Resource World Magazine

36 www.resourceworld.com D E C E M B E R / J A N U A R Y 2 0 1 9 W hen you're on top there is nowhere to go but down and that's the case for the US dollar's supremacy as a reserve cur- rency. Last month the International Monetary Fund (IMF) data showed the US dollar's share of global central bank reserves fell to the lowest level since 2013. At the same time, holdings of the Chinese renminbi and euro rose for a fourth consecutive quarter in what many agree is an international shift away from US dollar. The US currency accounted for 62.3% of global allocated foreign-exchange reserves in the second quarter of 2018, down from 62.5% and the ninth decline in the past 10 quarters, the IMF said in a report. The drop occurred despite a 5% jump in the value of the US dollar in the second quarter. Reserves held in the Chinese renminbi grew in the third quarter to 1.4% of the allocated reserves while the shares of the pound sterling and euro jumped to 4.68% and 20.39%, respectively. Political rifts between the US and other countries and the ris- ing US debt seem to explain the decline. So far this year, the US' two biggest creditors, China and Japan, along with a dozen other countries including Russia and Turkey have reduced their dollar assets. This also includes the United Kingdom, Ireland, Switzerland, Luxembourg, Canada and Mexico which have either sold or have decided to sell their US bonds. But while countries have been reducing their exposure to US dollars, their central bankers have been filling their vaults with gold to hedge against geopolitical uncertainty. Last month, the World Gold Council revealed that central bankers in Russia, China, Turkey and South Asia were buying gold at a pace not seen since 2015. "Looking ahead, we expect central bank gold demand to remain buoyant. Diversification will continue to be an important driver of demand, as will the transition to a multipolar currency reserves system over the coming years," said the World Gold Council. A multipolar currency system would see more interna- tional financial transactions being made using the Euro or Chinese renminbi with less reliance on the US dollar For the first half of 2018, central banks added another 193.3 tonnes of gold to their reserves. That's an 8% increase from the first half of 2017 and marks the strongest half for central gold buying since 2015. The World Gold Council reported that it's pretty clear the central banks are not accumulating gold because of any value or inflationary considerations. Rather, they are trying to diversify from the US dollar on which they have become overly reliant due to massive foreign exchange reserves. If you take a look at the central banks buying up the bulk of the gold, the story becomes even clearer. Russia, Turkey and Kazakhstan accounted for 86% of central bank purchases in the first half of 2018 and the common threads among each of them is the geopolitical instability with the US. Take Russia as an example. In Russia, which is also subject to US economic sanctions, the central bank has been boosting its gold Central bankers loading up on gold after dumping US dollar The US dollar has been the preeminent reserve currency for decades. Now, however, there appears to be a move away from the US dollar and the biggest US creditor countries are filling their central bank vaults with gold. by Robert Simpson INVESTMENT

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