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Shares, bonds and other securities are not without risk, and prices can go down. But a bar of gold retains its value, even in times of crisis. That is why central banks, including DNB, have traditionally held considerable amounts of gold. Gold is the perfect piggy bank – it's the anchor of trust for the financial system. If the system collapses, the gold stock can serve as a basis to build it up again. Gold bolsters confidence in the stability of the central bank's balance sheet and creates a sense of security.
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By selling and immediately buying back some of its gold reserves, the central bank of Curaçao and Saint Martin managed to use its gold revaluation account to offset losses in 2021. Because many other monetary authorities are currently making losses too—and there is no limit to revaluing gold against fiat money—this trick could be used the world over to heal central banks’ balance sheets.
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A gold revaluation account (GRA) is an accounting item that records unrealized gains (or losses) of gold assets. When the price of gold rises, as it inevitably does in the long run, gold assets increase in value and concurrently the GRA swells. As a formula:
GRA = present gold market value – gold purchasing cost
The GRA is usually part of a central bank’s equity (net worth), while it’s not part of its capital (a narrower definition of equity)*. By their own rules, central banks can’t use their GRAs to cover general losses.
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Late in 2022 the Dutch central bank (DNB) revealed it was suffering losses due to rising interest rates after consecutive years of Quantitative Easing (QE). During QE it bought domestic government bonds that yielded close to nothing with newly created reserves. When the European Central Bank instructed DNB to raise interest rates to combat inflation, its interest expenditures on reserve liabilities exceeded interest income from its assets, which equals a loss.
DNB Governor Klaas Knot was interviewed about losses and a weakening balance sheet in October 2022. Knot mentioned Dutch taxpayers possibly need to recapitalize their central bank as EU statutes prescribe. However, he also brought up DNB's GRA as a solvency backstop:
Based on Knot’s remarks, and an email exchange I had with the German central bank prior, I speculated DNB and other central banks could change the accounting rules for their GRAs to absorb losses. Why let taxpayers foot the bill if GRAs can be used? More recently, I discovered a loophole through which some central banks can use their GRAs for this purpose.The balance sheet of the Dutch central banks is solid because we also have gold reserves and the gold revaluation account is more than 20 billion euros, which we may not count as capital, but it is there.
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The central bank of Curaçao and Saint Martin (CBCS) ...
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In 2021 CBCS decided to sell and immediately buy back 2,945 ounces of gold to turn an unrealized gain into a realized gain to offset losses. The value of the gold traded was NAf 9.55 million. On page 51 of their Annual Report 2021 it shows the metal was sold and repurchased at exactly the same price, implying the trades were handled off the market.
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Multiple large central banks are currently operating at a loss while public debt levels are elevated. In this article we will examine how central banks' gold revaluation accounts can offer solace in these challenging financial environments. Central banks’ accounting rules are but fictional obstacles, as these are self-imposed and can be discarded.
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In a recent interview the Dutch central bank (DNB) shares it has equalized its gold reserves, relative to GDP, to other countries in the eurozone and outside of Europe. This has been a political decision. If there is a financial crisis the gold price will skyrocket, and official gold reserves can be used to underpin a new gold standard, according to DNB. These statements confirm what I have been writing for the past years about central banks having prepared for a new international gold standard.
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Jan Nieuwenhuijs said:The Polish central bank has bought roughly 300 tonnes of gold in recent years to bring its gold to GDP ratio in line with the average in the eurozone. For medium and large economies in the eurozone, to which Poland might be included in the future, an equal monetary gold to GDP ratio is a covert requirement for nations to be prepared for a shift to a new gold standard. Based on these requirements I expect Poland to buy an additional 130 tonnes of gold.
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However what will the people supplying the materials and skilled labour want in consideration for their products?If TSHTF-EOTWAWKI - the rebuilding won't need gold.
It will need MATERIALS and SKILLED LABOR.
I guess this is the banksters and arbitragers all showing their Normalcy Bias. Yeah, a devastated world needs MONEY MEN!
I don't think so. That comes after trade, which comes after surplus, which comes after back-breaking WORK.
Food...liquor...nookie...just like with all devastated societies, postwar, post-disaster, whatever.However what will the people supplying the materials and skilled labour want in consideration for their products?
How many pet rocks would it take for you to sell one of your beanie babies?In a SHTF scenario I will finally realize the true value of my beanie baby collection. That thing is gonna keep me in high cotton for years!
... Gold-holding central banks in Europe seem likely to resort (either formally or informally) to using their gold revaluation accounts to plug balance sheet losses to be unveiled in coming years. ...
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... De Nederlandsche Bank President Klaas Knot remarked in a November 2022 interview that the current gold revaluation accounts can be used to restore central bank balance sheets: ...
Earlier this year, Bundesbank executive board member Joachim Wuermeling agreed gold revaluation accounts could be used to cover losses on the balance sheet: ...
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International market participants as well as central bankers around the world will be watching whether – perhaps after the presidential election in less than 12 months – the US will move towards any explicit or implicit gold revaluation. That would mark a further step in gold’s long journey back towards the centre of the monetary stage.
Financial Times said:Another week, another record high for the gold price. Cue wild celebration among goldbugs -- and frantic speculation from everyone else about the reason for the explosion in demand for the precious metal.
Geopolitical turmoil is one obvious explanation. Inflation concerns amid insane tariff dramas is another. However, there is a third, less noticed, issue bubbling away too: some hedge fund contemporaries of Scott Bessent, the hedgie-turned-U.S. Treasury secretary, are speculating about a revaluation of America's gold stocks.
Currently these are valued at just $42 an ounce in national accounts. But knowledgeable observers reckon that if these were marked at current values -- $2,800 an ounce -- this could inject $800 billion into the Treasury General Account, via a repurchase agreement. That might reduce the need to issue quite so many Treasury bonds this year.
This week such chatter intensified after Bessent both pledged to "monetise the asset side of the U.S. balance sheet" -- in other words, to focus on assets as much as liabilities while also promising to lower 10-year Treasury yields.
"Re-marking ... to current market value would mechanically deleverage the U.S. balance sheet," says David Teeters of IESE business school, who notes that if gold prices keep rising, this potential blessing swells. Or as Larry McDonald, a libertarian analyst, notes: "It is time to get creative around ... Uncle Sam's balance sheet."
Will this ever happen? I don't know. Nor, I suspect, does Bessent, since it is the ever-capricious Donald Trump who sets policy. But the fact that this wild speculation is swirling underscores three key points. ...
First: Investors know that Bessent has an incentive to be creative, given the scary fiscal hole. House Republicans are mulling a massive tax and spending bill that would add "up to $5.5 trillion of net primary deficit increases" and "boost interest costs by about $1.3 trillion over the next decade" according to the Committee for a Responsible Fiscal Budget. That could spark bond market alarm this spring, if not a congressional revolt from populist nationalists.
And that hole cannot be plugged just by smashing a tiny agency like USAID (a grotesque move), or letting Elon Musk halt federal payments (also outrageous). "While there are potential cost savings, the only way to create fiscal responsibility is with substantial tax increases," argues Robert Rubin, former Treasury secretary.
Second, Bessent needs currency tricks as well as fiscal ones. As JD Vance, the vice president, told Congress last year, Trump's cabal considers the dollar to be wildly overvalued -- to the degree that it is hollowing out the country's industrial base. They attribute that to its reserve currency status.
But while they would prefer a weaker currency, Trump also wants to retain that global dollar dominance, and Bessent himself knows that tariffs will probably strengthen its value.
That makes their policy seem bizarrely contradictory. But some market commentators, such as Luke Gromen, think the contradiction could be resolved if the Treasury tolerated, or enabled, gold to keep surging against the dollar. "Gold is likely to be a key pivot [for] the new system the Trump administration is clearly trying to engineer," he says. ...
pmbug said:I watched Bessent's comment live when he said it and wondered what exactly he meant. "monetize the asset" could mean different things. While a lot of people are projecting or wishcasting meaning to the statement in regards gold revaluation, it could also simply mean they plan to borrow against the assets to generate cash. I'm hopeful he meant something along the lines of @judyshel 's gold backed bonds or a balance sheet revaluation, but until there is more clarity, I'm being cautious about drawing any conclusions.
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According to a 1974 Federal Reserve commentary, the practical effect of the revaluation was this: 1) the value of the Treasury’s gold increased by $800 million in nominal terms, 2) the Treasury issued to the Fed an additional $800 million worth of gold certificates and received in exchange an increase in the Treasury’s deposit account at the Fed by a like amount, 3) the Treasury then spent that $800 million into the economy, which 4) thereby increased the monetary base by $800 million.
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One topic that Bessent and Miran have avoided discussing is gold revaluation. Recall that the Federal Reserve’s 1974 commentary described how a revaluation grants the Treasury spending power ex nihilo, without increasing taxes or putting upwards pressure on interest rates but at the cost of a weaker dollar—in other words, it achieves all three of Trump’s objectives. The problem is that Congress, not Bessent, sets the official price.
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On Feb 3, Trump's new Treasury Secretary, Scott Bessent, said “within the next 12 months, we are going to monetize the asset side of the US balance sheet”. These comments - which were in the context of US government funding for a new sovereign wealth fund - prompted the FT's Gillian Tett to suggest that rising speculation of gold revaluation may be behind the surge in gold, ...
I don’t charge.
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