The Federal Reserve is the central banking system of the United States, making it one of the biggest and most important banks in the world, and one upon which many economies rely. The Federal Reserve was created in the early 1900s as a way of securing the US economy following a series of financial panics.
The role of the Fed is to regulate the nation’s financial institutions — effectively to be a bank for the other banks — and to keep a close eye on the US dollar.
There was a time when the Fed owned gold, but that is no longer the case. A law was passed in 1934 that required it to transfer all of its gold to the Treasury, which issues certificates to prove ownership. However, it does still have vaults and they do still contain vast amounts of gold and silver. In the New York Federal Reserve, for instance, which is part of the Federal Reserve System, there is a vault that holds one of the biggest gold hoards in the world. This vault was built in the 1920s, but it has undergone substantial improvements since that time, making it one of the most impenetrable vaults in the world.
The gold is owned by a number of account holders, with the Fed storing it on their behalf. These account holders include the US Government, but also many foreign governments and private investors. Essentially, as well as being one of, if not the biggest hoards of gold in the world, it is also one of the few places where the wealth and futures of many businesses, professionals and countries are at stake.
The main reason countries store their gold here (and not in their own vaults) is because of the Second World War. With the threat of invasion and the economic collapse that would inevitably result from occupation, world governments panicked and gave their gold to the USA, which seemed disconnected from the troubles at the outset of the war. The Fed subsequently became an established place to store gold, and more and more gold has been stored there ever since.
It is said that Fed vaults hold close to 7,000 tons, or some half a million gold bars.
Alan Greenspan, the renowned US economist, once said that “gold is a currency” and that “no fiat currency, including the dollar, can match it”. This is not an outrageous claim because, in the grand scheme of things, gold has considerably more history as a commodity than any currency, the dollar included. The US dollar has existed for a couple hundred years—gold has been prized for many thousands of years.
This idea has existed for many years and it was because of this that the Gold Standard was created. Basically, all currency needs to be based on something. Only then can its worth be determined and only then can that worth fluctuate accordingly. The idea behind the Gold Standard was to use gold as that basis. In the past, currency had inherent value, with much of it made from gold, but when that was abandoned, a system like the Gold Standard was needed to keep inherent value in currency.
The Federal Reserve played a major part in the Gold Standard, as it held much of the world’s gold, effectively meaning that the future of global economics was reliant on Fed vaults. Of course, this didn’t last, the Gold Standard was abandoned, and the price of gold dropped. However, even with gold now considerably less useful to the world’s economy, this precious metal remains valuable, with countries continuing to stockpile it, as a way of securing their currencies.