Robust gold purchases by central banks since 2009 and the rising price of gold have increased the precious metal’s share of global international reserves at the expense of fiat currencies. By the end of 2023, gold surpassed the euro, and the next fiat currency to be challenged is the US dollar.
Often, when financial analysts draw charts on the distribution of international reserves, they focus on exchange rates (omitting gold) and begin with the introduction of the euro in 1999. Based on such charts, the dollar’s share of total reserves appears to decline slowly, from a peak of 72% in 2001 to 58% in 2023. Furthermore, there appears to be no specific currency competing with the dollar.
But why not include gold and look back as far as possible? By combining multiple sources, we have a glimpse of the distribution of reserve currencies from 1899 to 1935 (both fiat and gold), and a complete picture from 1950 onward.
This paints a completely different story. Instead of showing only the dollar’s snail-paced decline, the historical balance between gold and fiat currencies is revealed. It is not the dollar that normally underpins the international monetary system—it is gold. Gold constituted the majority of international reserves, even when the pound sterling was said to be the world’s reserve currency before the dollar. In a chart covering multiple years but only gold and the dollar, the latter’s reign becomes even more relative.
The chart above shows that the dollar’s share of total reserves fell to 48% in 2023, due to a decline in confidence in “credit assets” (fiat currencies), stemming from concerns over speculative bubbles, escalating wars, and fears of inflation, while gold is gaining ground.
Based on personal calculations of official gold reserves that include secret acquisitions, for example by the Chinese central bank, gold’s percentage of total reserves reached 18% in 2023, compared to 11% in 2008. Gold has now surpassed the euro, which has remained stuck at 16%. Since the problems afflicting fiat currencies will not vanish soon, it is possible that gold will also surpass the dollar in the next decade (explained in more detail here).