Gold has been an essential component of nations' financial reserves for centuries, and its attractiveness shows no sign of diminishing, as central banks will once again become net buyers of gold this year. In fact, central banks now have more than 35,000 metric tons of metal, about one-fifth of all the gold ever mined. But what is it about gold that has made it such a key asset for so long? A gold reserve is gold held by a national central bank, conceived mainly as a guarantee to fulfill promises of payment to depositors, banknote holders (for example, paper money) or their trading peers, during the gold standard era, and also as a store of value or to support the value of the national currency. For most of history, a nation's gold reserves were considered its main financial asset and an important war prize.
The Belgian government transferred one-third of its gold reserves to the United Kingdom, another third to Canada and the United States, and most of the rest to southern France. After the outbreak of the war, the gold stored in France was sent to Dakar, the capital of Senegal, which was then part of the French colonial empire. This was against the wishes of the Belgian Government, since the Belgians had ordered the French to transfer it to the United States. After the Germans occupied Belgium and France in 1940, they demanded the Belgian gold reserve located in Senegal.
In 1941, the French authorities in Vichy organized the transportation of 4,944 boxes containing 198 tons of gold to German Reichsbank officials, and the German Government used them to purchase products and ammunition from neutral countries. The Bank of France fully compensated the National Bank of Belgium for the loss of its gold after the war. The IMF regularly maintains statistics on domestic assets, as reported by several countries. The World Gold Council uses this data to classify and report periodically the gold stocks of countries and official organizations.
The gold listed for each of the countries in the table may not be physically stored in the country listed, since central banks generally do not allow independent audits of their reserves. The leasing of gold by central banks could call into question the gold holds declared in the following table. Growing concern over another global financial crisis has caused central banks to re-accumulate their gold reserves. In the quarter ending in September, demand for gold increased by 28% year-on-year to 1181 tons, according to a new report from the World Gold Council (WGC).
When the value of the dollar falls, gold tends to rise, allowing central banks to protect their reserves during times of market volatility. For example, of its 612 tons, the Dutch central bank has 15,000 gold ingots, or 31 percent, of its gold stocks available; another 31 percent is held by the Federal Reserve Bank of New York. He stated that managing “the new risks derived from the coronavirus pandemic played a key role in the bank's decision, while “the emergence of global peaks in public debt or inflation problems further increase the importance of gold in the national strategy as a safe haven asset and as a store of value”. Instead, emerging economies such as Russia, China, Turkey and India have intervened as buyers of gold.
Since gold does not entail credit or counterparty risks, it serves as a source of trust in a country and in all economic environments, making it one of the most important reserve assets in the world, along with government bonds. So that inflation does not have a drastic impact on a country's economy, the country requires that investments that are not linked to the dollar enter gold and other precious metals. Taking gold purchases by the central banks of China and Russia as an example, a report by Global Bullion explains that emerging economies are especially exposed to free market excesses and use gold to offset risk. In this way, gold instills confidence in the strength of the central bank and in the nation's financial security.
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