Japan's Nikkei Asia reported on Sunday (August 11) that central banks around the world are diversifying their investments in the US dollar and adding a "stateless currency" - gold - to their foreign exchange reserves in response to escalating geopolitical tensions and global economic uncertainty.

The proportion of the US dollar in global foreign exchange reserves has significantly decreased from over 70% at the beginning of this century. At present, the share of the US dollar in foreign exchange reserves held by central banks and governments around the world is at a historical low.

Russia's attack on Ukraine has triggered severe sanctions from the United States, excluding Moscow from the global financial system based on the US dollar and prompting emerging economies to accumulate gold that is not tied to any specific country.

Foreign exchange reserves are assets used by central banks of various countries to repay foreign debts and pay for import costs in emergency situations. They also provide funding for currency intervention. Many of these foreign exchange reserves are usually denominated in US dollars, and are usually convertible US treasury bond bonds.

According to data from the International Monetary Fund (IMF), as of March 2024, the total balance of global foreign exchange reserves was $12.3499 trillion, with the US dollar accounting for 58.9% in terms of currency allocation.

This is slightly up 0.4% from the historical low at the end of 2023, but still close to the historical low. By contrast, the share of the US dollar in the early 21st century exceeded 70%.

In response to the Russia-Ukraine conflict, the United States, Europe and Japan tried to exclude Russia from the US dollar settlement network and frozen the foreign exchange reserves of the Russian Central Bank deposited in other central banks.

Daisuke Karakama, Chief Market Economist of Mizuho Bank, said that this measure has led countries around the world to diversify their foreign exchange reserves from the US dollar and may favor assets such as the Japanese yen.

As countries continue to diversify their reserves, the purchase of gold has been increasing. Gold is known for its rarity and being unaffected by specific country or corporate credit risks.

The net gold purchase volume of central banks around the world in 2023 is about 1030 tons, with a net purchase volume exceeding 1000 tons for the second consecutive year; Previously, it reached a record high of 1082 tons in 2022.

According to statistics from the World Gold Council (WGC), in the second quarter of 2024, global central bank net gold purchases were approximately 183 tons, a year-on-year increase of 6%.

In the first half of this year, global central banks added 483 tons of gold purchases, setting a new record high and increasing by 5% year-on-year.

Economists point out that investing in gold is still very meaningful given the weakened market confidence in US dollar assets, increased volatility in the foreign exchange market, high US interest rates, and many central banks' desire to diversify their reserve asset classes.

The People's Bank of China reported in July that as of the end of June, its gold reserves were about 2264 tons, which has remained at this level for two consecutive months due to high international gold prices. Since November 2022, the People's Bank of China has increased its gold reserves for 18 consecutive months, with a growth rate of 16.3%.

At the same time, the Brazilian central bank announced that as of the end of 2023, its gold reserve ratio was 2.6%, an increase of 0.08 percentage points from the previous year.

India's gold reserves are significantly increasing. As of the end of July, this figure was $57.6 billion, an increase of 30% compared to the same period last year. Singapore, the Philippines, and other countries also seem to be increasing their holdings of gold.

Indian economists say that the driving force behind buying gold includes both political and economic factors: "Especially the 'reliability' of the US dollar has' weakened ', and people's confidence in US dollar assets has' significantly decreased'

Russia's war in Ukraine and the turmoil in the Middle East still have no end in sight, while another possible geopolitical risk is looming, which is Donald Trump.

If Trump takes office again in the November election, the confrontation between the United States and China will further intensify. Anxiety about holding US dollars may further escalate in emerging economies.