The following is my answer to a Quora question: “What might be the domestic impact if gold continues to be favoured over US Treasury notes as a global central bank’s reserve asset?”
By early 2026, central banks held approximately US$4 trillion in gold — marginally exceeding the US$3.9 trillion held in US government bonds. Gold has overtaken Treasuries in central bank foreign exchange reserves for the first time since 1996. Central banks have purchased over 1,000 tonnes annually for three consecutive years. 43% of central banks plan to increase their gold reserves in the next twelve months — the first time since the 1960s they are growing gold holdings faster than Treasuries. The headline is dramatic. The reality is more nuanced — and more instructive.
Only 32% of central banks cited reducing dollar exposure as a primary motivation for gold purchases. The majority pointed to historical stability at 82%, crisis performance at 78%, and the absence of default risk at 75%. These are conventional portfolio management rationales — not a monetary revolution. Gold cannot replace the dollar as the primary reserve and settlement currency because it fails the basic requirements of a functioning monetary system. It cannot be created in response to liquidity demand. It cannot be wired across borders in seconds. It cannot clear a trade finance transaction between a Japanese exporter and a Brazilian importer at 3 in the morning on a Tuesday. It earns no yield. It requires physical custody. And the global gold stock — approximately 212,000 tonnes — is mathematically insufficient to back the volume of international trade that clears daily.
The rise in gold’s share of global reserves is primarily explained by gold price appreciation, not accumulation. In China, 91% of the increase in gold’s share came from price appreciation; only 9% from actual buying. In Japan, the split was 96% price and 4% accumulation. The gold standard narrative is being driven by a price rally, not a monetary architecture decision.
For the United States, the shift away from Treasuries as the preferred reserve asset has a direct domestic consequence: higher borrowing costs. US debt has expanded from US$250 billion in 1971 to US$38 trillion in 2026. With roughly half of every annual US budget deficit now going towards interest expenses, the Treasury’s funding requirement is structural and enormous. Foreign central banks buying gold instead of Treasuries are, in effect, withdrawing demand from the US government’s primary funding market. Less demand for Treasuries means higher yields. Higher yields mean higher debt service costs. Higher debt service costs mean either higher taxes, reduced spending, or more borrowing — the last of which compounds the problem. The dollar’s share in global reserves has fallen from 71% in 1999 to 56.3% in mid-2025 — the lowest level in thirty years. Each percentage point of reserve share lost represents central bank demand that no longer flows into US Treasuries. The cumulative effect is a slow but measurable increase in the structural cost of American fiscal policy.
The yuan now represents approximately 2% of global reserves, having doubled since 2020. Doubled sounds impressive until you remember it doubled from 1% to 2%. The yuan cannot be a primary reserve currency without full capital account convertibility — which Beijing will not permit because convertibility requires surrendering control of domestic monetary conditions to global market forces. Beijing will not make that trade.
The euro is the second candidate. It represents approximately 20% of global reserves. But the Eurozone’s structural fragmentation — seventeen sovereign bond markets, no unified fiscal policy, persistent divergence between German and Italian credit spreads — means the euro cannot provide the depth, liquidity, and consistency that reserve currency status demands.
The sterling, the yen, and the Swiss franc are niche reserve assets. None can scale to dollar replacement. The correct answer — and the destination the international monetary system is moving towards — is a basket. The dollar’s dominance as a sole reserve currency is giving way to a multipolar system where the dollar, the euro, and the renminbi emerge as dominant currencies in the Americas, Europe, and Asia, respectively. The IMF’s Special Drawing Rights — a composite of dollar, euro, yuan, yen, and sterling — is the institutional template for this architecture. It is not yet operational as a transaction currency, but it represents the direction of travel.
The dollar’s reserve status conferred on the United States what Valéry René Marie Georges Giscard d’Estaing famously called “exorbitant privilege” — the ability to borrow in its own currency at rates the world sets by demand rather than risk. When foreign central banks preferred Treasuries, they suppressed US borrowing costs structurally. American consumers borrowed cheaply. American corporations invested globally on cheap capital. The US current account deficit was financed at interest rates that no other deficit country in history has enjoyed.
The weaponisation of the dollar — treating dollar-denominated reserves as a tool of foreign policy, explicitly designed in some cases to engineer currency collapse in sanctioned states — sent an unmistakable signal to every non-aligned government: dollar exposure is a geopolitical vulnerability, not merely a financial position. Every central bank that responds by diversifying into gold or other currencies is withdrawing a unit of exorbitant privilege from Washington's account. Carrillo-Pina & Sharov, Journal of Risk and Financial Management, in March 2026, said, “The weaponisation of dollar-based financial infrastructure demonstrated the risks of excessive reliance on any single currency system. The lesson required no interpretation for reserve managers worldwide.”
The loss of privilege does not arrive suddenly. It arrives in basis points — in the marginal increase in Treasury yields, in the gradual widening of the spread between what America pays to borrow and what its fiscal fundamentals alone would justify. Over a decade, those basis points compound. The interest burden grows. The fiscal space contracts. The political cost of maintaining global military commitments — the other pillar of reserve currency status — increases. Henry Alfred Kissinger’s observation remains structurally accurate: commanding a world reserve currency requires the world’s strongest military. As the fiscal cost of sustaining both the currency and the military simultaneously rises, the United States faces a compressing margin between ambition and capacity.
By 2030, the international monetary system will look like a managed transition between a unipolar dollar world and a multipolar basket world — uneven, contested, and considerably more expensive for everyone involved in the transition. Goldman Sachs models 60 to 70 tonnes per month of central bank gold buying through 2026, with purchases notably price-inelastic — central banks continued buying at US$3,000, US$4,000, and US$5,000 per ounce without reducing volumes. Gold prices have been forecast between US$5,400 and US$7,200 by year-end 2026 across major bank projections. The structural floor for gold is central bank demand that does not respond to price.
The dollar will remain the dominant international settlement currency in 2030. It will not be the only one. Yuan settlement will handle 15 to 20% of Asian trade. The euro will dominate European-adjacent flows. Bilateral currency arrangements — rupee-dirham, yuan-rouble, real-yuan — will handle an increasing share of commodity trade in the Global South. The SWIFT monopoly will be partially eroded by CIPS, mBridge, and bilateral central bank digital currency arrangements.
For
the investor, the implication is portfolio construction. A world with multiple reserve currencies and a
structurally higher gold price is a world in which US dollar-denominated assets
carry currency concentration risk they did not carry in 2005. Diversification across currency denominations
— Singapore dollar, euro, gold, selective yuan exposure — is not a geopolitical
statement. It is prudent asset
allocation in a world that has structurally changed. The dollar will survive the decade. The privilege attached to it will not survive
it intact. Those are two different
outcomes — and confusing them is how portfolios get caught in the transition.
