How The Fed Helps The US Spy On Foreign Governments
It’s widely known that the Federal Reserve has been tasked by Congress with a “dual mandate” to maintain stable consumer-goods prices, low unemployment and – oh yes – buoyant equity prices. However, as Reuters revealed on Monday, the central bank has another legally binding obligation that might upset some of its clients: Helping the US intelligence community spy on foreign governments.
Some 250 foreign central banks and governments keep $3.3 trillion of their assets at the Federal Reserve Bank of New York. It is this little-known custodial role, which we have however highlighted frequently to show the true change in foreign holdings of US paper, that allows US intelligence agencies to leverage information about activity in certain accounts.
Specifically, senior officials from the Treasury and other government departments have turned to these otherwise confidential accounts several times a year to analyze the asset holdings of the central banks of Russia, China, Iraq, Turkey, Yemen, Libya and others, according to more than a dozen current and former senior Fed and Treasury officials who spoke with Reuters.
It was not immediately clear how the “confidential” information differs from the public, except that it likely breaks down the holdings by source nation. The Reuters report surfaced at a time when the value of assets held by the central bank is rapidly expanding as foreign reserve managers scoop up US Treasurys at an aggressive clip, something we first highlighted in February when concerns emerged that foreigners were selling based on data from the delayed Treasury International Capital report.
The terms of the Fed’s custodial agreements stipulate that it can share information with US government entities on a “need to know” basis. Ironically, the service was advertised in a 2015 slide presentation as “safe and confidential,” according to Reuters. However, the “need to know” standard is easily circumvented as the central bank has conveniently avoided creating a working definition of “need to know.”
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