Central Banks Increasing Gold Reserves Amid Dollar Concerns

Central banks from wealthy nations are showing a growing interest in purchasing gold as they become more concerned about the stability of the US dollar. This move is part of their strategy to hedge against risks such as inflation and economic uncertainties.

Rising Demand for Gold

According to a recent survey by the World Gold Council, central banks from advanced economies are ramping up their gold reserves. This trend is not limited to emerging economies like China, which have been accumulating gold to reduce their reliance on the US dollar.

Despite the current high price of gold, hovering around $2,330 per ounce and reaching a peak of nearly $2,450 last month, central banks remain eager to increase their holdings.

Survey Findings

The survey, conducted between February and April, revealed that a record 29% of 70 central banks are planning to purchase gold within the next year. Among them, 15% of central banks from advanced economies and 40% from emerging markets are looking to increase their gold reserves.

Central banks cite various reasons for this surge in gold purchases, including rebalancing their reserves and protecting against risks such as inflation, exposure to the US dollar, and market volatility. Additionally, concerns about economic instability in countries issuing reserve currencies, such as the rising US budget deficit, are driving this trend.

Declining Dollar Reserves

Despite the dollar's long-standing dominance in global reserves, central banks are anticipating a decrease in its share over the next five years. This sentiment is particularly strong among central banks from advanced and emerging economies alike.

The decline in the dollar's share of global reserves is attributed to ongoing discussions about its role as the world's primary reserve currency. Recent events, such as the imposition of sanctions on Russia, have raised concerns among other nations about potential limitations within the US dollar-based financial system.

While the dollar remains the most widely held currency in central banks' foreign exchange reserves, its share has decreased from over 70% in 2000 to approximately 55% by the end of 2023. This trend, labeled as "stealth erosion" by the International Monetary Fund, highlights a gradual shift away from the dollar in global reserves.

Despite the entrenched position of the US dollar in the international financial system, central banks are exploring alternatives to reduce their reliance on it, signaling a potential reconfiguration of the global reserve currency landscape in the coming years.

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By: htan@insider.com (Huileng Tan)
Title: Central Banks Increasing Gold Reserves Amid Dollar Concerns
Sourced From: www.businessinsider.com/dedollarization-rich-countries-advanced-economies-buy-gold-dollar-share-reserves-2024-6
Published Date: Thu, 20 Jun 2024 07:21:37 +0000