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Business Times
7 days ago
- Business
- Business Times
Financial authorities should responsibly sell their gold stocks
GOLD prices are up roughly 25 per cent this year alone. The European Central Bank reports that the yellow metal has overtaken the euro as the second-largest reserve asset. Select emerging market authorities, China especially, are now major purchasers, reflecting concerns over US financial sanctions, geopolitical worries, reckless US fiscal policies and the unpredictability of President Donald Trump's tariffs. The Global Public Investor 2025 survey carried out by the think tank Official Monetary and Financial Institutions Forum (OMFIF) has found that gold is currently the asset class most demanded by central banks, with a third of the surveyed reserve managers expecting to increase their holdings in the short term. The World Gold Council's survey of central banks has found that 95 per cent of the survey respondents believe central bank gold reserves will rise in the next 12 months. But are financial authorities using their balance sheets wisely, and could the rush to gold diversification potentially be built on a house of sand? Financial authorities face enormous fiscal headaches. They sit on massive gold stocks dwarfing annual gold demand. The four largest official gold holders alone – the US, Germany, Italy and France – together hold 16,000 metric tonnes of gold. Demand for the metal in 2024 was roughly 5,000 tonnes, of which central bank demand represented more than 20 per cent, said the World Gold Council. In short, gold prices receive massive support simply because vast official stocks are held off the market. Were these official gold stocks responsibly sold, any upside for gold prices would most likely be capped, and prices might well fall. That would surely take the shine off it. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Gold sales could reduce fiscal debt and financing pressures These data points beg the question of why nations continue to hold their gold stocks. It no longer has an official role in the international monetary system, generates no interest, is costly to store, is less liquid and harder to sell than securities, for example. Even if one argues that holding gold stocks results in an appreciation for the national balance sheet, that is generating no flow of resources to officialdom. Meanwhile, monetising gold stocks could generate resources for good use. For example, US debt held by the public is now roughly US$30 trillion. US gold sales over time, using current market prices for illustrative purposes, could generate over US$850 billion for the US Treasury. That amount is admittedly a fraction of the debt held by the public. Nonetheless, reducing debt by such an amount could lessen pressures on interest rates, especially at a time of unsustainable fiscal deficits. Similar arguments could be made for France and Italy: If the proceeds of their central banks' gold sales could legally be used to reduce their governments' fiscal debt, indebtedness would fall by more than 5 per cent. European gold sales might back efforts to reach the new 5 per cent of gross domestic product spending target agreed by North Atlantic Treaty Organization members. Again, gold stocks would need to be sold responsibly by official authorities. An uncoordinated rush to sell gold would send prices spiralling downwards. In 1999, after such a period reportedly led by the UK and Switzerland, European central banks signed the Washington Agreement on Gold, setting annual limits on official gold sales so as not to disrupt markets. When the International Monetary Fund sold limited quantities of gold after the 2008 financial crisis, efforts were made to contain market disruption. Such constraints provide important precedents for official gold sales. Clash with realpolitik Notwithstanding a cogent rationale for official gold sales, they are unlikely to occur because of a clash with realpolitik. There are many 'gold bugs' who atavistically believe gold could anchor a futuristic monetary order, or that a commodity-based international monetary system could better discipline inflation. Gold-producing firms would lobby strenuously against any significant official gold sales, as they did when former UK prime minister Gordon Brown some 20 years ago proposed using International Monetary Fund (IMF) gold sales to finance the IMF's part of the Multilateral Debt Relief Initiative. Some gold-producing developing countries might object. Plus, Trump can be expected to continue his erratic fiscal, trade and geopolitical policies. Nations facing massive debts or financing needs would be well advised to consider responsibly selling their gold holdings, which inefficiently encumber their national balance sheets. Gold prices may be surging now on central bank diversification, for example by China and India, but that is primarily because massive official stocks are being held off the market. If authorities were to responsibly sell gold stocks, it might quickly become evident that frothy headlines about gold and official reserve diversification were built on sand. The writer is US chair of the Official Monetary and Financial Institutions Forum.
Business Times
05-07-2025
- Business
- Business Times
Reserve managers overwhelmingly reject digital assets
THAT the US will inevitably devalue or renege on its sovereign debt, probably through inflation and money-printing, found easy consensus at a recent private dinner for family offices and sovereign funds attended by the Official Monetary and Financial Institutions Forum (OMFIF). A furious and intractable row broke out, however, about whether gold or Bitcoin was the better alternative to the US dollar, while the renminbi and the euro went unmentioned. If a reserve manager were also present it would perhaps have swung the argument. OMFIF's Global Public Investor (GPI) 2025 found that not a single central bank surveyed holds any digital assets, and 93 per cent have no intention of doing so. Of the institutions in question, representing US$5 trillion of global reserves, there were outliers in the Middle East plus a lone voice in Europe. The pronounced conservativism extended beyond distributed-ledger technology assets to the technology itself: 82 per cent of respondents neither use it nor intend to in future, even though some of their central bank digital currency teams are getting ready to do so. What is holding the vast majority of reserve managers back from the crypto party, at a time when the same survey found 58 per cent looking for diversification? Even though they resemble reserve-like money more than they resemble securities, the main reason not to hold stablecoins is very simple. Regulators – including central banks – are mostly intent on preventing them from paying a yield (which is also why their operators are incredibly profitable). As Larry Hathaway, global investment strategist at Franklin Templeton, explained at the launch of the GPI report, there wouldn't be many takers for this kind of 'negative carry', and reserve managers might as well directly hold the kind of government money market instruments that sit in stablecoins' collateral pools. Daniela Klingebiel, who helped manage the Reserve Advisory and Management Partnership for the World Bank, added a host of other factors militating against stablecoins as a reserve asset, rather than as a means of payment. These include legal and counterparty risk, custodial complexity, regulatory ambiguity, technical risk, credit risk (of the coin issuer) and the risk of de-pegging, which for example both USDC and USDT have done, and happens occasionally to money market funds, which somewhat resemble stablecoins. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up What about digital assets that more resemble securities or commodities, such as Bitcoin? Some observers refer to it as the 'new gold', primarily on the basis of its programmatic scarcity. Similar ecosystem obstacles exist to those for stablecoins, Klingebeil explained, in addition to the nature of the asset itself, which is volatile, illiquid and harder to trade compared to typical reserve assets. Nor is Bitcoin (yet, at least) used for cross-border trade and capital flows, both of which also significantly determine a national reserves managers' allocation strategy. What of the 7 per cent of reserve managers at least keeping an eye out? At the GPI launch, Jan Kubicek, board member of the Czech National Bank, said 'we can pretend there is no such thing as Bitcoin or gain some hands-on experience with it', adding that this does not immediately equate, say, to 2 per cent of reserves. The ecosystem differences to other types of assets, including auditing and accounting treatment, posed major challenges, 'but still we are open to experimenting with it'. The CNB has also explored the potential benefits of (non-)correlation, but 'not discovered any miraculous stabilising force' through a portfolio holding of Bitcoin, though all these factors may significantly change 'as it becomes more financialised'. Public pension and sovereign funds, whose allocation objectives are more return-focused and less complex and systemic than central banks, are more adventurous. In the same survey, 7 per cent of those respondents already hold digital assets, and a further 20 per cent intend to. Facts on the ground march on. US President Donald Trump has announced that the US would set up a strategic bitcoin reserve. The Genius Act, presaging the mainstream adoption of stablecoins in the US, has been passed by the Senate and awaits approval in the House of Representatives. Fannie Mae and Freddie Mac may soon treat cryptoassets as legitimate collateral for housing finance. The future path of stablecoins remains intriguing. They lack the value creation of programmatic scarcity and, for the most part, have no yield. They are not backed, for now, by central bank reserves, merely government debt and fiat cash. They have de-pegged in the past. OMFIF has heard that hedge funds are waiting to test them in a market dislocation. So why bother? Stablecoins are saving counterparties material sums on payments. At an off-record event convened by a global universal bank and some of its key wholesale customers as well as OMFIF, a major consulting firm said that it is already using stablecoins for internal cross-border payments. The bank in question, a major transactions services player for whom this could be an existential headache, could afford to relax a little, though. A leading multilateral development bank in attendance said that it did not wish to take on the theoretical risks of using stablecoins even for a short time, and would prefer to use the service in development by the bank, which uses stablecoins in the background to remit more quickly and cheaply. If, in the end, the stablecoin and distributed ledger technology boom make the regulated financial sector faster and cheaper, it will have ended up at a version of the regulated Liability Network, thanks to the advancing threat of the opposite, which will leave the financial system broadly as it is. OMFIF The writer is chairman of the Digital Monetary Institute at the Official Monetary and Financial Institutions Forum.
Business Standard
25-06-2025
- Business
- Business Standard
Central bankers look for diversification from the greenback into gold, the euro and renminbi: OMFIF report
There are growing questions over the dollars dominance in portfolios and public investors are seeking safe-haven assets, according to survey results published by the Official Monetary and Financial Institutions Forum (OMFIF) on Tuesday. This years GPI report, based on a survey of 75 central banks, shows the appetite for diversification continues for very different reasons. The foundations of the global economic order, underpinned by globalisation and the dollar, are shaking. Conducted from March to May this year, the survey revealed that 96% of reserve managers view US tariffs as a major geopolitical concern. This is not a temporary consideration: over 80% of reserve managers have geopolitics in their top three factors shaping longer-term investment decisions, ahead of inflation, real interest rates and technological change, the survey noted. Reserve managers expect to move away from dollars and towards other currencies especially the euro and renminbi although this shift will be gradual, the survey noted. The dollar was the only currency that saw demand fall this year, while a net 16% of survey respondents intend to add to their euro holdings over the next two years, up from 7% last year. However, this preference is not across the board, with respondents from emerging markets more likely to add to their renminbi holdings. Meanwhile, 32% of central banks plan to increase their exposure to gold in the next 12 to 24 months, with over 20% forecasting the price to surpass $3,500 per ounce. Gold is shining brightest as a diversifier, the survey noted as a dedicated in-focus section reveals the precious metal is the most demanded asset class for central banks. According to the survey, diversification is the number one reason why central banks are buying gold, the second reason is as a hedge against geopolitical risks and the third factor driving demand is to hedge against inflation. However, the dollars reserve currency status is not yet under threat. Over 80% of central banks stated the dollar still provides safety and liquidity, and the vast majority expects it to constitute over 50% of global reserves over the next decade, according to the OMFIF survey.
Reuters
24-06-2025
- Business
- Reuters
US tax bill could have 'big influence' on Czech central bank's portfolio, official says
LONDON, June 24 (Reuters) - U.S. President Donald Trump's sweeping tax-cut and spend legislation could have a big impact on the Czech central bank's investment in U.S. assets, an official said on Tuesday. Czech National Bank board member Jan Kubicek, speaking at an Official Monetary and Financial Institutions Forum event, said that for the moment the central bank's approach to U.S. assets had not changed. But the bill, dubbed the "One Big Beautiful Bill Act" would potentially have a "big influence" on the central bank's American portfolio, he said. "Up to now central banks rejoiced (in) zero taxation and this may radically change, so I think we will have to reconsider it." Part of the budget bill, called Section 899, seeks to tax foreign investors' U.S. income as pushback against countries that impose taxes the U.S. considers unfair. Kubicek also predicted a decline below 50% for the U.S. dollar's share in global currency reserves over the next decade, as other currencies gain traction. The dollar share currently stands at around 58%. The custodians of trillions of dollars of global central bank reserves are eyeing a move away from the greenback into gold, the euro and China's yuan as the splintering of world trade and geopolitical upheaval spark a rethink of financial flows, an OMFIF survey showed on Tuesday. "Other currencies will emerge, probably (the) Chinese currency or some other emerging countries. For this reason the weight of dollar will decline," Kubicek said, predicting a drop to 47%. The dollar, the most popular currency in last year's survey, fell to seventh place this year, the OMFIF survey showed. Slightly fewer than three-quarters of the 75 central banks surveyed said the U.S. political environment was discouraging them from investing in the dollar -- more than doubling from last year. The average expectation for the dollar's share of global FX reserves in 2035 was 52%, the OMFIF survey showed, remaining the No.1 reserve currency. Speaking at the same event Isaac Muhanga, a director of financial markets at the Bank of Zambia, predicted the dollar will continue to account for well over 50% of reserves over the next decade, but saw a greater role for China's yuan. "Given the issues that are surrounding the world today... and just to make reserves management more efficient, I think countries that we are exposed to in terms of trade will increasingly become more important," Muhanga said. "We're thinking that as China continues on this journey to internationalise its currency, small as it is, it will play an important role in many countries' reserve management and Zambia is included in those countries."
Economic Times
24-06-2025
- Business
- Economic Times
Central banks eye gold, euro, yuan as dollar dominance wanes
Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Popular in International Tired of too many ads? Remove Ads The custodians of trillions of dollars of global central bank reserves are eyeing a move away from the greenback into gold, the euro and China's yuan as the splintering of world trade and geopolitical upheaval spark a rethink of financial to a report by the Official Monetary and Financial Institutions Forum (OMFIF) due to be published later on Tuesday, one in three of 75 central banks managing a combined $5 trillion plan to increase exposure to gold over the next one-to-two years after stripping out those planning to decrease, the highest in at least five years. The survey -- carried out between March and May -- gives a first snapshot of the repercussions of U.S. President Donald Trump's April 2 Liberation Day tariffs that sparked market turmoil and a slide in the safe-haven dollar and U.S. Treasuries. Gold, which central banks have already been adding at a record pace, was seen benefiting even further longer term, with a net 40% of central banks planning to increase gold holdings over the next decade."After years of record-high central bank gold purchases, reserve managers are doubling down on the precious metal," OMFIF dollar, the most popular currency in last year's survey, fell to seventh place this year, OMFIF said, with 70% of those surveyed saying the U.S. political environment was discouraging them from investing in the dollar -- more than twice the share a year currencies, the euro and yuan stand to benefit the most from a diversification away from the dollar.A net 16% of central banks surveyed by OMFIF said they plan to increase euro holdings over the next 12 to 24 months, making it the most in-demand currency, up from 7% a year ago, followed by the yuan. But over the next decade, the yuan is more favoured, with a net 30% of central banks expecting to increase holdings and its share of global reserves seen tripling to 6%.Separately, three sources who deal directly with reserve managers, told Reuters they saw the euro as now having the potential to recapture the share of currency reserves lost following the 2011 euro debt crisis by the end of this decade. They cited more positive sentiment among reserve managers towards the euro following Liberation would mean a recovery to a roughly 25% share of currency reserves, from around 20% currently, representing a key moment in the bloc's recovery from the debt crisis that threatened the euro's existence. Max Castelli, head of global sovereign markets strategy and advice at UBS Asset Management, told Reuters that reserve managers made many calls after Liberation Day to ask if the dollar's safe-haven status was at risk."As far as I remember, this question has never been asked before, not even after the great financial crisis in 2008."The average expectation for the dollar's share of global FX reserves in 2035 was 52%, the OMFIF survey showed, remaining the No.1 reserve currency but seen down from the current 58%.OMFIF survey respondents expected the euro to reach about a 22% share of global reserves in 10 years' time."The euro's share of global reserves will almost surely rise over the next few years, not so much because Europe is viewed so much more favorably, but because the dollar's status is diminished," said Kenneth Rogoff, Harvard professor and former IMF chief economist, told Reuters by e-mail ahead of OMFIF's Europe could attract a higher share of reserves sooner if the bloc is able to boost its pile of bonds that are currently dwarfed by the $29 trillion U.S. Treasury market, while integrating its capital markets, the sources that speak directly to reserve managers, told Reuters. ECB President Christine Lagarde has also urged action to bolster the euro as a viable dollar euro is the "only real alternative currency for the moment to make a significant change in the level of reserves," said Bernard Altschuler, global head of central bank coverage at HSBC, adding he saw it as "realistic" for the euro to reach a 25% share of global reserves in 2-3 years if those issues are European Union is the world's largest trading bloc. Its economy is far bigger than the dollar's other rivals. Capital controls limit the appeal of the for change has gathered pace, with Europe signalling willingness to curb its dependence on the U.S. by boosting defence spending, including through more joint EU borrowing. Germany is ramping up spending, while the EU is trying to revive efforts to integrate its capital pension and sovereign wealth funds, also surveyed by OMFIF, saw Germany as the most attractive developed Asset Management's Castelli said he was receiving many more questions about the euro, estimating the euro could recover to a 25% share of reserves by the end of the the most bullish end, Francesco Papadia, who managed the ECB's market operations during the debt crisis, estimated the euro could recover to 25% in as soon as two managers he holds discussions with were more willing to look at the euro than before, Papadia, senior fellow at think-tank Bruegel, said. Zhou Xiaochuan, China's central bank chief from 2002 to 2018, agreed the euro's role as a reserve currency could grow. However, there's "homework to do," he told Reuters on the sidelines of a recent conference.
