Centralbanking.com is out with a new survey of gold reserves at central banks around the world. Robert Pringle is a co author of this article along with Nick Carver. Mr. Pringle advises me that they have done surveys of central bank reserve management including gold for many years.
Below I have pasted in the Executive Summary and further below Mr. Pringle kindly agreed to answer a couple of questions related to central bank gold reserves. I see these questions asked quite often and I know many readers have interest in them.
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Executive summary
- The Covid‑19 pandemic has not, in the main, changed the view of central banks on gold, although almost one-quarter of respondents said they view gold as a more attractive asset.
- Central bankers typically expect central bank gold holdings to increase over the next 12 months; no respondent expected a decrease.
- When determining a central bank’s gold holding, the benefits of diversification stand out as the most relevant factor for reserve managers.
- One in three central banks said they maintain a target allocation for gold: this rose to 39% of respondents when only those holding gold were considered.
- Purchases in the global market are by far the most popular means of buying and selling gold, with derivatives second.
- Overseas storage at a central bank is the preferred way to store gold: more than 80% of respondents said they did this.
- Central banks are positively disposed to gold exchange-traded funds (ETFs), but active interest in investing is the preserve of a minority.
- A combination of gold’s quality as a hedge against the US dollar and ETFs’ cost-effectiveness are the main benefits for holding ETFs.
- Liquidity risk is the chief concern associated with holding gold ETFs, although larger holders say safety regarding physical gold is more of an issue.
Please go here to read the full survey on Centralbanking.com
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Robert Pringle
Many readers here have interest in gold and also how central banks view gold. In addition, there are many who wonder if any central banks or the IMF have any plans to back their currencies (or the SDR) with their gold reserves. I asked Robert Pringle if he would be willing to give his thoughts on these questions and he agreed to offer them for readers here.
Q: Are you aware of any central bank in the world (including the PBOC in China) that is considering backing its currency with its gold reserves?
A: No, Under IMF rules countries are not permitted to fix their currencies to gold.
Q: Are you aware of anything that would suggest the IMF is considering backing the SDR with gold reserves or any other asset based anchor?
A: It would make sense to me but is not on the cards at the moment.
Q: In your opinion, how do you think central banks view gold and why do they hold gold reserves?
A: Well, our survey that you have kindly sumarised gives a variety of reasons - and this reflects the views and policies of the central banks themselves.
My own personal view is that despite the long campaigns against gold, the official efforts aiming to fully “demonetise” it in all respects, gold still represents for many people the ultimate reserve asset.
It will always remain in the wings, waiting patiently to be called on in case of need. Also, in current conditions of currency competition, gold could be yet another weapon or instrument available to nations aiming to gain a competitive advantage.
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My added comments: Robert Pringle is a highly credible expert and well qualified to offer his comments on these questions that I know many readers have. You see his extensive background here. Robert was a founding Director of the Group of 30 Institute on monetary affairs. In 1990, he founded Central Bank Publications and is also the the author of The Power of Money.
On a personal note, he has been very kind to offer me his insights on monetary system issues based on his decades of experience working alongside central bankers around the world. He and others continue to hold interest in monetary system reforms. He has specifically proposed using a global market index as a potential anchor for currencies. He explained his idea on that to us here in an earlier blog post.
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