The latest news is that some central banks have been increasing their gold reserves in recent years, and there has been some talk of a "gold rush" as investors seek to hedge against inflation and other risks. However, there are still some who suggest that it is unlikely that gold will ever replace the dollar as the world's reserve currency.
Those who think that the dollar will remain a global currency because gold is not liquid as the dollar but ignore the demand itself create an alternative to the dollar the most recent one is the BRICS currency. This is true that it is more difficult to buy and sell gold, and the prices can be more volatile but it would be the same after Euro the BRICS.
This argument is that gold does not have the same backing as the dollar yet ignores the risk attached to dollars as the reserve currency. The sovereign assets freeze for most countries including oil-producing countries to look for alternatives to the dollar for their trading.
This is true that the dollar is backed by the full faith and credit of the United States government, while gold is not. This means that there is a risk that the value of gold could decline if investors lose confidence in it but the subject confidence to investors would also be available from the other alternatives such as BRICS.
The fact that the dollar is still the most widely used currency in the world means it is the currency of choice for international trade and investment yet the Russian assets freezing exercise has shaken this choice and forced many to look and explore for alternatives.
The powerful alternative in my view is emerging from the BRICS alliance backed by China the second biggest economy in the world. Chinese yuan is now the fifth-most-traded currency in the world. That is a phenomenal rise from its 35th place in 2001. The yuan is also the fifth-most-actively used currency for global payments as of April 2023, up from 30th place in early 2011.
So, if we limit the struggle between the dollar and gold then it is possible that gold could become more popular in the future, it is unlikely that it will ever replace the dollar as the world's reserve currency.
Here are some additional factors to consider the weight of the dollar to survive against gold:
- The dollar is still the most stable currency in the world.
- The US economy is still the largest in the world.
- The US government is still seen as a reliable borrower.
These factors make the dollar still a very attractive currency for investors, though, and it is unlikely that they will abandon it for gold anytime soon, but we know that alternative doors now keep emerging, such as BRICS with alternative world financial systems, but again, it is the world of the probabilities and the time only will tell!
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