Gold's durability in Asia driving global demand

CENTRAL bank holdings of international reserves across the world stood at around US$13 trillion as at June 2017, compared to a little over US$400 billion in 2000. The data is likely an understatement as it excludes assets shifted to sovereign wealth funds and other forms of state funds. Of these reserves, developing countries accounted for about two-thirds while advanced economies made up the rest.

What currency denominations have these reserves been parked in? Much focus has inevitably been on the US dollar's dominant status. The greenback still constitutes around 65 per cent of allocated foreign-exchange reserves globally. This has been juxtaposed against the renminbi's (RMB) gradual emergence as an alternative global reserve currency, especially since the internationalisation of the Chinese currency and its inclusion in the International Monetary Fund's (IMF) Special Drawing Rights as at Oct 1, 2016.

Latest data from the IMF on the currency composition of foreign-exchange reserves reveals that as at June 2017, the RMB represented about one per cent share of the total allocated foreign-exchange reserves. While the RMB may not become a major reserve currency in the near future, indications are that it has made greater progress as an international currency in terms of being a medium of exchange and unit of account in global trade and investments (though the imposition of capital controls may be counter-productive in this regard). Apart from the US dollar, the RMB, and questions regarding the euro in the light of the eurozone crisis, somewhat less attention has been paid to central banks' holdings of gold.