Ingots We No Longer Trust

In the Yap islands of Micronesia, rai stones carved out of crystalline limestone, with a hole in the center, are considered objects of great value, sometimes described as a form of money. However, they are often large — sometimes as big as 12 feet in diameter — and they rarely literally change hands, given how difficult they are to move. So they stay wherever they are. Their ownership is established by oral history, with changes in ownership established by appending transfers to that shared oral history. This is, by the way, a sort of preliterate version of the blockchain!

For the most part, monetary gold — gold held as reserves by national central banks — is a lot like the stones of Yap. Central banks own trillions of dollars’ worth of gold, which they sometimes sell to each other to settle international payments. But these transfers rarely involve physically moving gold across borders. A large fraction of the world’s gold reserves actually sits in a vault underneath the Federal Reserve Bank of New York, although the New York Fed does move ingots between compartments when transfers take place.

And why not? The sanctity of nations’ ownership of gold stored in New York is guaranteed by the word of the U.S. government — a government that is utterly reliable, because it honors the role of law.

Or anyway, that’s the country we used to be.

“Rule of law” is not a phrase often applied to the Trump administration. And the administration has special contempt for international law. Many of Trump’s tariffs have been ruled illegal under U.S. law, but more or less all of those tariffs were and are in clear violation of past agreements solemnly signed by previous U.S. presidents, including Trump himself.

So the idea that the U.S. government might devise some excuse to seize gold held in the Fed’s vault is no longer far-fetched. And nations are taking precautions. Earlier this week the Dutch central bank announced that it was shifting about $12 billion in gold from the vault in New York to the Bank of England’s vault in London. This follows a move by the French central bank to shift an even larger sum from New York to Paris. Other countries are considering similar moves.

The direct economic or financial impact of these actions will be minimal. There won’t even be large trans-Atlantic gold shipments: foreign central banks will sell their New York gold to private buyers in America and replenish it with purchases from private sellers in Europe.

But the symbolism is chilling. America is no longer trusted. Foreign governments can no longer count on us to obey the most basic rules, like the commandment that thou shalt not steal other people’s gold.

And even when Trump is gone, it will take many years of honest, responsible U.S. government to restore that lost trust.

Still extremely busy. So that’s all for today.

MUSICAL CODA