Eichengreen: Gold Can Never Replace the Dollar

Renowned economist and historian Barry Eichengreen from UC Berkeley says gold will never replace the US dollar. In an interview, he revealed that despite record central bank buying of gold, it cannot serve as a unit of account or means of payment due to its illiquidity.

Eichengreen points out that since the turn of the century, the dollar's share of global foreign exchange reserves has fallen from over 70% to under 60%. The remaining lost ground did not go to China or the euro but instead scattered among smaller, non-traditional reserve currencies such as the Australian and New Zealand dollars.

Eichengreen attributes the central banks' gold buying to diversification motives and concerns about dollar risks. However, he believes that gold's role in the international monetary system will remain limited, serving only as a store of value due to its impracticality for everyday transactions.

He warns that if confidence in the dollar erodes faster than alternatives can develop, it could accelerate the pace of adjustment and lead to unintended consequences such as increased credit costs and disrupted global supply chains.