview on a point, 'the ones [BB: currencies] that survive will be the ones that hold their value' and in the same breath says 'which is why we have an inflation target which we’re hitting'. How Stevens equates holding value with hitting an inflation target is beyond my comprehension, it seems more like an oxymoron.

The suggestion from Stevens that we have competing currencies in Australia is, quite frankly, a joke. For true competition the laws revoking legality of private currencies need to be scrapped as do capital gains events on foreign currency transactions and for that matter Gold as I argued in an earlier post 'Let Australians Save in Gold Instead of Debt'.

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BB.

 

RBA: Australia's Gold held at the Bank of England

I received the following email from a reader today that I thought may be of interest, it's a response from an RBA FOI officer to several questions posed regarding the location of Australia's Gold:

1. Could you please confirm the total 'physical' and 'tangible property' gold holding by the Reserve bank of Australia in kilograms as at financial year end 2011. For clarity, the term physical refers to gold in possession and control of the Australian Government and not a derivative, financial instrument or promissory note.
Answer:  At the end of the 2011 financial year (30 June), the gold holding was 80 tonnes at a valuation at the time of A$3 473 million.

2. Are any foreign countries holding the physical gold on behalf of the Australian Government?
Answer: Yes.

3. If so please provide a breakdown of foreign gold holdings in kilograms identifying the country where this is held.
Answer:  At 30 June 2011, 99.9% of the gold is held in the United Kingdom, at the Bank of England. The other 0.1% is held by the Reserve Bank of Australia. This distribution remains in place presently.

Please note that we have answered your questions as a routine enquiry (on the basis that your request was for answers to questions, rather than seeking documents).  The FOI Act concerns itself with the release of documents, rather than answering questions, so a request must be seeking documents to be valid.  You may be interested in details of the Reserve Bank of Australia’s Official Reserve Assets, which are published each month on the Bank’s website. Additional commentary about Reserves Management is also contained in the Bank’s Annual Report (please see the ‘Operations in Financial Markets’ Chapter).

If you have any further queries regarding this information, we invite you to contact our Media and Public Relations Office in the first instance as generally they will be able to answer questions for you.  Consistent with guidance from the Office of the Australian Information Commissioner contained in a recent charges review report, the Bank is committed to releasing as much information as possible outside the provisions of the Act (via routine release of information and responding to general requests).  If you feel that your needs are not being met outside the provisions of the Act, you are welcome to lodge a formal application seeking documents relevant to your question(s).

The above is interesting, as I have seen past requests for this information denied by the very department the FOI officer suggests (below from 'Tears of the Moon' on ABC Bullion blog):

On the where the 80 Tonnes of gold is stored, Australia or offshore, I received this response from the RBA's Media & Public Relations Office today:

"Thank you for your email.

The Bank does not publish the location of its gold reserves."

Make of that what you will. Personally I didn't think it would have killed them to say "Australia", after all it is a big place, plenty of space to hide 80 tonnes of gold with giving anything away.

With 99.9% of Australia's Gold stored with the Bank of England it makes me wonder where the final .1% is stored (80kg), perhaps the bars are used as paperweights around the RBA office in Sydney...

So why keep the majority of it stored with the Bank of England?

I suspect it may be a throwback to times past when the bank lent out a signficant amount of Gold. Today the RBA only has 1 tonne of Gold on loan, but in the 1990s it was a lot more (FOI Document, December 1996):

"The Bank currently holds about 250 tonnes of gold (about $A3.8 billion at current prices) as part of official reserve assets. Unlike other components of official reserve assets, the management of which was upgraded significantly at the start of the 1990s, the management of gold holdings has been passive apart from participation in the gold loan market. The amount of gold owned by the Bank has not changed since the late 1970s."

"In order to increase returns on gold holdings, the Bank has expanded its gold lending activities in recent years. Currently, about half the Bank's gold is on loan."

Bundesbank recently made similar reasoning for it's Gold being stored predominantly outside of Germany (Bundesbank on Gold reserves):

Why doesn’t the Bundesbank bring the gold back to Germany?

The reasons for storing gold reserves with foreign partner central banks are historical since, at the time, gold at these trading centres was transferred to the Bundesbank. To be more specific: in October 1951 the Bank deutscher Länder, the Bundesbank’s predecessor, purchased its first gold for DM 2.5 million; that was 529 kilograms at the time. By 1956, the gold reserves had risen to DM 6.2 billion, or 1,328 tonnes; upon its foundation in 1957, the Bundesbank took over these reserves. Further gold was added until the 1970s. During that entire period, we had nothing but the best of experiences with our partners in New York, London and Paris. There was never any doubt about the security of Germany’s gold. In future, we wish to continue to keep gold at international gold trading centres so that, when push comes to shove, we can have it available as a reserve asset as soon as possible. Gold stored in your home safe is not immediately available as collateral in case you need foreign currency. Take, for instance, the key role that the US dollar plays as a reserve currency in the global financial system. The gold held with the New York Fed can, in a crisis, be pledged with the Federal Reserve Bank as collateral against US dollar-denominated liquidity. Similar pound sterling liquidity could be obtained by pledging the gold that is held with the Bank of England.

Australia's Gold is only a fraction of it's foreign reserves (less than 10%) compared with Germany (over 70% according to Wikipedia) and with less than 1 tonne being loaned into the market at present (see page 24) it makes me wonder what benefit there is in keeping it with the Bank of England.

What say you Australia, time to bring home our Gold?

BB.

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