In a significant shift in global reserve assets, gold has surpassed the euro to become the second-largest reserve asset by market value, according to the European Central Bank (ECB). This change is largely attributed to record central bank purchases and rising geopolitical tensions. Central banks have increased their gold holdings by over 1,000 tonnes in 2024, more than double the average annual amount seen in the previous decade, bringing total official holdings to 36,000 tonnes. This significant increase has led to gold accounting for 20% of global official reserves at the end of 2024, ahead of the euro at 16%.
The ECB notes that the price surge of gold, which rose nearly 30% in 2024 to record highs above $3,500 per troy ounce, has significantly boosted its share in reserve portfolios. Two-thirds of central banks invested in gold for diversification purposes, while two-fifths did so as protection against geopolitical risk. Emerging economies, particularly those less aligned with the West, were among the largest buyers. Despite the euro’s share in global reserves remaining steady at around 20% when measured at constant exchange rates, it was overtaken by gold in market value terms due to the precious metal’s price surge.
The international role of the euro remained broadly stable in 2024, with the ECB emphasizing that the euro remained the second most used currency overall. However, the ECB also observed that some countries are exploring alternatives to traditional cross-border payment systems, largely influenced by geopolitical factors such as the Ukraine conflict, rising US-China friction, and a push by BRICS nations to reduce dependence on Western financial systems. The euro faces new challenges from the rising role of cryptocurrencies in cross-border payments and the growing use of stablecoins backed by US Treasuries. Meanwhile, the US dollar’s share in foreign exchange reserves declined slightly to 57.8%, according to the report.
This shift in global reserve assets underscores the ongoing efforts of central banks to diversify their reserve assets amidst rising geopolitical tensions and economic uncertainties. As the global economic landscape continues to evolve, the role of gold and other reserve assets is likely to remain a key focus for central banks and investors alike. With gold’s increased prominence, it will be interesting to see how this affects the global economy and the balance of power among currencies in the years to come.
