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The primary role of central banks is to manage a nation’ resources and investment policies on the longer term.

Once an official currency, Gold has become a cornerstone of modern reserves management and has been at the heart of central banking for centuries.

According to the IMF, Gold is the third most widely held reserve currency after the US Dollar and the euro, and is held by more than four in five central banks. The World Gold Council reported that there is approximately 34,211 tonnes (EUR 1.7 trillion) of above ground physical gold held by central banks as at 31 December 2020. This represents about 17% of the total above ground stocks of physical gold.

Central banks gold reserves are often tranched into two aspects:

  • Liquidity: To meet short term drawdowns
  • Investment: For longer periods to gain portfolio returns

Reasons why central banks hold physical gold in their reserves:

  • Historical position (i.e. legacy holdings)
  • Status as a long-term store of value
  • Return and performance during crisis
  • Safe-haven asset that has limited default and zero credit risk
  • Effectiveness as a portfolio diversifier (i.e. hedging against other reserve assets) and de-dollarization
  • Security to access loans when used as a collateral to securing urgent liquidity for national emergencies and meeting foreign debt obligations
  • Offset trade management