Last month, US Federal Reserve Chairman Jerome Powell warned that America’s rising debt is unsustainable, echoing concerns from El Salvador’s President Nayib Bukele who called the Fed’s money-printing a “bubble” waiting to burst. Central banks around the world are increasingly abandoning the US dollar, driven by the US’s financial sanctions against Russia and rising global tensions. As a result, nations are stockpiling gold at record levels, with China and India leading the charge. This shift away from the dollar and towards gold highlights a growing global distrust in the US financial system and hints at potential economic upheaval.
One big change we’re seeing is that central banks around the world are holding fewer US dollars than ever before. This shift started because the US tried to block Russia from using the dollar-based financial system. As a result, many developing countries are turning to gold, which they see as a safer and more reliable asset. Unlike money tied to any one country, gold’s value is more stable and can’t be easily manipulated.
According to the International Monetary Fund (IMF), the amount of global reserves held in US dollars and US Treasury bonds has dropped to 58.9% in 2024. This is a significant decrease from around 70% two decades ago. Interestingly, reserves held in China’s currency, the yuan, have also fallen, with countries like Ukraine, Norway, Brazil, Switzerland, and Israel reducing their yuan holdings.
On the other hand, gold is becoming increasingly popular. A report by the World Gold Council from June shows that central banks bought over 1,037 tons of gold in 2023, making it the second-highest year for gold purchases ever. China has been leading the way, adding gold to its reserves for 18 straight months since November 2022. By June, China’s gold reserves had grown by 16.3%, reaching about 2,264 tons.
India is also piling up its gold reserves. As of 2024, India’s gold assets are worth $57.6 billion, which is 30% more than last year. In just the first three months of 2024, India bought 19 tons of gold, bringing its total reserves to 841 tons. To avoid risks similar to those faced by Venezuela, Russia, and Libya—whose assets were seized or frozen by other countries—India recently moved about 100 tons of its gold back from Britain to its own vaults.
The ongoing conflicts in Ukraine and the Middle East, along with fears of rising tensions between the US and China and the possibility of Donald Trump returning as US president, are pushing central banks to dump dollars and other paper currencies. Instead, they’re choosing to stock up on gold, which they see as a safer bet.
President Bukele summed up the problem in a forum in Washington back in February. He explained that the US government is financing itself by selling Treasury bonds, which the Federal Reserve buys by printing more money. But here’s the catch: the money printed by the Fed is only backed by those same Treasury bonds, meaning it’s essentially paper backed by more paper. Bukele warned that if people realize this, trust in the US dollar could collapse, leading to a financial disaster.
