Issue 18
As Safe as the Bank of England
The Bank's involvement with gold is multifarious. We maintain gold storage accounts for member firms of the London Bullion Market Association, as well as similar accounts for many overseas central banks. It is this a mixture of private-and public-sector participants in the gold market that has led to the Bank 's current pivotal role as a settlement agent.
Overseas central banks began to hold gold in safe custody at the Bank in the first few decades of the twentieth century - drawn no doubt by the adage "as safe as the Bank of England". At that time, many of these banks were constrained by their internal legislation from releasing ownership of the specific gold bars held as part of their reserves. To facilitate this requirement, the Bank instituted allocated accounts and, with the exception of a few years during and shortly after the Second World War, has continued to act solely on that basis to this day.
This allocated system requires us to mark each individual bar with a unique identifying number. To this end, we utilise a custom-built machine that uses over four tonnes of compressed air pressure to indent the relevant number onto the bar. This machine is, in fact, the last remaining element of an experiment inaugurated some 20 years ago with the intention of automating the unloading of gold bars delivered to the Bank. This took the form of a conveyor belt designed to protrude through a window in the Bank's bullion area out to the delivery vans parked within the confines of the Bank. A worthy effort and, although not quite on a par with a Heath Robinson machine, unfortunately, soon found to be impracticable. Gold clearly deserves the human touch!
This historical relationship with so many overseas customers has led not just to the Bank being the largest physical depository of gold bars in the UK, but also to our holding a tremendous variety of different ''branded " bars. At the last count, we have examples of bars from over 50 separate milters worldwide - from Johnson Matthey to the Rand Refinery and [ram the Perth Mint to the Royal Canadian Mint - with all stops in between. The oldest example currently held bears a date of 1890. In addition, we hold a nu1ber of bars of historical interest, including examples salvaged from both the wreck of HMS Edinburgh, stuck in the Barents Sea 200 miles from Murmansk in 1942 and from the wreck of the SS Fort Stikhine. The latter was destroyed in Bombay Harbow- in April l 944 in what has been described as the largest single explosion of the Second World War, apart from the atomic bombs.
A large number of bars in safe custody means we have to devote a considerable amount of space to their safekeeping. Currently, gold occupies over 35,000 square feet of storage space at the Bank, the equivalent of approximately 18 tennis courts. We are "inconvenienced" by the City of London being built on foundations of London clay. As such, we need to spread the considerable load of the gold perhaps more thinly than in other centres. But this is successfully accomplished and those who have waited hopefully below Threadneedle Street in the London Underground system have therefore waited in vain!
But the physical storage and handling of gold is only one of the many strings to our golden bow. Every day, many transactions pass across the gold accounts maintained here at the Bank, resulting in bars being transferred between account holders. However, such transfers are settled without any physical movement of bars in the vault areas - rather, these transactions are recorded and settled using a computerised book -entry transfer settlement system written specifically for us by our own in-house IT personnel.
This system also doubles as a stock-control package, enabling us to identify individual ownership of any specific bar at any one time, as well as allowing us to track the exact location of each separate bar at any moment (not that we would ever have lost a bar without this package). We are also able to use the same system to produce, in a very prompt fashion, specific allocations of gold for any of our customers, a facility for which there is no charge.
Lastly, in addition to this ' back-office ' role of settling many of the transactions done here in the London market, the Bank has an active 'front-office' role, participating itself in some of these transactions. Not only does the Bank manage the UK's gold auctions on behalf of HM Treasury, but it is also involved in the gold market on a day-to-day basis - lending gold not just on behalf of HM Treasury but also as agent for some overseas central bank customers. As a result, many of those active in the gold market are familiar faces here at Threadneedle Street - and we expect them to continue to be so even after the UK's gold sales are complete.
As we enter the third Millennium, the Bank sees its participation and involvement with the gold market continuing to evolve. We look forward to continuing our close relationships with the London Bullion Market Association, its member firms and our overseas central bank customers, and to helping maintain London's premier position in the bullion world. As Joyce Cary noted, the path to hell is paved with good intentions, but that to heaven goes in for more. Solid gold.
Nick Durey joined the Bank of England in 1971 and spent several years in the Bank's Exchange Control Department. A period in the Bank's Economic Intelligence Department followed, before a spell of some seven years in the bank's Internal Audit Division where he was an Audit Manager (it was here that he first learnt how to count gold bars). He joined the Market Services area of the Bank in 1990. He has been the bank's bullion Manager, with responsibility for bullion settlement and custody, for the past five years.