Importance of Gold as International Reserves

Abstract

Gold plays an important role in arts and culture and is a symbol of wealth since the ancient civilization. Up until now, gold can be used for many purposes such as in electronics, aerospace, medical, decoration and jewelry, and finance and investment. As a medium of exchange, gold has played the highest role in the Gold Standard era around late 19th century. However, around the mid of 20th century, the Gold Standard collapsed. Since then, gold has been playing a role as International reserves held by various central banks.

With the unique properties of gold that can store its value, is a safe haven, and has a low correlation with other assets, gold is suitable to be included in the investment portfolio to diversify risk. Central banks still hold gold as a reserve asset to enhance the flexibility of monetary policy, to back the fiat currency, to enhance liquidity in times of emergency, to strengthen stability for the economic system, and to hedge against inflation. Obviously, gold has been playing a significant role in the world economic and financial system, and will be doing so in the future.