China’s central bank, the People’s Bank of China (PBOC), has increased its gold reserves for the eighth consecutive month, demonstrating its growing intent to lessen its reliance on the US dollar amidst a climate of economic and geopolitical volatility.
The PBOC’s gold holdings swelled by approximately 680,000 troy ounces (or 23 tons) in June, as per data released on Friday. The total gold reserves of China now stand at a staggering 2,330 tons, with an addition of around 183 tons since the commencement of the purchasing spree in November.
China’s aggressive acquisition of gold can be traced back to its ambitions of diminishing the dominance of the dollar in the global market. This strategy has been further necessitated by a less-than-stellar recovery from the pandemic and an increasingly strained relationship with the United States.
Last year, central banks across the globe purchased a record amount of gold, accounting for nearly a quarter of the global demand, driven by accelerated inflation and a tightening monetary policy. While these purchases slowed down during the first quarter of 2023, a recent World Gold Council survey reveals that 24% of monetary authorities plan to increase their gold holdings over the next 12 months.
China’s spree of gold acquisitions, which commenced last November, is the longest since a ten-month run that ended in September 2019. Meanwhile, China’s foreign currency reserves have increased to $3.193 trillion, a surge of $16.5 billion from the preceding month.
Zimbabwe Tests Gold-Backed Digital Currency as Alternative to Dollar
In another development highlighting the increasing global interest in gold, the Reserve Bank of Zimbabwe has reportedly initiated a “dry run” to explore the feasibility of launching a gold-backed digital currency.
This move aims to provide an alternative to foreign currencies like the US dollar, which have been excessively in demand within the country. The digital currency, recognized as legal tender for peer-to-peer transactions, is part of the Reserve Bank’s efforts to stabilize the Zimbabwean local currency.
According to Nelson Mupunga, the director of economic research and policy implementation for the Reserve Bank of Zimbabwe, the imminent gold-backed digital token will serve the same purpose as the US dollar, thus providing a new means for locals to store value amidst rampant inflation.
The news of Zimbabwe’s foray into gold-backed digital currency comes amid similar developments in other nations, with Russia confirming plans to launch a gold-backed currency under the BRICS (Brazil, Russia, India, China, South Africa) banner.
Shift Away from Dollar Accelerating as Central Banks Stockpile Gold
The global economic climate is in the throes of a significant transformation as central banks across the world shift their preferences from traditional currencies to alternative assets, especially gold. The growing geopolitical conflicts and declining faith in the US dollar as the default reserve currency are driving this change.
While the dollar will continue to be a reserve currency in some regions, there are increasing segments of the world that are seeking alternatives, primarily due to concerns over legal risk, sanctions risk, and geopolitical risk.
Hungary is one such example of a country where gold purchases have risen significantly in recent times. The Hungarian central bank has been an early adopter of gold, reflecting a trend that’s becoming prevalent across central banks worldwide.
Countries have traditionally held US dollars as foreign exchange reserves for essential imports, often priced and invoiced in dollars. However, with more oil likely to be invoiced in alternative currencies like the renminbi, countries can no longer rely solely on the dollar.
As central banks worldwide navigate these changing economic dynamics, it’s clear that gold – the ultimate “outside money” – is emerging as an increasingly attractive safe haven amidst uncertain times.
