Together with our partners at OMFIF, we have written a report on the development of central bank digital currencies (CBDCs) and the implications for the gold market. CBDCs can potentially enable a wide range of new features. Money can become programmable, allowing policymakers to incentivise certain spending behaviours that can optimise economic impact or address social concerns. The trackable nature of CBDCs can also help to deter financial crimes. The ability to easily deploy “helicopter money” may also spark concerns about inflation.?
This paper looks at the vulnerabilities specific to central bank balance sheets and discusses how gold holdings can mitigate the risks posed. In particular, it focuses on the way gold holdings can affect the revaluation reserves that form part of central bank equity.
Gold has been at the heart of central banking for centuries. Once an official currency, it has become a cornerstone of modern reserve management. Emerging market central banks have been particularly active purchasers in recent years, ?and have occasionally acquired gold from local artisanal and small-scale producers.?
In this paper, we seek to answer those questions by assessing how gold lease rates have been affected in the past through changes in the demand to borrow gold and the supply of gold available for lending.
Central bank reserves are typically constructed according to three guiding principles: safety, liquidity and return. The Covid-19 pandemic has reinforced the significance of these principles and, by extension, the importance of smart and sustainable reserve management.?
Gold plays a prominent role in reserve asset management, being one of the few assets that is universally permitted by the investment guidelines of the world’s central banks. This is in part due to the gold market being deep and liquid – a key requirement of reserve asset managers.
In 2018, central banks added more gold to their international reserves than at any time since the end of Bretton Woods nearly 50 years ago. Nineteen central banks reported a meaningful increase in their gold reserves, giving rise to total purchases of 651 tonnes.
Central banks bought more gold in 2018 than at any time since the early 1970s – and the trend has continued this year. Isabelle Strauss-Kahn, Member of the Advisory Board of the World Gold Council, former Director of Market Operations at the Banque de France and former Lead Financial Officer at the World Bank, explains why.
Gold is an important part of central banks’ foreign exchange (FX) reserves. According to the International Monetary Fund (IMF), at the end of H1 2018 central banks collectively owned US$1.36tn of gold, around 10% of global FX reserves.
The World Gold Council is pleased to announce the release of its "Guidance for Monetary Authorities on the recommended practice in accounting for monetary gold".