Monetary Gold

Monetary gold is gold to which a country's monetary authorities, usually the central bank, have title and which they hold as a reserve asset. The statistical standards of the International Monetary Fund (IMF) count two things as monetary gold: bullion, whether held in allocated accounts or otherwise, and unallocated accounts in gold held with non-residents that entitle the holder to demand physical metal. It forms part of a country's official reserve assets, alongside foreign exchange reserves, Special Drawing Rights (SDRs) and the reserve position in the IMF.

All other gold, held by private investors, jewelers, industry or commercial banks, is non-monetary gold and is treated in statistics as a commodity.

The IMF's Balance of Payments and International Investment Position Manual (sixth edition) sets the rules. Gold bullion, in the form of coins, ingots or bars with a purity of at least 995 parts per thousand, qualifies as monetary gold when held by the monetary authority as a reserve asset. Bullion held as monetary gold is unusual among financial assets because it has no counterpart liability: it is not a claim on anyone. Unallocated gold accounts, by contrast, are claims on the account provider and do have a counterpart liability.

When a central bank buys gold from the private sector, the gold is monetized and moves from non-monetary to monetary status; when it sells gold to private buyers, the gold is demonetized. Transactions in monetary gold between monetary authorities, or with international bodies such as the IMF or the Bank for International Settlements (BIS), are recorded as reserve asset transactions rather than as trade in goods.

Gold has served as money and as backing for money for millennia. Under the classical gold standard of the nineteenth and early twentieth centuries, currencies were convertible into fixed amounts of gold, and central banks held gold to honor that promise; earlier, many countries operated bimetallism with gold and silver together. Under the Bretton Woods system established after 1944, the US dollar was convertible into gold for foreign official holders at USD 35 per ounce, and other currencies were pegged to the dollar. The United States suspended convertibility in August 1971, and the Second Amendment to the IMF's Articles of Agreement, effective in 1978, abolished the official price of gold and ended its formal role in the international monetary system.

Gold nonetheless remained a major reserve asset. Central banks sold substantial amounts in the 1990s and early 2000s, leading European central banks to coordinate sales under the Central Bank Gold Agreements from 1999. From around 2010 central banks as a group became net buyers, and purchases exceeded 1,000 tonnes a year in 2022, 2023 and 2024 according to industry data, led by emerging-market central banks.

• No counterparty risk. Physical gold is not anyone's liability and cannot default.
• Sanctions resilience. Gold held at home is beyond the reach of foreign asset freezes, a consideration that gained weight after reserves of the Central Bank of Russia held abroad were immobilized in 2022.
• Diversification. Gold's price tends to move differently from the US dollar and from bonds, diversifying portfolios dominated by a reserve currency.
• Confidence. Gold holdings can support confidence in the currency and in a country's reserve adequacy, especially in a crisis.

The drawbacks are that gold pays no interest, its price is volatile, and storage and transport are costly.

Central banks store gold domestically or with custodians abroad, notably the Federal Reserve Bank of New York and the Bank of England, usually in the form of London Good Delivery bars. Gold held in specific identified bars is allocated gold. Some central banks lend gold to bullion banks for a fee or use gold swaps, exchanging gold for foreign currency with an agreement to reverse the trade, to raise liquidity without selling. How such transactions are recorded in reserve statistics depends on whether ownership is considered to have changed.

Modern currencies are fiat currencies and are not convertible into gold. Monetary gold is therefore a reserve asset rather than a backing for the money supply. Its continued presence on central bank balance sheets, and the trend of rising purchases, reflects its role as a store of value of last resort, comparable in some respects to a hard currency but issued by no government. Gold is also the reference asset for gold-backed exchange-traded funds and tokens, but these are private claims and do not count as monetary gold even when held by public bodies other than central banks acting as monetary authorities.

• International Monetary Fund