Back to the Gold Standard? Strategic De-Dollarization, the PBOC, and BRICS Monetary Realignment”
By Chinedu Okoye
1.0 Back to the Gold Standard?
Gold prices have seen a meteoric rise in price over the past year hitting all time highs to settle at $3240..? The rise can attributed to safe haven demand and/or appeal by the private and public sector.
The rise is not surprising, given the rate at which major central banks have been stacking up Gold as a hedge to their currency valuation, and the level at which the People's Bank of China (PBOC) is offloading USD assets (currency and U.S. Sovereign debt), in favor of the metal, one has to wonder if we are on a return to a gold — or metallic standard— or if this is just a hedge for a De-Dollarizarion campaign through gold.
Though the PBOC is the biggest player, purchasing some 300 tonnes in 2022, other countries have also been involved in the purchase of the yellow metal in the last four years. They include;
- Central Bank of the Republic of Turkey purchasing about 100 tonnes of the yellow metal in 2022 alone;
- Uzbekistan Central Bank actively purchases domestic mines gold as a currency hedgw and for Income; Qatar also resumes it's purchases of the metal in the recent past —figures are undisclosed.
- Egypt central bank purchased 44 tonnes on 2022, the Bank of Poland holds over 100 tonnes purchased between 2019 and 2023.
Like wise Singapore addes to their gold reserves in the China timeframe (2021 - 2025), as it quietly added to it's gold reserves in 2021 and 2023.
- Central Bank of Brazil made it's first gold purchase in decades buy some ~62 tonnes in 2021.
- The Reserve Bank of India however only purchased but a third of Turkey's purchases. This relatively small level is over compensated for by the countries positive balance of payments. The Reserve Bank of India has a robust USD reserves boasting of some $700 billion on FX reserves at the RBI.
2.0 PBOC Pushing the Gold move as Dollar loses Ground: A Return to Metallic Money?
The US Dollar has lost some ground over the last three decades, shedding 13% of its share global reserves in the 34 years from 1991 to 2025. In the same time gold has added +~7.5% to make up about 17% of global reserves.
A noticeable feature here is the fact that the fastest rise has been from between 2020 (just after the COVID year), from 13% to 17%+ a 4% increase in the metals share. (See chart 2 below ). For context the 30 years that prices that saw only a ~3% increase in the metals share of global reserves.
Gold has also seen a rise in this period, as uncertainty around trade and geopolitics , combine with the ongoing heavy lifting of the metal to constitute a major headwind. This is no coincidence as central banks — particularly the People's Bank of China (PBOC), have been unwinding it's dollar reserve portfolio in and racking up Gold purchase.
The PBOC in particular has emerged as one of the largest official buyers of gold in the past four years. Buying some 300 tonnes alone in 2023. This is a monetary and strategic move that offers sovereign/financial autonomy in a world where reserve assets can be weaponized.
This strategy intensified post the Russian - Ukraine conflict, and the emergence of BRICS alliance. In the same vein, China has also reduced it's U.S. Treasuries holdings from $1.3 trillion in 2013 to just under $800 billion on 2024.
3.0 Rationalizing Gold Purchases as a Hedge:
China purchases, Turkey and other countries listed do so to either stabilize monetary or exchange rate policy or reduce their USD exposure, given weak fundamentals, only purchases by major central banks and financial market actors. Post Bretton Woods, the U.S. dollar replaced gold as the global reserve currency and this has allowed for reckless spending and debt burdens ameliorated only by the demand for new currency issuances and inflows into private and public securities.
With this level of exposure comes potential risks to the value of USD assets for foreign investors and central banks. And hence the desire to unseat or replace the USD. As a result, both private and public institutions have hedged with gold, evidenced in the meteoric rise we've experienced in the past 18 months and more.
4.0 The (Strategic) De-Dollarization Play:
A major on going and future initiatives in this regard is the BRICS alliance which already includes boycotting the USD for intra-allaince trade, with olive branches stretching to less developed and more volatile economies.
Core BRICS economies are already engaged in local currency based trade settlements to some extent but there has not been much success in convincing Non-BRICS trading partners.
The core BRICS countries constitute 25%~ of global trade, so such a move (away from.rhe US Dollar) expectedly come with positive effects —raising the exchange-ratio of their local currencies to the dollar. Gold, can help back up new monetary issues. But with Non-BRICS economic partners a variation of a revolving currency swap agreements could provide these countries the local currency —of the BRICS nation in question— to facilitate trade. This is discussed further below.
As opined before, in our paper! "BRICS Watch: Risks and Tricks of the De-dollarization Campaign", a Euro-Style currency union is not feasible given the differences in the structure and Monetary policies of the BRICS member states. Thus, a single currency would need to take lead, for price uniformity, and maintainance of monetary policy independence.
As a result we advocated " using the Yuan for trade with partners within and outside the alliance, as the Peoples Bank of China (PBOC), in turn holds significant amounts of the remaining nine currencies in its reserve. " To settle international transactions with other BRICS member states.
4.1 Core BRICS Insulated, but Non- BRICS Economic Partners;
Based on section 2.0 above, this initiative —of settling transactions in BRICS local currencies has no doubt made relatively significant headway.
The core BRICS economies have sufficient USD reserves, and Gold more recently. This means a $100 - $850 billion gold allocation by the PBOC would hardly make a dent in the liquidity conditions of the Chinese FX market.
But other countries with whom the have trade and other economic relationship with, however, aren't so unshackled, due to Greenback debt dependence, abysmal foreign reserves, and the extent to which the dollar is embedded into their financial architecture.
This presents challenges for the Yuan or any other BRICS in penetrating the global reserve system. As these countries need debt, which is denominated in USD, sufficient FX reserves to support the local currency, and the probate sector would also require the Greenback for foreign investments and/or purchases.
5.0 The Global Financial Infrastructure around the Greenback:
Commodities, international trade, and a chunk of developing country external debts are denominated in the USD. With some 90%+ of total international (trade and other) transactions; 58% of global reserves; and 60+% of global sovereign external debt, denominated and/or benchmarked to the U.S. dollar.
This makes the USD the defacto reserve currency —Fiat Gold if you may. Since business and financial market activity is an ongoing process, today's debt will have to be validated tomorrow after yesterday's debt have been validated today. This, coupled with financial market flows (into US financial securities), sustains the demand for the Dollar as it is needed for debt and trade settlements and capital.
So the idea of an impending switch to the metallic reserve system is not feasible as the factors that makes the U.S. dollar sought has not changed. Even when foreign investors purchase local currency denominated securities on non-reserve currency issuing economies, the exchange rate risk estimation is done in reference to the USD.
So for such countries, exchange rate stability hinges on the demand for it's economic goods and services (including financial securities). Imports are paid with export [proceeds] in an any economy. So, the lesser the real output, the more expensive imports are as they have less goods to exchange for the multitude of import goodsa and services desired.
When you export lesser than you import, you have lesser foreign reserves and this means being able to afford a lesser amount as the buyer would have to issue more units of the local currency for the universally accepted and demanded USD. So the real value of the local currency falls creating scarcity in the form of high prices.
Countries naturally aim at exports to draw in as much USD as possible relative to what they spend, for a net positive growth in foreign reserves. The bias towards the dollar at the expense of gold is still very much alive in lesser developed countries.
6.0 The BRICS Leverage: The Challenge to U.S. Dollar Hegemony
Trade within the alliance accounted for 20% of global trade as at 2022. With the inclusion of broader groupings (UAE, Egypt, Saudi Arabia, Iran and Ethiopia), the alliance posseses a larger share of global trade at 24% today.
This reflects a gradual increase deoben by economic powerhouses —China and India most notably —and trade heavy Middle Eastern economies —UAE, Saudi Arabia, Iran. This growth has led to an increasing use of their local currencies to settle internal trade within the alliance.
Now, China buys Russian Oil in Yuan, and increasingly settles trade worn Saudi Arabia in the Riyal, signalling a quiet but strategic monetary alignment within the bloc that we discuss in detail in a latter section.
About 90% of China - Russia trade is now settled in the Yuan or Rubles; prior to the war China and Iran conducted bilateral trade in the Yuan, bypassing USD; over 90% of oil trade between India and Russia (including wider bilateral transactions) is conducted or settled in the Rupees or Rubles —this they enabled by a dedocuand effective rupee - rubles mechanism.
Further on the momentum, as the dollar shed 13% of but still far surpassed all other currencies including the euro 21%, Japanese 6%, British pound 5%, and 3% of global reserves is allocated to the Chinese renminbi. This regard to "disclosed global official foreign reserves in 2022"
The reduction as seen in the above chart 2 and previous actions is a result of "foreign reserve managers adding" [have added] "to their portfolios a wide range of smaller currencies including the Australian and Canadian dollars" (IMF COFER).
The alliance has so far managed to leverage on their economic prowess, to build the necessary infrastructure to reduce the reliance on USD for trade. China has also extended this gesture with Non-Core BRICS countries like Nigeria in the form of currency swaps to provide foreign exchange (Yuan in this case) for trade settlements.
7.0 The Difficulty in Moving away from the USD:
The challenge to US Dollar hegemony remains in play, as despite the reduction in its share of global reserve it still accounts for almost three-fifths of Global foreign reserve.
Additionally, the US Dollar makes up 49% of SWIFT-mediated payments, referred to as the highest level in decades. And 60% when you exclude inter-Eurozone transfers; the Greenback also accounts for 54% of global trade invoicing , and 90% foreign exchange market transactions.
In light of the above, it is established that, moving away from the USD, comes with the risk of squeezing dollar liquidity. As both private and public sector lenders have external debt exposure that may need refinancing — government debt almost always refinancing upon maturity evidenced on the revolving debt issuances. Even local denominated govsrmemt securities would either not be forthcoming, or is at a steep asking yield.
However, more economically advanced and reserve bank issuing developed countries such as Europe, Britain, Japan, Switzerland etc are less exposed to the USD as most of their (domestic and external) debt are already issued in the local currency. Since sovereign nations cannot go insolvent on local currency denominated debts only inflation and interest rate risk stand out as major concern where natural constraints are neglected.
But for advanced EM countries, the healthy balance of payments —and reserves by extension, is needed to provide stability to the currency.
8.0 The Strategic Flaw in [a Gold] Reserve Management:
Since developed and reserve currency issuing countries and advanced EM countries need the Greenback, a long-term shift to hold a fraction of one country's reserves in illiquid, and infungible gold could squeeze money supply, and deprive the central banks of much needed liquidity to facilitate FX allocation through the chosen medium (fixed or floating).
However as a medium-term strategy, it provides much needed support and has a lesser burden for a limited period of time on the foreign exchange market.
But even at that, liquidation of the yellow metal by central banks would mean prices facing headwinds going further. This is as gold's gains aren't realized until it is liquidated, and a massive influx of the metal into the markets would lead to a downward revision of its exchange-ratio.
If the idea is to create a monetary system and policy around gold, this restriction in a fiat world and with the size of outstanding sovereign debts, bear negative Economic consequences—exchange rate, interest rates, and government spending —economic stability.
9.0 Opportunities: Who would be a beneficiary?
Private and retail investors are favorites for the top gainers seem as their liquidation of long positions would be counterbalanced by central banks continuous purchases and/or hold.
Mining companies however face a challenge as exploration costs increase, eating deep into bottom lines. However a continuous steep rise above $3,800/oz would reignite the flame and send the stocks upward. An increases uncertainty from geopolitical woes also makes gold stocks relatively more attractive and safer, barring the occurrences or contagion risks to the geographical location of mining sites.
10.0 Remarks and Takeaways;
On the question "Back to Gold Standard?" in relation of the above, the answer is Not exactly. As Gold Purchases by top central banks aren't intended to be used to fix or base money supply on, but to hedge by a diversification of exchange media away from the dollar.
This is both economically and politically strategic, as Gold can't be sanctioned in the way USD assets can. However, the metal —for reasons stated above on infungibility amongst others — can not be used to settle international transactions.
This is evident in the use of local currencies for a no small amount of BRICS intra-allaince trade. So we have a scenario of a "Strategic De-Dollarization" spearheaded by the PBOC and BRICS "monetary realignment". Not a return to Gold Standard on any form.
This cash employment indicates a lack of willingness for central banks gold holdings liquidation, and/or an inability to use the yellow metal to settle (international ) foreign exchange transactions.
The scheme remains a De-Dollarizarion campaign, as countries tilt away from USD exposure. However, this shift is as political as it is economic, and given the economic prowess and political capital of the United States, defeating the dollar hegemony remains am uphill battle.
It is expected that the dollar stays weaker relative to it's peers for the remainder of the year. The dollar index (DXY) is currently at 97.03 – a three year low (seechart above.)
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