Germany Wants Its Gold Back, But Storing Gold Reserves Domestically Is Dumb

The German government announced today that it wants to repatriate a large share of the gold reserves it maintains at the New York Fed and all of the gold reserves it keeps in France. This seems to be basically a political move that's somehow designed to offer people reassurance about German financial exposure to the debts of other eurozone states and banks. But it's also a dumb idea. Insofar as it makes any sense whatsoever for a government to maintain a reserve of gold, its own central bank is the worst possible place for it. After all, a functioning sovereign state is never going to need gold domestically. Gold reserves initially started being held abroad because you could use them to buy foreign currency from foreign central banks. Nobody really does that these days, but you still could and it argues in favor of offshore holdings. But the only real situation in which a sovereign is g...