Venezuela has been going through some hardships and recently the government of Nicolás Maduro decided it wanted to take its gold back from the Bank of England, all 14 tons of it – but the bank refused. The bank says it fears that international sanctions may affect the gold. The question is what does Venezuelan gold have to do with the UK and why does the Bank of England feel it has the right to weigh in on Venezuelan politics? According to newspaper reports, Venezuela has been trying to get its gold back from the Bank of England for two months but failed because of Maduro’s attempts to eliminate its reliance on US-backed financial instruments like the US Dollar. This means that Venezuela is somehow being penalised for trying to free itself from the dollar economy.
Venezuela was once called a successful socialist story. Hugo Chavez began with high-spending programs which brought exchange controls, price and labour controls. Inflation then took off and rose to an unprecedented high. Venezuela with its high crude oil reserved Venezuela entered into hyper-inflation which brought economic collapse, lawlessness, a draconian government that sanctioned detention without trial state-sponsored gangsterism, state enforced disappearances, and the plunder of national assets. So, yes Venezuela seems to be going in the wrong direction and the people are suffering under the current rule of Maduro’s government. The Bolivar was once a strong currency and because of it crude oil, Venezuela had some economic bargaining power.
The Bank of England has a long history with Venezuela. However, the Bank might be trying to avoid the fiasco that happened back in 1939 with Czechoslovakia’s gold in spring 1939. This transfer happened even though the UK government had blocked all Czechoslovakian assets held in the UK 24 hours before the invasion of Czechoslovakia on 15 March 1939.
This caused controversy which fuelled the news of a conspiracy in British news about Chamberlain’s government and Hitler. People questioned whether Chamberlain had changed his policy towards the Nazis or whether he was trying to appease Adolf Hitler.
The National Bank of Czechoslovakia started to move gold bullion to England in 1936. At the time London was the key storage country for gold and it has since become the world’s hub for gold bullion trading. A lot of countries like Prague managed much of their gold reserves through the Bank for International settlements (BIS) which in turn was linked with the UK’s Bank of England. The Bank for International Settlements (BIS) was first established to provide a mechanism for reparation payments and war debts. Initially, it was designed to be an independent bank that stood above politics and had legal immunities.
The bank ran accounts in London and ensured that gold owners remained anonymous to the central banks. The BIS board was made up of different countries who at some point had been at war with each other and neutral countries. However, BIS broke with protocol when in 1939 the BIS decided to honour an order from Czechoslovakia to transfer some of its gold held in an account at the Bank of England to a German Reichsbank account. The order for the transfer of gold was issued a couple of days after Germany occupied Prague, but it later emerged that the order was honoured under duress. Prague’s nightmare finally came true when the Nazi invaded the country. A year later. Hitler annexed Austria and headed straight for the central bank.
The Bank of England refused to honour the gold but there was one person at the top of the bank’s totem pole, Governor Montagu Norman, who has been attributed to pushing the British Empire to return to its pre gold Standard. Britain’s economy deflated and led up to the great crash of 1931. When it would have been prudent to abandon the gold standard, Norman didn’t, instead he took a holiday to Canada to “calm his nerves.” He came back to a Britain that had quit then gold without informing him. Would the BoE act appropriately and honour the Czech gold order? The Czech’s gold account was BIS No.2 but a new account was created for the German Reichsbank was held in BoE’s vault but during this time a new account No. 17 was opened for the Reichsbank. Norman, seemingly connived to facilitate the sale of plundered gold. He even lied to about to Parliament claiming that he did not know who owns which account in BIS. So the Nazi got the Czechoslovakian gold and had it sold in 10 days.
In the case of Venezuela, the president wants the gold to use as collateral for loans. Chavez tried it, but it didn’t work for him. As long as sanctions are still in place and hyperinflation continues, England will continue to have grounds to refuse the repatriation of gold to Venezuela.