During World War II, one of the darkest periods in the history of humanity, the Bank of England played an important, but maybe unpleasant role in central banking for helping the Nazis sell looted gold after invading Czechoslovakia in 1939.
A report from Financial Times uncovered an unpublished history regarding the activities of the Bank of England during World War II indicating that the British central bank facilitated the sale of gold on behalf of Reichsbank, the central bank of Germany. History revealed that Reichsbank confiscated the gold from the central bank of Czechoslovakia after the British government froze all the assets held by Czech Republic in Britain after the invasion by Germany.
The gold had a market value of £5.6 million in March 1939. At that time, the gold was transferred from the National Bank of Czechoslovakia’s account at the Bank of International Settlements (the central banker’s bank) to an account managed on behalf of the Reichsbank.
According to the Financial Times, the incident was a burden on the reputation of the Bank of International Settlements (BIS). But the role of the Bank of England in facilitating the transfer of the looted gold received little attention. History showed that the British central bank prioritized the appeasement of the BIS over the British government’s wishes to stop the sale of the Czech assets.
Czech gold was a hot potato for British banks
Back then, the Bank of England served as the chair of the Basel based institution. Otto Niemeyer, then director in charge of the bank’s overseas and foreign department stored the majority of the BIS gold in its vaults located at Threadneedle Street. In May 1939, the British media revealed that the Bank of England held this gold, and the issue became controversial.
Based on written accounts, there were additional gold transactions in June of 1939. The gold that was sold at the time was worth approximately £440,000, and there were also gold shipments to New York worth £420,000 from the no.19 account of the BIS, which represents gold which had been shipped by the Reichsbank to London.
Prior to the transactions, history revealed that on May 26th of that year, Chancellor John Simon wrote to Montagu Norman, Governor of the Bank of England, inquiring as to whether the bank still held gold from Czechoslovakia. The chancellor made the inquiry to help him answer questions in the House of Parliament.
Gold was transferred without approval from the British government
Montagu did not answer the question in his reply to the chancellor on May 30, but he indicated that the Bank of England held gold for the BIS from time to time. He wrote that he had no knowledge whether it was their own property or that of customers, therefore he could not tell if the gold was held for the National Bank of Czechoslovakia.
“This time, before acting, the Bank of England referred the matter to the chancellor, who said that he would like the opinion of the law officers of the Crown. On the BIS enquiring, however, what was causing delay and saying that inconvenience would be caused because of payments the next day, the Bank of England acted on the instructions referring to the Law Officers, who, however, subsequently upheld their action,” according to the history.
History revealed that the British central bank sold the gold on behalf of the Nazis without waiting for the approval of the British government. Officials from the Bank of England wrote and completed the history in 1950, but it was not published.