The world is currently undergoing significant transformations, with the United States, the issuer of the global reserve currency, reaching a critical point in a debt spiral. Geopolitical turmoil continues to intensify. In response to the weaponization and devaluation of the dollar, central banks in non-Western countries have been purchasing gold at record levels over the past few years, heralding a major transformation in the international monetary system.
Most central banks have a “Plan B,” which undoubtedly involves gold. Despite the abandonment of the gold standard long ago and gold no longer serving as a circulating currency, it remains a crucial component of asset allocation as a haven asset. This applies not only to individuals but also to nations.
Recently, Konrad Raczkowski, Poland’s former finance minister, commented that European official gold reserves must be evenly distributed relative to GDP, suggesting this could lead to a new gold standard in the near future.
Nations of the EU that are not part of the Eurozone are making preparatory moves towards a new gold standard. Countries like Poland, Hungary, and the Czech Republic are buying gold to align their reserves with the Eurozone’s average levels, preparing for a gold-based monetary system. There is ample evidence and signs that Europe is laying the groundwork for a gold standard, and Raczkowski’s statement further supports this speculation.
The seeds for a European gold standard were sown as early as the 1970s with the collapse of the Bretton Woods system. However, this effort failed, partly due to strong opposition from the United States and the uneven global distribution of monetary gold, which was largely concentrated in Western Europe at the time. The more uneven the distribution of official gold reserves, the less smooth the transition to a gold-based international monetary system could be.
In the early 1990s, the European Central Bank began selling gold reserves. In 1999, 15 European central banks signed the Central Bank Gold Agreement (CBGA) to coordinate their gold transactions. This agreement confirmed that gold would remain an important component of global monetary reserves, leading to a reversal in gold prices.
If we look closely, one clear intention of the CBGA was to equalize gold reserves relative to GDP across countries. Only medium-sized European economies sold gold in significant quantities. Large economies sold little, while smaller countries like Cyprus, Estonia, and Lithuania did not sell any gold; Ireland even increased its holdings.
While the equalization of Europe’s gold reserves is not an official policy, it is a well-established fact. Over the years, the Eurozone’s total reserves as a percentage of GDP have been steadily declining and converging. Since 2018, Eastern European countries have significantly increased their gold holdings, with Poland purchasing 317 tons (an increase of 208%), Hungary adding 107 tons (an increase of 3376%), and the Czech Republic increasing its reserves by 32 tons (an increase of 141%).
