Foreign central banks are recognizing gold’s importance as a reserve asset by adding it to their holdings, the first net increase since 1997, according to data released by the World Gold Council as reported by CNN. The reason?
Unlike paper currencies, gold has a tangible value and that value is not dependent on any one country’s economic policies.
Gold is the optimal reserve asset and final money of the world because it is no single country’s liability. When currencies are used as major reserve holdings, they weaken in the long-run and cause trade imbalances for the issuing countries. Gold doesn’t have these inherent flaws, which is why foreign central banks are beginning to appreciate its usefulness again.
