Gold Reserves: Establish Players vs Emerging Competitors.
Does United States and its allies need to be worried?
Introduction:
The topic of gold reserves and their role in a country's economy is often discussed, but what exactly are gold reserves? Essentially, they refer to the gold holdings of a country's central bank, and their purpose is to act as a buffer against financial crises and unforeseen events. This practice has been in place since the 19th century when European central banks began holding gold to back their currencies. Gold reserves help to maintain international investor confidence, making them an important aspect of the global economy.
Emerging economies and the reality
There has been a lot of talk lately about the BRICS countries and their summit, with some suggesting that they are attempting to dethrone the US dollar or create a gold-backed currency. However, the reality is contray to that argument because USD is still the most widely used currency, accounting for 85% of global transactions and 60% of foreign reserves. It took the United States a long time to achieve this status, surpassing Great Britain as the world's largest economy and establishing the USD as the dominant currency only after the Bretton Woods Agreements of 1944. It wasn't until the 1950s that the American dollar overtook the British Pound.
One argument that often arises is the idea of a gold-backed currency. However, few people ask the underlying question of who has the most gold reserves. The answer is the United States, with 8133 metric tons of gold - almost twice as much as the BRICS countries combined.
History
The history of gold reserves is tied to significant events such as World War II, during which countries like the United States and Canada increased their gold reserves due to the safe-haven demand for gold. On the other hand, countries like Germany and Japan had to use their gold reserves to fund the war efforts and rebuild their economies post-war. After World War II, the United States owned most of the official sector gold bullion on Earth - about 22,000 metric tons or 80% of the world total. As part of the 1944 Bretton Woods Agreement, the United States allowed unrestricted redemptions from its reserves at the benchmark rate of $35 per ounce.
In conclusion, gold reserves may seem like an outdated concept, but they still play a crucial role in maintaining international investor confidence and safeguarding economies against crises. The idea of a gold-backed currency is often discussed but is unlikely to come to fruition, especially given the dominance of the USD and the fact that the United States holds most the world's gold reserves.
Sources:
Here's How Reserve Currencies Have Evolved Over 120 Years (visualcapitalist.com)
https://tradingeconomics.com/country-list/gold-reserves
The Fed - "The International Role of the U.S. Dollar" Post-COVID Edition (federalreserve.gov)