Gold’s historic race to reclaim role as preeminent reserve currency [Video]

The Money Metals quarterly bar chart race on the evolution of global international reserves is out. Recently, gold overtook the euro, and soon will be challenging the dollar!

In the video by world-renowned gold analyst at Money Metals, Jan Nieuwenhuijs, we explore world reserve currencies from 1950 to 2024. 

Such currencies in this comprehensive analysis include gold, the US dollar, British sterling, the Deutsche mark, the French franc, the euro, the Chinese renminbi, the Japanese yen, and “other FX” (e.g., the Swiss franc).

The race is off… and in 1950, the main reserve currency around the world was gold. 

From the beginning of that year, gold made up 72.41% of all central bank reserves. Sterling was the second highest at 15.79%, and USD was third at 9.01% of reserve currencies. The remaining 2.79% was held in other foreign exchange currencies. 

In 1965, the U.S. removed silver from its currency, while simultaneously pressing for a full-scale war with Vietnam. Additionally, government overspending, like the “Great Society” social programs, pushed the government to create more currency than it had in gold, leading to serious inflation pressures.

Such measures prompted West Germany, France, and England to start turning in their dollars for gold, much of which they repatriated. 

This led to the collapse of the Bretton Woods gold standard by 1971, but by then, the U.S. dollar had become dominant, comprising about 45% of all reserves, while gold was closer to 39%. 

On August 15, 1971, Richard Nixon ended the convertibility of USD for gold, de facto ending the Bretton Woods System and the gold standard for international purposes. 

This would become known as The Nixon Shock and it persuaded countries around the world to consider holding more gold rather than USD. By the end of 1972, gold would quickly replace USD as the leading reserve currency and was priced at $38 per troy ounce from the previous $35 per troy ounce.

In February 1973, the price of gold was fixed at $42.22 per troy ounce for government purposes, while the free market price had already started rising sharply since around 1972, averaging $97 per troy ounce by 1973. The currency race video by Jan Nieuwenhuijs highlights the free market price. 

Although the ending of the Bretton Woods Agreement ended in 1971, it took until March of 1973 for most world currencies to no longer peg their currencies to USD. This led to major currencies to float while the gold price was then set to the free market price (various policies between 1968 and 1973 allowed for the gold price to float freely) as opposed to being arbitrarily fixed at USD $42.22.

In 1974, the U.S. made a major move toward what would be known as the “petrodollar” by making a deal with Saudi Arabia that specified all oil would be sold in USD. 

This move, in conjunction with US oil embargoes set in 1973, would not immediately lead the USD back to the number one spot, but it certainly played a role in the USD’s long-term gains. 

In the late 1970s, the International Monetary Fund (IMF) officially announced the demonetization of gold and instead called it a commodity. 

This did not mean that gold was no longer valued by central banks as a reserve currency or form of sound money, rather it meant gold was no longer the official basis for international monetary transactions under IMF rules.

As a side note, from April 5, 1933, to January 1, 1975, it was illegal for private Americans to hold gold as an investment or to protect against USD monetary inflation.

By 1976, the new U.S. petrodollar became the leading reserve currency, and according to Jan Nieuwenhuijs, this was likely a coercive move against the free market gold price. The petrodollar was supported by OPEC, the oil cartel led by Saudi Arabia since they were trading oil with USD and then recycling the proceeds into U.S. Treasury Bonds for greater gains. 

While all of this was taking place, the U.S. was still printing more currency than it should have, causing inflation to spike as high as 6.5% in 1977 and 7.6% in 1978.

Loose monetary policies at the Federal Reserve, an increase in energy costs, and a decline in the faith and subsequent value of USD fiat currency pressured countries and global private sectors, including Americans, to start buying more gold rather than holding on to their U.S. dollars.

In 1978, gold was back at the head of the race, leading in first place as the world reserve currency. Gold would remain as the premier world reserve currency for the next 11-12 years, until the fall of the Soviet Union in 1989. 

As there were not many alternative liquid currencies competing in the world market, by 1990, USD would reclaim the first-place position of world reserve currencies. 

In 1999, the euro came into existence, effectively challenging gold, but not yet a challenge to USD. The full effect took until around 2002, and there was a merger between the Deutsche Mark and the French Franc.

Natural and artificial confidence in the European market led the euro to take second place, driving gold to third. The euro remained in second place until around 2022 or 2023 when gold quickly reclaimed that spot. 

As of the end of 2024, USD has remained as the number one reserve currency in central banks around the world at 45.55%, with gold firmly in second place at 21.20%, the euro in third place at 15.63%, and all other currencies making up the remaining 17.62%.

With the gold price now reaching the highest levels ever seen, inflation on the rise, and national and international faith in the US dollar faltering, America is in the process of jeopardizing its position as the leader in the world currency reserve race. 

Many economists and investors are speculating that gold will soon reclaim its historical position as the number one spot in the race for leadership as the reserve currency around the world. 

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