Banking on Gold

Central banks are moving away from bonds as the global monetary system evolves, a leading regional bank has said.

And gold has emerged as a contender to sovereign bonds because it is perceived as more stable in risky environments, ANZ said.

With emerging markets pushing their own currencies for international payments - China settling trades with Russia in Chinese currency RMB, and India pushing to settle foreign trade in its own currency – a multi-currency system will bring a change in foreign currency reserve portfolios.

“Gold is likely to play an important role as this develops,” ANZ’s February 20 Commodity Insight report said.

The bank attributed the rise in official gold purchases in the last decade, and more aggressively in the past two years, to geopolitical tensions.

RBF’s response was not available when this edition went to print.

The Reserve Bank of Fiji can maintain an external reserve that include gold, and buy, sell or deal in gold and silver coins or other precious metals as defined in the Mining Act, according to RBF Act of 1985.

In a statement dated February 1, Governor Ariff Ali said 2024 was expected to be a challenging year, with the Fijian economy projected to decelerate as the substantial growth in tourism and consumption taper off.

“In addition, the continued loss of skilled and semi-skilled workers and their families (around five percent of the population) will adversely affect productivity and translate to lower domestic demand at the same time,” Mr Ali said.

Meanwhile, countries that top the geopolitical risk list now hold a larger share of global official gold, up from nine per cent in 2010, to 15 per cent in 2023.

“The buying activity was amplified when the US and other countries froze Russian reserve assets,” ANZ said.

Around 50 per cent of the decline in Asian central banks foreign exchange reserves during 2022 were from valuation losses, the bank said.

“This was quite large and had likely left a lasting sour taste,” ANZ said.

“The official gold buying induced by geopolitical tension is notable among countries subject to sanctions,” ANZ said.

“Gold is a highly liquid asset that can be used as an alternative medium of transactions in case of financial sanctions.

“It also helps maintain anonymity as unlike currencies, it is difficult to track the origin of gold once it is melted.”