Gold has surpassed the euro as the world’s second-largest central bank reserve asset, according to Bank of America. It now comprises about 16% of total reserve assets, just ahead of the euro, due to increased central bank buying and rising prices in 2024. The dollar’s share of reserves has fallen to 58%.
A trend towards replacing fiat currencies with gold is emerging, particularly in Eastern emerging markets. Central banks added a net 483 tons of gold in the first half of this year, surpassing the previous record of 460 tons in H1 2023. This follows substantial purchases in 2022 and 2023.
The dollar’s share of global reserves has decreased by 14% since 2002, from 72% to 58%. While not facing imminent collapse, this gradual shift away from dollar dominance reflects efforts to reduce dependence on the U.S. currency and its associated foreign policy leverage.
Analyst Dave Kranzler warns that potential interest rate cuts could further weaken the dollar, complicating U.S. Treasury debt funding. A declining dollar could lead to higher interest rates despite Federal Reserve efforts, posing challenges for the debt-burdened U.S. economy and increasing government interest expenses.
Continued de-dollarization could potentially result in a dollar glut, eroding its value and purchasing power. In an extreme scenario, this could lead to significant inflation or even hyperinflation, disrupting the current global economic order that relies on dollar dominance.