Many countries are turning to a “stateless currency”: gold.

Central banks around the world are increasingly moving away from the dollar and yuan and towards a “stateless currency” – gold. This is due to growing geopolitical tensions and global economic uncertainty. According to a recent article by Nicky Asia: Central banks have been expanding their gold reserves. In the first six months of this year, they added a net 483 tonnes of gold, 5% more than the record 460 tonnes in the first half of 2023.

Last year, central bank gold purchases remained just short of the decade-long record set in 2022. In fact, central banks netted 1,037 tonnes of gold, the second year in a row that they added more than 1,000 tonnes to their total reserves. This trend will continue into 2023, with central bank gold purchases set to increase significantly.

Why gold?

One of the main reasons central banks are moving away from the dollar and yuan and boosting their gold reserves as a safe haven is concerns about relying on these currencies during times of global economic uncertainty, political strife and sanctions. Just think of the sanctions imposed on Russia after its invasion of Ukraine.

As a “stateless” currency, gold remains unaffected by government policies and market fluctuations. Its value will never fall to zero and it remains liquid in almost all market conditions. This means that countries that own gold maintain a higher degree of independence than countries that own the dollar or other government-controlled currencies.

Many central banks choose gold. It is the ideal backup because Gold is valued worldwide, is liquid and exposes the owner to very little counterparty risk. Simply put, counterparty risk is the possibility that the party on the other side of a transaction will default on its commitment or change the terms of the deal. When you own physical gold and store it safely at home, there is no other party involved.

As countries realize the dangers of relying solely on government-controlled currencies, they are taking steps to minimize their reliance. By accumulating gold, they reduce their exposure to foreign policy fluctuations and ensure a level of financial independence.

Countries with increasing gold reserves

Central Bank China Its gold reserves have increased by 16.3 percent for 18 consecutive months since November 2022, reaching about 2,264 tons in June 2024. This level has now remained stable for two months due to the rise in global gold prices.

Brazil The share of gold in its reserves increased to 2.6 percent by the end of 2023, while the share of the yuan decreased by 0.57 percentage points to 4.8 percent.

Gold reserves in India It rose to 57.6 billion DKR by the end of July 2024, an increase of 30 percent over the previous year.

Singapore and the Philippines It also appears to be increasing its gold reserves.

Main conclusions

• Globally, central banks are diversifying away from the dollar and the yuan by opting for a “stateless currency,” namely gold.
• Gold is recognized worldwide, is liquid and exposes its owner to very little risk with the counterparty.
• Countries that own gold maintain a higher degree of independence than countries that own the dollar or other government-controlled currencies.

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