Gold as International Reserves: A Barbarous Relic No More?
IMF Working Papers, January 27, 2023
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- Gold as International Reserves: A Barbarous Relic No More?
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Bibliographic details
- Authors: Serkan Arslanalp, Barry J. Eichengreen, Chima Simpson-Bell
- Published: January 27, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400229947.001
Key findings
- Central bank gold holdings moved slowly downward for the better part of four decades, but have risen since the Global Financial Crisis.
- The authors identify 14 “active diversifiers,” defined as countries that purchased gold and raised its share in total reserves by at least 5 percentage points over the last two decades.
- Active diversifiers into gold are exclusively emerging markets, in contrast to foreign currency reserve diversification which has been undertaken by advanced and developing country central banks alike.
- Two main factors are documented as contributing to the rise in central bank gold holdings:
- Gold’s appeal as a safe haven in periods of economic, financial and geopolitical volatility, when the return on alternative financial assets is low.
- The imposition of financial sanctions by the United States, United Kingdom, European Union and Japan is associated with an increase in the share of central bank reserves held in the form of gold.
- There is some evidence that multilateral sanctions imposed by these, and other countries have a larger impact than unilateral sanctions on the share of reserves held in gold, since unilateral sanctions leave scope for shifting reserves into the currencies of other non-sanctioning countries.
Empirical scope and measures
- Definition of “active diversifiers”: purchased gold and raised gold’s share in total reserves by at least 5 percentage points over the last two decades.
- Temporal context emphasized: the trend reversal occurred since the Global Financial Crisis; comparisons reference movements over the better part of four decades and over the last two decades.
Interpretation and implications
- Reserve managers view gold as a safe-haven reserve asset during times of low returns on alternative financial assets and heightened economic, financial, or geopolitical volatility.
- Financial sanctions by major reserve-issuing economies are associated with reserve composition shifts toward gold; multilateral sanctions appear to have a stronger association than unilateral sanctions due to reduced opportunities to reallocate into other major currencies.
Publication metadata (selected)
- Authors: Serkan Arslanalp, Barry J. Eichengreen, Chima Simpson-Bell
- Date: January 27, 2023
- Pages: 37
- Series: Working Paper No. 2023/014
- DOI: https://doi.org/10.5089/9798400229947.001
Source: IMF Working Paper “Gold as International Reserves: A Barbarous Relic No More?” by Serkan Arslanalp, Barry J. Eichengreen, and Chima Simpson-Bell (January 27, 2023).
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