Central banks around the world are increasingly moving away from the dollar and yuan and towards “money without a state” – gold. This is due to growing geopolitical tensions and global economic uncertainty. According to a recent article published by Nikkei Asia, central banks have expanded their gold reserves. In the first six months of this year, they added a net 483 tons of gold, which is 5 percent higher than the record of 460 tons in the first half of 2023.
Last year, central banks’ gold purchases remained slightly below the ten-year peak set in 2022. In fact, net gold purchases by central banks amounted to 1,037 tonnes, marking the second straight year in a row that they added more than 1,000 tons to their total reserves. . This trend has continued until 2023, with a significant increase in gold purchases by central banks.
Why gold?
An important reason why central banks are moving away from the dollar and the yuan and their strengthen gold reserves as a safe haventhe concern about the reliance on these currencies in times of uncertainty about the future of the global economy and of political conflict and sanctions. Just think of the sanctions imposed on Russia after the invasion of Ukraine.
As a “stateless” currency, gold is unaffected by government policies and market fluctuations. Its value will never go to zero and will be liquid under almost all market conditions. This means that countries that own gold maintain a higher level of independence than countries that own dollars or other currencies that are controlled by the government.
Many central banks choose gold. It is a perfect backup because the the value of gold is recognized throughout the world, it is liquid and leaves little risk against the owner. Simply put, counterparty risk is the possibility that the party on the other side of a transaction will default on its obligation or change the terms of the contract. When you own physical gold and store it safely at home, no other party is involved.
As countries realize the vulnerability of relying solely on government-controlled currencies, they are taking steps to reduce their dependence. By accumulating gold, they reduce their exposure to foreign policy and ensure a degree of financial independence.
Countries with growing gold reserves
Central bank of China has increased its gold reserves by 16.3 percent for 18 consecutive months from November 2022, reaching around 2,264 tonnes in June 2024. This level has now remained stable for two months due to price international gold highs.
Brazil has increased the share of gold in its reserves to 2.6 percent by the end of 2023, while the share of the yuan fell 0.57 percentage points to 4.8 percent.
Gold stock of India increased to 57.6 billion dikkar by the end of July 2024, an increase of 30 percent from a year earlier.
Singapore and the Philippines they also seem to be increasing their gold reserves.
Key findings
• Globally, central banks are diversifying away from the dollar and yuan by choosing “money without a state,” that is gold.
• Gold is recognized around the world, it is liquid and leaves its owner with little collateral risk.
• Countries that own gold maintain a higher level of independence than countries that own dollars or other government-controlled currencies.
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