Reasons Why Countries Are Bolstering Their Gold Reserves
The number of bullions held by the treasury or central bank of a country is called ‘Gold reserves.’ For thousands of years, gold has been known to serve as a means of exchange in transactions in different ways.
Gold was used to support paper’s value, even during the 17th to 20th centuries. The US dollar was backed by 1.60 grams of gold during the 1830s.
During the Gold Standard era, countries were obligated to maintain gold reserves for international trade, economic and geopolitical stability, and improve the nation’s creditworthiness.
This ended with the First World War’s unprecedented inflation rate, but most developing and under-developing nations still bolster significant amounts of gold reserves.
Let’s see why countries prefer storing gold more than other investment options.
US dollars need guaranteed backing by the US government. In contrast, gold is accepted worldwide without the need for any guarantee as to its intrinsic features, such as its worth, and the store of value is constant everywhere every time.
Sense of Security
Gold creates a sense of security in the economy and stabilizes the balance sheets of central banks.
Insurance Against Hyper-Inflation
Gold reserves help countries bounce back from economic catastrophes such as hyperinflation. This is because gold is a relatively liquid commodity that’s accepted worldwide.
If the US dollar value were to decline dramatically, the government could sell gold to support fiat currency and reinstate its value.
Top Countries with The Highest Gold Reserves
USA: When the USA offered to keep other countries’ gold reserves in exchange for the currency via the Bretton Woods system, it was estimated that American vaults held about 95% of the world’s gold.
Decades later, the USA holds more than 8000 metric tons of gold in its federal reserves’ holdings.
Germany: With a drastic difference, Germany holds the second largest reserves with approximately 3400 tons of gold.
Italy and France:The bank of Italy reportedly holds 2450 tons of gold while France has 2435 tons of the shiny yellow metal reserved in their treasury.