Central Europe Review: politics,
society and culture in Central and Eastern Europe
Vol 2, No 11
20 March 2000

[Photo by FreeFoto.com]
C Z E C H   R E B U B L I C:
The Gold Chase
Zlatý Poklad RČS: Czech Television Sunday 26 March 2000 8pm

Martin D Brown

Today, the Czech Republic no longer retains any gold reserves. With gold prices declining and many major European powers selling their surplus stocks, Česká národní banka (the Czech National Bank) has now cashed in the last of its reserves for Eurobonds.

This sale was undertaken on the supposedly dependable advice of the World Bank and because of the creative accounting possibilities that such bonds offer. They provide far more scope for meeting those all-important financial stipulations, convergence criteria and ensuring a healthy looking economy than bullion ever could.

As a result, the World Gold Council no longer lists the Czech Republic on its books. It now resides on the register of those countries without gold reserves, most of which come under the heading of "developing". These national reserves first established during the First Republic (the first Czechoslovak state, 1918 to 1938) and maintained through the tribulations of an extreme century - to use Eric Hobsbawm's phrase - have now ceased to exist.

The remarkable and complex history of these former reserves is told in a forthcoming Czech documentary Zlatý poklad, co-produced by Martin Skyba and Anděla Špindlerová, to be broadcast on 26 March 2000 on Czech Television's channel 2. The film details the accumulation, theft and belated return of these reserves over a sixty-year period, prior to their eventual sale. My own contribution to the film rests on my research in the archives of the Public Records Office on the British government's role in the gold's original theft.

Greater than gold

The real interest in this issue lies in the fact that these reserves held far more value than their strict financial worth. They represented a link back through Central Europe's history and the Czech Republic's previous incarnations, a thread that leads from the destruction of the "New Europe" in 1939 through the war itself to the bipolar confrontations that followed, and, on to today's "New World Order."

What was unusual about these reserves is that they had been established through contributions from the Czechoslovak population. For many there was an emotional attachment to these monies, in marked contrast to, say, British or French feelings toward their own reserves.

Under the direction of the First Republic's controversial first Finance Minister, Dr Alois Rašín, these reserves had been accumulated through national collections between 1919 and 1924. Just as the construction of Prague's Národní divadlo (National Theatre) had been twice funded through public donations in the previous century, so was the new country's gold reserves.

Whatever the limitations and failures of Czechoslovakia's inter-war democracy, the state was a financial success. A combination of industrial inheritances from the Austro-Hungarian Empire, stable securities and a buoyant arms trade meant that she weathered the economic crisis of the early 1930s better than most. In 1919, the state had no reserves to speak of, by 1926 the newly established Československá národní banka (Czechoslovak National bank) held some 40 tonnes of monetary gold, and on the eve of the state's demise in September 1938, Czechoslovak accounts held 94 tonnes.

All this was to change with the Munich Agreement, as was the fate of the gold.

Saved for a rainy day

Throughout the 1930s, the Czechoslovak government had been secreting gold abroad to offset the growing threat from Nazi Germany, depositing much of it with the Bank of International Settlements (BIS) in Basle and other Western banks. The BIS, itself, had been established in January 1930 as body to facilitate the international transfer of funds. Specifically designed to be independent, in order, to de-politicise continuing reparation and loan payments.

It looked like the perfect location to safeguard these reserves, though in retrospect this view may have, in fact, said more about Czechoslovak President Edvard Beneš's own misguided beliefs in the sanctity of inter-war international institutions than the actual security of BIS. Misguided because, of course, these institutions were to ultimately prove beholden to the will of the "Great Powers" not the supposed rule of international law.

The looting of Czechoslovakia's gold reserves began as part of the Munich Agreement of September 1938, through which Czechoslovakia was required to provide 14.5 tonnes of monetary gold as cover for the currency circulating in the, so called, "Sudeten" areas. But, what is really of interest, in respect of the bulk of these reserves, is the second "Financial Munich" of March 1939.

When it rains, it pours

After October 1938, the second, hyphenated, Czecho-Slovak Republic existed only briefly, until 15 March 1939, when, at the "invitation" of President Emil Hácha, units of the Wehrmacht entered the country. With them came Dr Friedrich Muller, special commissioner of the German Reichsbank, who headed directly for the Národní banka pro Čechy a Moravu (National Bank for Bohemia and Moravia) in Prague.

There he demanded at gunpoint that the directors sign letters transferring 23 tonnes of gold from the Czech BIS account at the Bank of England to another BIS account held there. This request was promptly executed by the Bank of England. (1)

When this act was belatedly discovered by the British press and debated in the House of Commons in May and June 1939 (2), there was a general sense of outrage, and accusations flew, especially that a second "Financial Munich" had been perpetrated on the hapless Czech population. One MP, Winston Churchill, was particularly vocal, arguing that through this action German war coffers were increased by millions.

But the realities behind this action were somewhat more complex than straightforward incompetence.

It is often mistakenly believed that the British, specifically His Majesty's Government (HMG), disliked the Czechs, and that this explains London's actions at Munich and in March 1939. This is an over-simplification, because it rests upon the mistaken assumption that the British political elite actually spent much time thinking about Czechoslovakia in the 1930s. They didn't.

Admittedly, the Czechs had some notable detractors, and, Beneš's ties to the Quai d'Orsay and the League of Nations made him few friends in London. But general feelings toward Czechoslovakia were, in fact, rather neutral when compared to those circulating in Whitehall toward Germany or France.

Lost land of gold and guns

But this attitude began to change after Munich, as did Neville Chamberlain's pre-Munich policy of bypassing the Foreign Office, and, moreover, it had begun to dawn on Whitehall what sort of prize the truncated Czecho-Slovakia actually offered the Third Reich.

In 1935, Czechoslovakia had been the largest arms manufacturer and exporter in the world. The production of tanks, light arms and other weaponry at the massive Škoda works in Plzeň and the Brno arms factory dwarfed British production. It now seems increasingly plausible that this was what Adolf Hitler was after in March 1939, and HMG realised this only too late.

When German forces later invaded Poland, France and Russia, they often did so riding Czech made tanks, carrying Czech weapons and firing Czech made ammunition. This was the really destructive legacy of Munich and Appeasement, not the mythical belief that one cannot negotiate with dictators, as we'd been led to believe, a myth that was recycled again in the Balkans last year. (See earlier letter to CER)

By March 1939, HMG's policy had changed. Although it was clear to many in Whitehall that Czecho-Slovakia was doomed, especially as the preservation of her borders had never been ratified by the Munich signatories, the last thing they wanted was to allow Czech gold to fall into German hands.

The fact that the gold was transferred, as the archives confirm (3), was not due to dislike or even incompetence but rather because it was genuinely felt that there was no way for HMG to block a BIS transfer. After all, it was a non-political body designed specifically to avoid national interference, an argument that was later begrudgingly accepted by the Czechoslovak Government in exile. (4)

Ironically, by upholding the independence of the BIS, something that they had failed to do six months earlier for Czechoslovakia herself, Britain allowed this gold to be transferred to another BIS account and hence to Germany.

Having said that, Britain did move swiftly to preserve other Czecho-Slovak assets in the UK. Several million pounds worth of accounts and assets were immediately frozen and eventually made available to the Czech and Slovak exiles in the UK during the war. Of that, some seven million were signed back over to Britain, on 25 October 1940, at a time when this country was, to all intents and purposes, bankrupt. In turn, the British helped finance the exile government's activities and the Czechoslovak Independent Brigade and airforce here.

To the victor...

But that was not the whole story. In all, Nazi Germany looted 45 tonnes of gold from Czechoslovakia during the war, and its return was to become intimately intertwined in the beginnings of the Cold War. As a result of obstacles implemented by the British and American delegates to the secretive Tripartite Gold Commission (TGC), established in September 1946 (5), the return of Czechoslovakia's gold was delayed until 1982.

Once again, the fate of these reserves was in the hands of a supposedly independent international organisation.

The decades of delay were largely political. The American Army had discovered much of the gold looted by Germany in the Kaiserode Mines in Merkers in 1945. (more info HERE) Through the operation of the TGC, fifteen European central banks were supposed to receive two thirds of their looted monetary gold. By 1958, this process had been completed for most Western countries involved. Poland had to wait until 1976, Albania 1996.

The situation with Czechoslovakia in the late 1940s was more complicated as she was soon in dispute with the United States and Britain over a number of financial issues. These centred on reparations arising from Prague's nationalisation programme to American claimants and, British claims over a loan made to Czechoslovakia in 1938 to compensate for losses at Munich. Britain had later used this money to compensate various individuals and organisations for losses incurred by the German occupation, the difference plus interest was now tied to the return of the country's gold.

These disputes severely damaged Anglo-American-Czechoslovak relations at a crucial time for the latter, (6) and this helped contribute to the Western assumption that Czechoslovakia was firmly in the Soviet camp long before the Communist coup of February 1948.

Throughout the sixties and seventies, the gold issue was used by all sides as a propaganda tool. Eventually, in 1982, the Czechoslovak government agreed to satisfy British claims, and 18.5 tonnes of gold were flown from Zurich to Prague in a secret operation. It is open to interpretation as to whether this capitulation was, in fact, motivated by Eastern Europe's increasing financial problems at that time. In any case, the TGC was finally wound up in September 1998.

Even ten years after the fall of Communism, the story of the gold has not quite reached its conclusion. The "Velvet Divorce" of 1992 has now seen the Czech Republic hold Slovakia to ransom over the repayment of some six tonnes of gold, by demanding repayment of all debts owed. Switzerland's involvement with stolen gold from the last war is still been investigated today, as is Britain's and America's.

The final, definitive, history of the former Czechoslovakia's gold reserves may have to wait a few more years before it can be written.

Martin D Brown , 17 March 2000


Public Records Office, Kew, Nazi Gold

British Government site on wartime seizure of enemy property

Nazi Gold Conference London December 1997

US State Department site on the Tripartite Gold Commission

National Archives and Records Administration bibliography on Nazi Gold

Issues in International Law relating to Nazi Gold with links


Click on the ^ to return to your place in the text.

  1. For a more detailed description of these events see Kubu, E, "Czechoslovak gold reserves and their surrender to Nazi Germany", in Nazi Gold The London Conference 2-4 December 1997, The Stationary Office, 1998, pp. 245-248. ^
  2. See Hansard Parliamentary Debates, Fifth Series, Volumes 347 & 348, H M Stationary Office, 1939. ^
  3. See for example the discussions contained within FO 371 22895, Public Records Office Kew. ^
  4. Táborský, E, The Czechoslovak Cause, H F & G Witherby Ltd, 1944, pp. 60-61. ^
  5. See Historians, LRD, Nazi Gold: Information from the British Archives: Part II : Monetary gold, non-monetary gold and the Tripartite Gold Commission, FCO, No 12, May 1997, pp. 11-25. Document download at http://www.fco.gov.uk/news/keythemepage.asp?30 See also US State Department site on the Tripartite Gold Commission at http://www.state.gov/www/regions/eur/tripartite_gold_commission.html ^
  6. For more information on how these financial disputes contributed to the collapse of Czechoslovak-Western relations between 1947 and 1948 see Brown, M D, "Historical amnesia and post-Cold War attitudes in the Czech Republic: A reappraisal in the light of new archival research", in The Masaryk Journal, Vol 3, Issue 1, January 2000. ^



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