Gold Off to a Slow Start as Central Banks Pivot Toward Digital Currencies
Singapore (May 1) Some major changes could be coming soon to a central bank near you, with an estimated 90% of them at some stage of developing a central bank digital currency, or CBDC. In October 2020, the Bahamas became the first economy to introduce its own CBDC, the Sand Dollar, but many more national currencies are expected to be rolled out in the coming years.
I have much more to say on this, but first, let’s get an update on official gold purchases. Since 2010, central banks have been net buyers of the yellow metal as they seek to mitigate risk and hedge against their very own monetary decisions.
That being so, 2021 is off to a rough start in terms of official purchases. Central banks were net sellers in January and February for the first time in over a decade, unloading some 16.7 metric tons, according to the WGC. This has contributed to gold’s poor performance so far this year, falling 6.5% through last Friday. Turkey was the biggest seller, dumping 11.7 tons in February alone.
Not all central banks were sellers. India bought 11.2 tons in February, Uzbekistan 7.2 tons. Serbia has been accumulating gold every month since February 2019.
The Magyar Nemzeti Bank (MNB), the central bank of Hungary, announced earlier this month that it tripled its holdings from 31.5 metric tons to 94.5 tons, putting Hungary first among Central and Eastern European (CEE) countries in terms of gold reserves per capita.
“As it carries no credit or counterparty risks, gold facilitates reinforming trust in a country in all economic environments, which still renders it one of the most crucial reserve assets worldwide,” the bank wrote in a press release.
China to Allow Large Gold Imports
When it comes to gold policy, though, the big news is that China is now allowing domestic and international banks to import large amounts of the precious metal into the country in an effort to support prices. According to reporting by Reuters, an estimated 150 metric tons worth $8.5 billion will be shipped into China as soon as this month or next.
For the sake of comparison, in 2019 China imported around 75 tons per month, or $3.5 billion.
The country is already the world’s largest importer of the metal, so this is an important development that I believe could help the gold price stay buoyant.
Old Meets New: Will Cash Take the Digital Dive?
Besides holding gold—one of the oldest known assets, having been mined for over 5,000 years—many central banks are now on a path to introduce their own digital currencies, something our ancestors could never have conceived.
More than 60 central banks right now are believed to be exploring the idea of CBDCs, including retail tokens that would be used by citizens as well as wholesale applications for financial institutions.
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