Why Do Central Banks Have Gold Reserves?

Why Do Central Banks Have Gold Reserves?

Central banks represent a monetary authority which has one of the greatest privileges among all other commercial banks: they create the currency of a nation.

Some of the most popular central banks worldwide are the European Central Bank (ECB) and the Federal Reserve System in the United States. Their decisions can change the economic course of a nation, a region or the entire Planet. They act according to many factors, whether economical, social or even political views.

Prior to the 17th century appeared the first commodity money which were made of both gold and silver, and, together with money popped up the idea of a central banking system. History teaches us that the medieval European Knights Templar were the first ones to set the basis for the modern banking system, as their promises to pay were highly respected. Therefore, from medieval times, bank prototypes were known to collect gold for their monetary reserves, and this is how the first global gold standard emerged.

Nowadays, central banks have the monopoly of creating the currency of a nation, and their decision of buying and selling gold is crucial for the well-being of that currency. A central bank can keep the price of gold from rising, but it can also raise it and lose control of it.
Although central banks do not have only gold reserves, this precious metal is very valuable for the economic security and stability of the government and nation they exist for.

The most important characteristic of gold resides in its real purchasing power which, in the long run, maintains its balance. There are no abrupt ups and downs as it is the case of the paper currencies. Take for example the dollar which used to be the strongest currency in the world, but which was easily overrun by the euro currency.
They always tend to lose their value in the long run and, most of the times, in the short term as well. Therefore, gold is particularly suited to form part of central banks’ reserves.

Gold is the answer and can be an option for unknown future events. Central banks are aware of the fact the today’s status quo will not last forever because the economic developments may change the countries’ plans. International monetary system is a living system which should be wisely controlled. Gold is one of the means to do such thing. Learn from professionals how to buy gold bullion in times of recession.

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