Who Really Owns Italy’s Gold?

Italy’s unpredictable political situation continues to throw up surprises with a controversial claim in national newspaper La Stampa this week that the country’s coalition government wants to sell part of Italy’s gold reserves to cover spending plans and to prevent the need to increase VAT in a forthcoming Italian budget.

While the claims by La Stampa are not really based on anything new, they still managed to cause an international media frenzy as they came a few days after Italy’s governing coalition launched verbal attacks on Italy’s central bankers and financial regulators.

Note that Italy claims to be the world’s third largest sovereign gold holder behind the US and Germany, with claimed monetary gold holdings of 2451.8 tonnes. Interestingly, unlike most countries where sovereign gold is owned by the State but managed by the country’s central bank, the Italian gold is officially owned by Italy’s central bank, Banca d’Italia (Bank of Italy), and not owned by the Italian State.

The Banca d’Italia furthermore claims that 1199.4 tonnes of the gold (or roughly half), is stored in the Bank’s gold vaults under it’s Palazzo Koch headquarters building in Rome, with most of the other half stored in the vaults of the Federal Reserve Bank of New York (FRBNY), and a small balance kept the Bank of England in London, and in an account of the Bank for International Settlements (BIS) in the vaults of the Swiss National Bank (SNB) in Berne, Switzerland. But without any documentary evidence or independent auditing or verification of any of its gold, especially the foreign held gold, these claims are impossible to verify.

Note also that the current Italian government is made up of a coalition of the right-wing League party (Lega), a party headed by Matteo Salvini, and the populist Five Star Movement (M5S), a party headed by Luigi Di Maio, but with the appointed Giuseppe Conte as prime minister (backed by Lega and M5S), and with Salvini and Di Maio as vice prime ministers.

La Stampa stirs controversy with Grillo and Borghi

La Stampa, one of Italy’s most famous newspapers, bases its new gold sales claim on two political developments which it thinks are relevant, but neither of which are actually that new. Firstly, La Stampa says that back on 9 September last year, Beppe Grillo, founder of M5S, posted an article in his personal blog (written as a collaboration with a university professor Gabriele Gattozzi), pointing out that Italy had never sold any gold under previous Central Bank Gold Agreements (CBGA’s) but could now do so under the current round, with gold sales beginning as early as the 4th quarter 2019.

Secondly, La Stampa says that M5S’s coalition partner, the League, is also on board with gold sales plans given that the League’s economic spokesperson Claudio Borghi has submitted a bill to parliament seeking to place ownership of Italy’s gold directly under the Italian State.

Let’s briefly look at each of these two claims by La Stampa. It is true that on 9 September 2018, Beppe Grillo published an article in his personal blog in Italian, titled “Vendo Oro!" (Sell Gold!) which can be here, and in which he pitched the case for sales of part of Italy’s gold reserves. That article (which was also signed by Gabriele Gattozzi) began as follows:

“We often hear that the Italian Republic is almost always very low in the various international rankings concerning, for example, competitiveness, transparency, corruption, freedom of the press, etc, etc. But there is a classic case in which we are at the top, even on the podium, with a bronze medal. This is the world ranking of holders of gold reserves" (referring to Italy’s top 3 position)

Grillo then made an argument for selling between 500-600 tonnes of Italian gold, a situation he says would still leave Italy as the world’s 4th largest gold holder after such sales were completed:

“In a nutshell, it would be a potential variable ranging from 500 to 600 tonnes (no more or less than what France sold a few years ago) equal to revenues of 16 to 20 billion euros, spread over 4-5 years (ie 4-5 billion euros a year from now) in cash and readily available.

Furthermore, these sales would allow us to remain in any case among the top holders of gold reserves worldwide, moving from third to fourth place. Moreover, these quantities could easily be purchased by absorbing the demand of some countries such as China, India, Russia, Brazil, South Korea and other so-called emerging countries that have already expressed their intention to increase their gold reserves.”

Coincidentally or not, La Stampa points out that approximately €16-20 billion of revenues would be “a little less than what is needed to sterilize VAT”.

Grillo concluded his September blog article saying that any gold sales would be a one-off measure:

“This is obviously a one-off five-year measure, but that could allow us to take a breath and provide extra budget coverage – without breaking the stringent community parameters – to be allocated to urgent and non-transferable measures. But above all it would allow to finally put an end to this annoying litany on the fact that ‘there is no money’." 

Next up, a quick look at the other development which La Stampa thinks is relevant, i.e. the League’s economic spokesman Claudio Borghi and his bill to parliament to crystallize in legislation the ownership of Italy’s gold with the Italian State and not the central bank.

If you believe the mainstream financial media, you would think that Borghi’s bill just hit the tape in February 2019, but that is not the case. There was extensive coverage of this bill in Italian media at the end of November 2018 (for example here “Claudio Borghi: a law to put the gold bars of Banca Italia under the control of the government”), and more importantly, the bill was actually introduced as a ‘law proposal’ to the Italian ‘Camera dei Deputati (House of representatives)’ way back on 6th August 2018. See bill text on the Italian Camera legislation website here and in pdf format here. An explanatory document about the motivation for bringing forward the bill can be read in Italian here.

Borghi titles his draft Act “Authentic interpretation of Article 4 of the Consolidated Law on currency matters, as per the Presidential Decree of 31 March 1988, n. 148, concerning the management of official reserves“.

According to the introduction to the Borghi bill:

“the issue of the ownership of national gold reserves, although irrefutable in the heart of every Italian citizen, from time to time appears in the parliamentary debate as a topic of debate.

…What is undoubted is the ownership of the gold that was and is of the Italian State…

…Given widespread debate and even misinterpretation, it is necessary to provide explanation and interpretation in national legislation..in a situation of certainty and clarity…

…The present legislative proposal seeks to ensure clarity of interpretation since the Bank of Italy provides for the management of official reserves, in compliance with the Statutes of the ESCB and ECB…

…(but) the provision relating to management activity does not appear to be sufficiently explicit in underlining the permanence of ownership of gold reserves to the Italian State, and so a specification on this point is necessary.

Borghi’s actual proposed law to clarify ownership of the Italian gold is quite short and is as follows:

“Art. 1. The second paragraph of Article 4 of the Consolidated Law on Currency, as per the Presidential Decree of 31 March 1988, n. 148, is interpreted as meaning that the Bank of Italy manages and holds, as an exclusive deposit, the gold reserves, without prejudice to the right of the Italian State to own such reserves, including those held abroad.“

Even though this bill was drafted on 6 August 2018, and even though Claudio Borghi has been tweeting about it for months, the mainstream financial media are only getting wind of this bill now, six months later. For example, Reuters has only now published an article, dated 11 February 2019, and titled “League drafts terms for possible sale of Italy’s gold reserves“.

According to this article, Borghi told Reuters that the bill has not yet been presented in parliament, and was “only a hypothesis”. Borghi also said that the bill does not signify a plan to sell Italian gold, but to “reassure people that the government had no plans to sell the reserves to fix its current public finance difficulties“.

Furthermore, the Banca d’Italia is not owned by the Italian State. It’s owned by the Italian commercial banks, with the largest shareholdings being held by Intesa Sanpaolo and UniCredit. See here for a list of financial institution shareholders of the Bank of Italy. So the Bank of Italy owns the gold, and the Italian banks own the Bank of Italy.

The reasons the Bank of Italy, and not the Italian state, owns the Italian gold, are historical, and briefly are as follows, as explained in the September 2016 BullionStar article “From Gold Trains to Gold Loans – Banca d’Italia’s Mammoth Gold Reserves":

“Until the 1960s, most, if not all of Italy’s official gold reserves were held not by the Banca d’Italia, but by an associated entity called l’Ufficio Italiano dei Cambi (UIC). In English, UIC translates as the “Italian Foreign Exchange Office”. The UIC was created in 1945. One of its tasks was the management of Italy’s foreign exchange reserves (also including gold).

Italian gold purchases in the 1950s and 1960s were conducted for the account of the UIC, not the Banca d’Italia. However, during the 1960s there were two huge transfers of gold from the UIC to the Banca d’Italia, one transfer in 1960 and the second in 1965. In total, these two transactions represented a transfer of 1,889 tonnes from the UIC to the Banca d’Italia. The UIC’s main function then became the management of the national currency and not the nation’s gold. The UIC then ceased to exist in January 2008 when all of its tasks and powers were transferred to the Banca d’Italia."

Conclusion