Ecoinometrics - Could Bitcoin be a FX reserve for central banks?
Is it time to swap gold for digital gold?
Central banks around the world are hoarding gold as part of their foreign exchange reserve strategy. But here is a thought experiment.
What if central banks around the world were to swap their gold reserves for Bitcoin reserves? Is it possible and are there any chances for this to happen?
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Could Bitcoin be a FX reserve for central banks?
Once upon a time the US dollar was backed by gold. Then suddenly it was not. That happened in 1971 and you probably have seen all those wonderful charts of WTF happened in 1971. Here is an example: the evolution of productivity vs employees compensation since 1948. Before 1971 those two moved hand in hand. Since then we are seeing a massive gap.
For sure the end of the gold standard cannot be blamed for everything that happened in 1971. But clearly something radical changed in the way the economy works after that date.
Now the fact that the US dollar is no longer backed by gold does not mean that the Federal Reserve has sold all of its gold. According to the World Gold Council as of the 3rd quarter of 2022 the Fed holds more than 8k tonnes of gold valued at about $500 billion based on today’s price.
Fun fact the Fed hasn’t made any major change to their gold reserves for more than 20 years.
And you know what, the Federal Reserve is not the only central bank to hoard gold. In most countries central banks (or their equivalent national banks) have gold reserves as part of their foreign exchange toolkit. Even transnational institutions such as the IMF control some gold.
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