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Business Times
5 hours ago
- Business
- Business Times
Gold's status from ‘theoretical' to ‘tactical' hedge
IN TODAY'S fragile political and financial environment, gold is regaining prominence in the strategies of warily observant reserve managers. 'Gold is good when other assets are not safe,' said a participant at the Official Monetary and Financial Institutions Forum's (OMFIF) annual seminar in London, in partnership with State Street Global Advisors (SSGA) in May. The event brought together senior representatives from central banks, public pension funds and sovereign funds to discuss how geopolitical risks and shifting market dynamics are shaping reserve strategies. The remark, however, encapsulates a growing shift in how central banks perceive gold's role in an increasingly complex global environment. This change has brought gold back to the centre of reserve management strategy. A structural repositioning Central banks have now recorded three consecutive years of elevated demand for the metal, resulting in net purchases of 365 tonnes in the final quarter of 2024 – the highest quarterly figure on record, according to the World Gold Council. This follows annual purchases of more than 1,000 tonnes in both 2022 and 2023. Major buyers have included China, Turkey and India, while countries such as Poland, Hungary and the Czech Republic have also made notable additions relative to the size of their reserve portfolios. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up The rationale behind this shift is not purely tactical. As explored in OMFIF's 2024 report Gold and the new world disorder, gold is once again being treated as a strategic asset, not because it offers yield or efficiency, but because of what it represents. It serves as a symbol of political neutrality and security in times of fragmentation and independence from the liabilities of any one issuer. That argument – once seen as a theoretical hedge – is increasingly propelling real changes in allocation. Political developments have added urgency to these shifts. With the return of US President Donald Trump to the White House this year, concerns over trade tensions, fiscal profligacy and the reliability of global partnerships have resurfaced. The US dollar's politicisation is also a growing concern even among traditional allies of the US. As one roundtable participant noted, the issue is not just what Trump might do, but how quickly markets react to tariff decisions and how long that uncertainty might linger. As a result, central banks are preparing for a more fractured global financial order. Gold as a portfolio stabiliser Across the OMFIF-SSGA discussion, there was broad consensus that structural volatility – driven by sanctions, shifting trade dynamics and rising geopolitical risk – has made diversification more urgent and gold more relevant. One panellist noted that the role of gold is evolving from a legacy asset into a core pillar of portfolio stability. Another panellist pointed out that gold has become what central banks turn to when other assets no longer feel safe, with record prices now seen as a reflection of trust rather than speculative excess. Another observed that reserve management is increasingly influenced by broader themes of strategic autonomy and long-term resilience. Gold, unlike other assets, is seen as consistent with both objectives. Meanwhile, other viable diversifiers to the US dollar remain limited. The euro faces structural challenges and remains institutionally incomplete. The renminbi, despite greater use in bilateral trade, lacks the convertibility, transparency and liquidity required of a global reserve anchor. Other currencies such as the yen, pound and Canadian or Australian dollars lack the scale and liquidity needed to absorb major reallocations. As one panellist remarked: 'This isn't mass de-dollarisation. It's a gradual repositioning driven by a structural loss of trust.' Absence of alternatives In this environment, gold has emerged as the only strategic fallback. It is not a currency, yet it functions as one in times of strain. The forthcoming Global Public Investor 2025 report, launching on Jun 24, examines whether this shift is now translating into a structural increase in gold's share of global reserves. For the past four years, our annual survey of central banks has consistently shown that reserve managers plan to increase their gold allocations. This has now materialised. For many central banks, there seems to be growing signs that this trend will continue as gold evolves from a tactical hedge into a long-term strategic asset. OMFIF The writer is an economist at the Economic and Monetary Policy Institute, OMFIF
Business Times
6 days ago
- Business
- Business Times
Digital money and the art of the impossible
WHILE G7 central banks continue to agonise over supplementing physical cash with digital money, and in the case of the US, ban the central bank digital currency version outright, India has surged ahead with a mobile-based payments platform accounting for half the world's real-time payments in 2023. India's United Payments Interface continues to overcome apparently insoluble conundrums facing mature economy central banks, such as managing digital identity, balancing state and private-sector players in payments and ensuring the stability of commercial banks in the monetary system. The instant payments system has already boosted the tax take, had a transformational impact on financial inclusion and democratised the provision of financial services – with mutual fund subscription at a record high. Meanwhile, other major non-G7 economies such as China and Brazil – where state-backed digital retail payments platforms operate – have for now set aside trying to map distributed ledger technologies (DLT) onto national payments systems or sovereign money. Still, a variety of national and cross-border projects are in the works, though mired in circular discussions about regulatory, liquidity, foreign exchange and interoperability challenges. DLT – which underpins digital assets and versions of money such as stablecoins and tokenised money market funds – may also become a component of mainstream wholesale and retail finance in the wake of the Genius Act. But as statements at OMFIF's 2025 Digital money summit made clear, the technology continues to flummox many in the official sector in practical terms. Renato Gomes, deputy governor of Banco do Brasil, described the 'privacy trilemma' within DLT. Discussing experiments to build on the success of their Pix platform with Drex, he noted that trade-offs between privacy, scalability and programmability were tough, and legal frameworks remain 'incompatible' with DLT. The bank wished to remain 'technology-agnostic'. At other sessions, cross-border DLT networks between central banks and commercial banks in different jurisdictions on a unified ledger, such as Project Agora, continue to be defined. A technologist at the summit declared 'this project simply will not be possible on a single network'. The net result of it may simply be an improved set of data standards in the extant system. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Correspondent banking – a method for cross-border transactions, often criticised for being expensive, slow and inefficient compared to blockchain-based finance – already deals with the regulatory burden which DLT innovators are struggling to reinvent. A representative from a major US bank experimenting with tokenised versions of commercial bank money wryly pointed out that stablecoin-based remittances are simply regulatory arbitrage. Regional successes Reinventing the cross-border financial system by joining central banks schemes together is difficult even without DLT. While significant progress has been made with the Nexus cross-border instant payments project, the establishment of the Nexus Scheme Organisation and the harmonisation of governance frameworks are continuing efforts. Participating central banks are working out how to cater for foreign exchange – a function embedded in the cross-border commercial banking system already. There are also regional pockets of progress. An intriguing example is Buna, the Middle East's cross-border payments initiative, which has bypassed these problems. Backed by the Arab Monetary Fund, Buna has created a regional network resembling a 'unified ledger' between central and commercial banks, but in a closed and centralised system – the opposite of DLT – built on the existing real-time gross settlement platforms. While DLT might be a hard toy to handle for central banks, it is also advancing at pace as a transformational financial infrastructure – enabling cheap, quick and also cross-border payments via stablecoins such as Tether and USDC. Whether it is secure or practically regulatable or not, it is a version of money regulators will have to contend with as consumers vote with their feet, and is expected to accelerate further as an explicit aim of US policy. What is the official sector to do? Artful hacks are in the works to handle DLT-based tokenisation, which may or may not become a mainstream component of existing money and securities markets. An informal vote even among digital finance specialists at this year's Digital Money Summit could not quite find a majority to say that it would. The European Central Bank is running a twin-track approach through projects at Deutsche Bundesbank and Banque de France, with the former creating a bridge between the existing T2 RTGS arrangement and DLT-based tokens, and the latter creating a DLT-native setting for DLT-based tokens to be settled atomically in tokenised wholesale CBDC. As both banks explained at the summit, the former would smooth the path to the latter, but also continue to run in parallel with it while traditional finance persists. Pioneers at the Brazilian central bank are watching the former with an eye on replicating that model in Brazil. If these projects to integrate DLT-based private money and tokenised securities into the official monetary system are not successful fairly soon, first principles may be rediscovered the hard way. A panel of central banks at the summit quietly demurred at the suggestion that they would eventually be asked to bail out a version of DLT-based money which had become de facto systemic and then unstuck in the next financial crisis. OMFIF John Orchard is chairman, and Katie-Ann Wilson is managing director, of the Digital Monetary Institute at the Official Monetary and Financial Institutions Forum (OMFIF)
Business Times
28-05-2025
- Business
- Business Times
Can gold return to the monetary throne?
THEORETICAL calls and even practical attempts to return to one or another form of the gold standard have not ceased since its collapse in 1971, when then US president Richard Nixon abandoned the dollar-gold link. Nevertheless, the idea is revived from time to time, either in the form of Libyan dictator Muammar Gaddafi's plans for a gold dinar or the alternative currency of the Brics bloc. A report released last year by the Official Monetary and Financial Institutions Forum (OMFIF), Gold and the new world disorder, examines the historical and modern role of gold in the monetary system. The gold standard is perceived by many as a 'golden age' for the monetary system. But the main reasons for the demonetisation of gold are caused by the very paradigm of the modern economic system. As Patrick Bolton and Huang Haizhou point out in their book Money Capital, which they presented at an OMFIF roundtable last year, 'under the gold standard... monetary policy was essentially shut down'. That is the whole point. The complex economy of the industrial era simply could not use as money an archaic instrument that was incapable of providing flexible management of cash flows. Moreover, it is difficult to imagine this in a post-industrial economy. It is noteworthy that even optimistic 'gold bugs' ultimately come to the same conclusion: monetary gold (in coins and bars) can still be used, but only as a store of value and investment, just like precious stones, securities, pieces of art or crypto assets. As for money itself, it is in the process of destuffation – that is, the disappearance of its material forms. The whole process occurs in the form of revolutionary evolution: revolutionary (relatively instantaneous) changes in the type of money evolve into international money. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up These stages fit well into Hegel's dialectic spiral: from the multiplicity of options for commodity exchange to the emergence of a single monopoly equivalent product (metallic money); from a variety of monetary metals (copper, silver, gold) to a single gold standard; and from the convertibility of many currencies into gold to a single currency that was exchanged for gold (US dollar). At this stage, we can observe a transition from multiple national currencies to a single world currency. This is already a transition from quantity to quality, since the emergence of global money will be determined by the result of the struggle and unity of opposites. It will also be determined by the negation of the negation: different national currencies negate the world money of the 19th century (gold), and then the one world currency negates the different national currencies. The world monetary system will have to come to a single world money, which is based on the commonality of credit relations in the modern world. And thus, credit money in the postmodern period will have to give way to global post-credit (information, smart, network) money. Gold and developing economies Perhaps it is worth recognising that gold could play, if not the role of a monetary commodity, then at least be more money-like in the economies of developing countries, the conditions of which often fully allow the existence of a gold standard. Moreover, perhaps it would be more natural for them than the current credit and monetary system, often inadequate to the level of their domestic economic development, which constantly endures relapses of galloping inflation. Such a possibility can now be considered only theoretically, due to the huge dependence of such countries on the rest of the world economy. However, increased interest in the possibility of using gold as an instrument of the credit and monetary system has been noted in a number of developing countries. And this may apply not only to developing countries. In a hypothetical situation of the collapse of the economic system, a return to gold as a monetary commodity could actually occur, but this would in no way indicate that gold is real money even under current conditions. Moreover, one can even imagine a situation where humanity would be thrown back to an earlier stage of the development of production relations. The global uncertainty that is creating a 'new normal' here and there may force humanity to turn to old, time-tested tools not only in monetary relations. OMFIF The writer is chief researcher at the Institute for Economics and Forecasting, Ukraine. He was previously a deputy governor of the National Bank of Ukraine and chief executive officer of the National Security Depository of Ukraine.
Yahoo
20-05-2025
- Business
- Yahoo
Stablecoins stoke volatility in Brazil capital flows, says central banker
LONDON (Reuters) -The surge in popularity of U.S. dollar-backed stablecoins as a way of transferring money abroad is increasing the volatility of Brazilian capital flows, Brazil's central bank deputy governor said on Tuesday. Brazilians' crypto asset usage has surged over the past two to three years, with around 90% of the flow linked to stablecoins - digital money pegged to leading currencies like the U.S. dollar - its central bank estimates. Deputy Governor Renato Gomes said one of the "worrisome" issues was that they can be a way to bypass the normal checks and balances for converting Brazilian real into dollars and transferring it in and out the country. "They offer a bypass instance," Gomes said at a conference in London hosted by monetary policy think-tank OMFIF. "You can get the stablecoins, and when you get to the United States or anywhere else, you can cash out the stablecoin and essentially use an account in dollars without all the usual regulation." It is a route being "heavily used" for remittances he added. One straightforward example is that some traditional ATMs in parts of the U.S. now allow dollars to be withdrawn from some stablecoin wallets. "Capital flows become more volatile," Gomes said, "essentially because almost anyone can use stablecoins to send money in and out of the country." There are regulatory issues too. The largest issuer of Brazilian real-backed stablecoins was based in Switzerland, for example, Gomes said. "We don't have reach on these issuers," he said. "So in a sense, regulating the issuers of stablecoins is something that's going to require a lot of international cooperation."
The Star
20-05-2025
- Business
- The Star
Stablecoins stoke volatility in Brazil capital flows, says central banker
A representation of cryptocurrency Tether is placed on a PC motherboard, in this illustration taken June 16, 2023. REUTERS/Dado Ruvic/Illustration/File Photo LONDON (Reuters) -The surge in popularity of U.S. dollar-backed stablecoins as a way of transferring money abroad is increasing the volatility of Brazilian capital flows, Brazil's central bank deputy governor said on Tuesday. Brazilians' crypto asset usage has surged over the past two to three years, with around 90% of the flow linked to stablecoins - digital money pegged to leading currencies like the U.S. dollar - its central bank estimates. Deputy Governor Renato Gomes said one of the "worrisome" issues was that they can be a way to bypass the normal checks and balances for converting Brazilian real into dollars and transferring it in and out the country. "They offer a bypass instance," Gomes said at a conference in London hosted by monetary policy think-tank OMFIF. "You can get the stablecoins, and when you get to the United States or anywhere else, you can cash out the stablecoin and essentially use an account in dollars without all the usual regulation." It is a route being "heavily used" for remittances he added. One straightforward example is that some traditional ATMs in parts of the U.S. now allow dollars to be withdrawn from some stablecoin wallets. "Capital flows become more volatile," Gomes said, "essentially because almost anyone can use stablecoins to send money in and out of the country." There are regulatory issues too. The largest issuer of Brazilian real-backed stablecoins was based in Switzerland, for example, Gomes said. "We don't have reach on these issuers," he said. "So in a sense, regulating the issuers of stablecoins is something that's going to require a lot of international cooperation." (Reporting by Marc JonesEditing by Alexandra Hudson)
