Central Banks Flock to Gold as Dollar Dominance Fades

The 'Nixon Shock' that shook the world 55 years ago is having an unexpected consequence, the return of gold as a reserve currency. In August 1971, then-US President Richard Nixon suspended the convertibility of the dollar to gold, paving the way for the US to assert its dominance over global finance. However, this 'invisible decline' in the dollar's presence has been quietly gathering momentum. The IMF warned in March 2022 that the dollar's share was fading, and last year it hit a record low of around 56%.

The shift towards gold is driven by central banks, which have gone from selling to buying since the 2008 Lehman Shock. During the Ukraine crisis, the freezing of Russia's assets highlighted the risks associated with dollar-based transactions. With growing concerns over US fiscal deterioration and tariff uncertainty, more countries are turning away from the dollar.

Official gold holdings now total approximately 36,000 tonnes, approaching levels seen just before the Nixon Shock. China is leading the charge in buying gold, with its national holdings climbing to fifth place, surpassing Russia. The country's ambitions extend beyond diversification, with President Xi Jinping aiming to make the renminbi a global reserve currency.