Gold in central bank vaults: A mask for crisis, not a lifeline

Forty-five percent of central bank reserve managers expect gold’s share of their reserves to increase over the next 12 months, according to the World Gold Council’s 2026 survey of foreign reserve managers across multiple regions.

Strikingly, these responses were recorded between February and May, after gold prices had already fallen during the war on Iran, reducing the value of central banks’ reserve holdings.

Yet the shift toward gold predates the war itself. Gold’s share of global central bank reserves rose from 13% in 2021 to 24% in 2025, surpassing US Treasury bills for the first time since the mid-1990s.

This trend is naturally unsettling for US President Donald Trump. Gold’s ascent has come at the expense of the dollar’s share in global reserves. Does the yellow metal have the potential to realize the scenario Trump has repeatedly warned against: the abandonment of the dollar as the world’s reserve currency?

Why the greenback?

Analysts often describe the US dollar as an “international currency” because it dominates global trade and financial transactions, alongside other currencies that play more limited roles, such as the euro, yen, pound sterling, and yuan.  

Yet despite unprecedented levels of globalization and economic integration, the world economy still lacks a truly international currency. The currencies used in international transactions remain national currencies whose issuing states have succeeded in establishing them as trusted intermediaries.

One of the most important dimensions of US influence lies in its ability to place the dollar at the center of the global financial system. As a result, dollar-denominated financial assets reached roughly $70 trillion in 2025, more than twice the output of the world’s largest economy.

This extraordinary influence rests fundamentally on confidence in the dollar. That confidence extends beyond individual and institutional investors to governments themselves, which hold billions of dollars in foreign reserves.

Over recent decades, the drive to build foreign exchange reserves has significantly expanded the dollar’s global reach. Governments have accumulated vast sums to meet balance-of-payments obligations, intervene in foreign exchange markets to influence exchange rates, sustain confidence in domestic economies, and provide a foundation for external borrowing.

Foreign reserves, however, do not consist solely of cash that can be spent when needed. Because central banks may hold these assets for extended periods, they must be managed accordingly. In practice, reserves often take the form of financial instruments rather than liquid currency, generating some return over time while, more importantly, preserving their value as much as possible and remaining readily convertible into cash when needed.

This is one reason the dollar has become so deeply embedded in reserve portfolios. Central banks do not merely accumulate dollar liquidity; they also hold dollar-denominated debt instruments, particularly US Treasury securities.

Under competitive pressure

Despite its dominant position, the dollar’s role in global reserves has steadily eroded over recent decades. It accounted for around 70% of foreign exchange reserves in the 1990s, compared with roughly 60% today, as competing currencies gained ground.

This helps explain growing concern in Washington about declining dependence on the dollar. Yet the challenge does not come solely from rival currencies. Gold, for all its limitations, remains insulated from many of the US policy choices that have undermined confidence in the dollar over recent decades.

Under no plausible future scenario will gold become a currency capable of competing with the dollar

The dollar’s weakening position reflects deeper shifts within the US economy and its monetary and financial institutions. These include the unprecedented monetary expansion undertaken in response to the COVID-19 pandemic through quantitative easing, which ultimately contributed to higher inflation and reduced the value of dollar-denominated assets. At the same time, federal government debt surpassed 100% of GDP in 2025. Added to this is Trump’s approach to both domestic and foreign policy, which, at a minimum, does little to inspire confidence.

What happens in the long run?

Under no plausible future scenario will gold become a currency capable of competing with the dollar. The era of the gold standard has long since ended because the global economy has grown far too large to anchor its transactions to the pace of precious metal production.

Nor is gold likely to replace the vast stock of dollar-denominated financial assets. It lacks the flexibility and functionality that reserve managers require from financial instruments. Their sheer scale, currently estimated at around $70 trillion, underscores their continuing importance.

The growing turn toward gold points to the depth of the crisis facing the global economy, particularly as the structural drivers of the dollar’s weakness become more pronounced. Yet because gold is unlikely to become the currency of the future, whether for trade or investment, the world economy will remain reliant on the dollar, even as confidence in it continues to erode.