Central Banks' Strategy in the Era of De-Dollarization: The Role of Gold in National Reserves

Historically, since the time of the gold standard, the USA and other developed countries have had a large share of gold in their reserves: on average, across EVC countries, it accounts for over 60%. Meanwhile, developing countries are forced to hold a significant portion of their international reserves in US dollars to pay external debt, meet international obligations, and support the exchange rates of national currencies.

Today, they have to revise the structure of their reserves in favor of gold to protect against the risk of blockades, especially with world prices above $4000 per troy ounce.

The Bank of Russia did this earlier and at more acceptable prices. After 2014, preparing for tightened sanctions, the Russian regulator began actively purchasing gold at $1200–1300 per troy ounce. As a result, the share of this metal in reserves increased from 14% in 2017 to 22% in 2021. Today, this asset accounts for over 40% of reserves by value due to the rise in world prices.

Central banks do not aim to accumulate as much gold as possible in reserves. Their task is to form a portfolio of reserve assets that is adequate in size and structure to the state of the economy and finances of the respective country.

The blockade of Russia's foreign exchange reserves limited the Bank of Russia's ability to operate the currency component. Selling part of the gold at record prices to obtain necessary foreign currency is part of the CBR's strategy for managing reserves.

If necessary, the Bank of Russia can buy gold on the domestic market, as Russia is a major gold-producing country.

Author: Doctor of Economic Sciences, Professor of the Department of World Economy and World Finance at the Financial University under the Government of the Russian Federation Lyubov Vyacheslavovna Krylova