Gold as International Reserves: A Barbarous Relic No More?
33 Pages Posted: 17 Jan 2023
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Gold as International Reserves: A Barbarous Relic No More?
Gold as International Reserves: A Barbarous Relic No More?
Abstract
After moving slowly downward for the better part of four decades, central bank gold holdings have risen since the Global Financial Crisis. We identify 14 “active diversifiers,” countries that purchased gold and raised its share in total reserves by at least 5 percentage points over the last two decades. In contrast to the diversification of foreign currency reserves, which has been undertaken by advanced and developing country central banks alike, active diversifiers into gold are exclusively emerging markets. We document two sets of factors contributing to this trend. First, gold appeals to reserve managers as a safe haven in periods of economic, financial and geopolitical volatility, when the return on alternative assets is low. Second, the imposition of financial sanctions by the US, UK, EU and Japan, the main reserve-issuing economies, is associated with an increase in the share of central bank reserves held in the form of gold.
Keywords: International Reserves, Gold, Sanctions
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