Central Banks

Central banks bought more gold in 2018 than at any time since the early 1970s – and the trend has continued this year. Isabelle Strauss-Kahn, Member of the Advisory Board of the World Gold Council, former Director of Market Operations at the Banque de France and former Lead Financial Officer at the World Bank, explains why.

The 2019 Central Bank Gold Reserves (CBGR) survey points to continued robust central bank demand for gold in the short and medium term. 11% of emerging market and developing economy (EMDE) central banks surveyed say they intend to increase their gold reserves over the next 12 months.

Gold is an important part of central banks’ foreign exchange (FX) reserves. According to the International Monetary Fund (IMF), at the end of H1 2018 central banks collectively owned US$1.36tn of gold, around 10% of global FX reserves.

In 2018, the World Gold Council, in cooperation with YouGov, surveyed 22 central banks to better understand how they manage their gold reserves. Of the central banks surveyed, 18 held gold as part of their reserves.

Ezechiel Copic, Director, Central Banks and Public Policy in conversation with Kenneth Sullivan, author of the new report Guidance for Monetary Authorities on the recommended practice in accounting for monetary gold on why the World Gold Council commissioned this guidance and how it can benefit monetary authorities.

Sovereign wealth funds, like many other investors, are under pressure to generate returns in a low-yield, low growth environment. Many are expanding into alternative assets to seek growth and income opportunities. Despite this, few sovereign wealth funds have invested in gold due to ongoing misconceptions about gold’s performance, financial behaviour, and liquidity.

Unprecedented monetary policies (including quantitative easing and negative nominal interest rates) have had the unintended consequence of dramatically reducing the pool of investable assets available to reserve managers. 

This paper reviews the different approaches to gold accounting demonstrated by central banks and discusses the elements of a common approach for central banks.