Central Banks Increase Gold Reserves

In recent years, we have witnessed a significant increase in interest from central banks in purchasing gold, both in developed economies and emerging markets. According to the latest World Gold Council (WGC) survey, 29% of the 70 central banks surveyed plan to increase their gold reserves in the next 12 months, a record percentage.

This phenomenon is not limited to developing countries like China and its allies, which have been intensively accumulating gold to diversify their reserves and reduce reliance on the U.S. dollar. Surprisingly, even 15% of central banks from developed economies plan to follow this trend, the highest percentage since 2019. In emerging markets, this percentage is even higher, with 40% of central banks planning to buy gold in the coming year, according to Business Insider.

The increased interest in gold comes despite the fact that the price of this precious metal is at record levels, around $2,330 per ounce, after reaching nearly $2,450 last month. The main reasons for these central bank moves include the need to rebalance reserves and protect against risks such as rising inflation, exposure to the U.S. dollar, and market instability. Eight out of 20 central banks also cited increased economic risks in the countries where their currency reserves are held, with particular emphasis on the growing U.S. budget deficit.

Alongside this enthusiasm for gold, 56% of central banks from developed economies stated that they expect the dollar’s share in global reserves to decline over the next five years. Nearly two-thirds of central banks from emerging markets share this view. This shift in attitude toward the U.S. dollar comes amid intense discussions about its dominant role as the world’s reserve currency, further fueled by Western sanctions against Russia following its invasion of Ukraine in 2022.

Nevertheless, the dollar remains firmly entrenched in the global financial system, and few believe it could be dethroned. However, a group of large emerging countries is actively seeking ways to bypass its dominance, which could have long-term implications for the global economy. According to a recent report by the International Monetary Fund (IMF), the share of the U.S. dollar in global reserves has decreased from over 70% in 2000 to around 55% in the last quarter of 2023. The IMF refers to this decline as “silent erosion,” indicating a gradual but constant loss of the dollar’s share in global reserves.