Gold has long been considered by experts as one of the best stores of value, encouraging multiple governments to accumulate gold ensuring they have sufficient reserves in the event of a widespread failure of the financial system.
Even though global currencies are no longer backed by gold, governments store large amounts of gold ingots to protect their public finances against inflation and other economic shocks.
How Gold Reserves Work
Gold has served as a means of exchange over thousands of years. During much of the period from the 17th to the 20th centuries, paper-money issued by national governments were backed by gold and acted as a legal claim to physical gold.
International trade was carried out using gold. For this reason, countries needed to maintain gold reserves, for both economic and political motives.
Most countries stopped backing their currencies with gold in the middle of the 20th century. Switzerland was the last country to completely leave the gold standard in 1999.
The Federal Reserve Bank of New York continues safeguarding the gold belonging to other countries, central banks and official international organizations. For its part, the International Monetary Fund (IMF) is one of the largest holders of gold reserves with 3,102 tons, almost as much as Germany.
Countries with the Largest Gold Reserves in the World
According to figures of the World Gold Council corresponding to February 2024, these are the countries with the largest gold reserves:
Top 10 Countries with the Largest Gold Reserves in the World - Q4 2023
🇺🇸 #1 - United States (8,133 tons of gold)
During the rise of the Bretton Woods international exchange system, when the United States offered to safeguard and protect other countries’ gold in exchange for dollars, it was reported that between 90% and 95% of gold reserves of the world were in American vaults. Decades later, this nation still has the largest amount of gold.
🇩🇪 #2 - Germany (3,352 tons of gold)
The German Government keeps its gold reserves at various locations, including the Deutsche Bundesbank in Frankfurt, the United States Federal Reserve Bank branch in New York, the Bank of England in London, and the Banque de France in Paris.
🇮🇹 #3 – Italy (2,451 tons of gold)
The eurozone crisis in 2010 led some to demand the Italian government to sell part of its gold reserves to raise funds, but such plans never materialized. Italy stores most of its gold ingots, more than 87%, in the central office of the Bank of Italy and in the United States. The rest is divided between vaults in Switzerland and in the United Kingdom. According to the Central Bank of Italy, it stores gold in different locations for historical reasons and to minimize risks.
🇫🇷 #4 - France (2,436 tons of gold)
France’s former president, Charles de Gaulle (1959-1969), was partially responsible for the collapse of the Bretton Woods system when he began to demand the exchange of dollars for physical gold from the Fort Knox reserves. Then, President Richard Nixon, who knew that the fixed rate of $35 per ounce of gold was too low, was forced to remove the United States from the gold standard, thereby ending the convertibility of the dollar into gold.
🇷🇺 #5 - Russia (2,332 tons of gold)
Russia’s increase in gold reserves has been part of a strategy of diversification and economic protection against economic sanctions applied by the United States and the global political volatility. By selling US Treasury bonds to buy gold bars, in order to replace their US dollar-denominated investments, Russia has underpinned its strategy which has allowed it to strengthen its economic and geopolitical position in the last decade.
Safe and Long-Term Investment
Like individual investors, governments need to diversify their investment portfolios. Maintaining different investment vehicles backed by tangible assets mitigates risks and increases security, by reducing their dependence on fiat currencies issued by other countries.
In times of economic uncertainty or when prices increase the levels of inflation, the value of fiat currencies can decrease, eroding the purchasing power of a country's reserves. On the other hand, gold maintains its value over time, providing stability and security to the central banks’ reserves.
Historically, the production of the golden metal has been seen as a safe haven asset, offering a hedge against inflation and currency devaluation. That is why central banks of both, developed and emerging economies, are increasing their gold purchases as an alternative form of reserve to US dollars. As a result of this trend, according to data from the International Monetary Fund, in 2023 for the first time since the beginning of this century, gold surpassed the Euro, as the second most used financial asset as an international reserve globally, ranking only after the US dollar.
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