Central Bank Hedging Triggered Gold Fever

By Jomo Kwame Sundaram  and Kuhaneetha Bai Kalaicelvan

KUALA LUMPUR, Malaysia, Mar 24 2026 (IPS) - In mid-1971, US President Nixon ended the dollar’s gold peg at $35 per ounce, triggering de-dollarisation. The 2025 gold and silver rush followed private speculators trying to profit from central banks hedging against perceived new risks.

De-dollarisation

Some believed that flexible exchange rates, replacing earlier fixed rates, would resolve the ‘Triffin dilemma’ of the ‘dollar system’, due to its role as world reserve currency.

Many believe OPEC was allowed to raise oil prices from 1972, on condition petroleum purchases would be settled in dollars. ‘Petrodollars’ were thus believed to be the ‘black gold’ underlying the dollar system’s survival after 1971.

Although still the dominant world reserve currency, the dollar’s role has gradually declined over the decades. Trump 2.0’s rhetoric and actions appear to have accelerated de-dollarisation.

Trump’s 2 April 2025 ‘Liberation Day’ tariffs announcement triggered even greater uncertainty and volatility in foreign exchange and other markets worldwide.

Greater policy unpredictability has caused governments and investors to explore new options. Authorities worldwide are considering and developing alternatives to the dollar system.

Besides higher inflation, Trump’s threats and actions, particularly his tariffs, sanctions and wars, have pushed investors to sell dollar assets and seek alternatives.

Various factors have significantly accelerated de-dollarisation. In the first half of 2025, the dollar fell by over 10%, its sharpest fall since the 1973 oil crisis.

Many countries in the Global South have been purchasing gold rather than dollar-denominated assets for reserve accumulation.

Geopolitical economy commentator Ben Norton highlighted an April 2025 note by the Deutsche Bank foreign exchange research head, noting:

“We are witnessing a simultaneous collapse in the price of all US assets [including stocks, foreign exchange, and bonds] … we are entering uncharted territory in the global financial system…

“The market is rapidly de-dollarising. In a typical crisis environment, the market would be hoarding dollar liquidity…The market has lost faith in US assets. They are actively selling down their US assets.

“US administration policy is encouraging a trend toward de-dollarisation to safeguard international investors from a weaponisation of dollar liquidity.”

Western confiscations

The weaponisation of central banks by the US, Europe, and their allies has caused other central banks to seek ‘safety’ by switching from dollar assets to gold.

Increased weaponisation of the dollar and Western confiscation of others’ assets under various pretexts have accelerated this trend.

Billions of dollars’ worth of Venezuelan central bank gold, held at the Bank of England, was confiscated by the UK government during the 2019 Washington-instigated Caracas coup attempt.

After the coup failed, the Bank of England refused to return the gold to Venezuela. Trust in Western governments and central banks thus continued to erode.

Similarly, the US Fed and European Central Bank confiscated over $300 billion worth of Russian dollar-, euro- and sterling-denominated assets after it invaded Ukraine.

European authorities have since pledged to transfer these Russian assets to Ukraine rather than return them to their owners.

Western confiscations of the central bank reserves of Iran, Venezuela, Afghanistan, Russia and others have alarmed authorities and publics worldwide.

Central banks’ reserve managers have increasingly viewed gold as safe despite greater volatility. Besides serving as a hedge, the precious metal also offered lucrative speculative gains.

Mitigating risk

Many monetary authorities have reversed their earlier accumulation of dollar-denominated US Treasury bills and bonds in their official reserves.

While US government debt has continued growing, inflationary pressures have mounted, albeit episodically. Gold and silver holdings are believed to help hedge against inflation and fiat currency debasement.

Gold holdings in central bank reserves increased significantly after the 2008-09 global, actually Western, financial crisis, followed by the Western turn to ‘quantitative easing’.

For the first time in three decades, central banks’ total gold holdings in their international reserves exceeded their US Treasury bond holdings in 2025.

About 36,200 tons, or a fifth of all gold holdings, is now held by central banks, rising rapidly over two years from 15% at the end of 2023!

Meanwhile, rising gold prices drew more speculative investments for profit. But such price spikes are not sustainable indefinitely.

Once gold was seen as overpriced, investors turned to other precious metals, notably silver, and other financial assets.

BRICS’ golden hedge?

After Lord Jim O’Neill identified Brazil, Russia, India and China as significant new financial powers outside the Western sphere of influence, BRICS was formed in 2009 by adding South Africa.

BRICS now has ten members and ten partners. Together, they account for 44% of world income, measured by purchasing power parity, and 56% of its people.

Russia, China, and India have been among the largest recent buyers of gold. Other major purchasers include Uzbekistan and Thailand, both BRICS partners.

Trump 2.0 has generated significant apprehension internationally. Without BRICS’ help, his weaponisation of economic policies and agreements has accelerated de-dollarisation.

Although Trump accuses the BRICS of conspiring to accelerate de-dollarisation, their precious metal purchases make sense as a hedge for their reserves.

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Available online at: Central Bank Hedging Triggered Gold Fever

Beware Independent Central Banks

By Jomo Kwame Sundaram

JOHANNESBURG, South Africa, Sep 23 2025 (IPS) - US President Trump’s snide barbs against his appointee, US Federal Reserve Bank Chairman Jerome Powell, have revived support for central bank independence – long abused by powerful finance interests against growth and equity.

Independent central banks are supposed to improve the quality, equity, and growth impact of monetary policy. Instead, they have primarily served powerful financial interests, with contractionary and regressive effects leading to slower, unequal growth.

Independent of whom?

Central banks were established to determine monetary policy to shape financial conditions to achieve national economic objectives.

In recent decades, the new conventional policy wisdom has been that independent central banks should set monetary policy. Thus, they have been influenced by powerful financial interests, typically foreign, in smaller, open developing countries.

In the last half-century, many governments have changed laws under the influence of international finance to legislate central bank independence from governments of the day, especially the executive and legislative branches.

Meanwhile, most central banks have come to equate financial stability with price stability as ‘inflation targeting’ became the leading policy fetish.

When inflation rises, central banks raise interest rates, which reduces economic activity. However, some central banks of open economies, especially those pegging to major international currencies, target the exchange rate.

Thus, reducing inflation by conventional means worsens contractionary pressures. Many governments now face the threat of ‘stagflation’, i.e., recession with inflation. Central banks recognise this trade-off regarding how much growth has to decline for inflation to fall.

With interest rate management as their primary policy tool, central banks may raise interest rates in anticipation of inflation, despite its adverse consequences for growth, income and employment.

Such contractionary effects have reduced wages and jobs worldwide. Only a few, mainly large developed economies, have had other priorities, such as growth or employment.

Ironically, the end of the Bretton Woods fixed exchange rates regime and the counter-revolution against Keynesian economics from the late 1970s ensured the irrelevance of Milton Friedman’s monetarist emphasis on central banks’ money supply targeting.

Worsening inequity

Central banks worldwide respond to and anticipate inflation by raising interest rates to curb inflation.

‘Inflation targeting’ causes significant collateral damage, typically reducing growth, income and employment. Poor households’ incomes are likelier to fall, especially with labour-displacing technological change, such as mechanisation, automation, and artificial intelligence (AI) applications.

As unemployment increases, poor workers are more likely to lose jobs, especially hurting poorer families. Banks have typically profited handsomely from such situations, although most people are worse off.

With lending rates rising, banks get even more interest as borrowing rates lag, not increasing as much. Max Lawson cites an IMF study finding that the adverse effects of higher interest rates are “not counterbalanced by the positive effects of lower interest rates.”

The US Fed strongly influences central banks worldwide. Higher Fed interest rates from 2023, in response to minor inflationary pressures, have hurt developing countries, especially the poorest.

As most Global South companies and governments have incurred dollar-denominated debt, countries’ central banks raised interest rates to deter capital outflows.

Quantitative easing

‘Quantitative easing’ (QE) refers to central bank interventions buying financial assets. Such interventions were sought as it is difficult for central banks to cut interest rates below zero to revive economies. QE seemed to fit the bill.

Commercial banks typically get more for their deposits with the central bank when it raises interest rates. Thus, they receive considerable additional windfall interest payments from the central bank risk-free.

QE programmes seek to raise asset prices. Central banks buy assets such as government debt, inducing private investors to acquire riskier assets. US government debt is still the most important financial asset in the international monetary system.

Thus, QE tries to induce growth, presuming earlier contractionary policies will continue to curb or ‘moderate’ inflation.

This has even been justified as prudent, as inflation rates were below target despite interest rates near zero.

Major Western central banks adopted QE following the 2008-09 global financial crisis. Many governments spent even more in response to the COVID-19 pandemic from 2020.

Such efforts sought to counter the downward spiral of falling financial asset prices. The US Fed’s QE intervention involved ‘portfolio rebalancing’. It bought over $600 billion in US Treasury bonds and almost $300 billion in mortgage-backed securities.

Wealth is concentrated in relatively few hands in most societies. Jordi Bosch showed the top ten per cent holding 11 times more wealth than the bottom half in the euro zone, while the bottom fifth had more debt than assets.

QE interventions increase financial asset prices, enriching owners, especially the rich, who have more assets. As prices rise, their worth generally increases. Hence, such central bank interventions further enrich the already wealthy.

As the world struggles to cope with challenges posed by the current conjuncture, we must not jump out of the frying pan back into the fire kindled by central bank independence.

Related IPS Articles:

• Global South Stagnating under Heavier Debt Burden

• Exchange Rate Movements Due to Interest Rates, Speculation, Not Fundamentals

• Developing Countries Need Monetary Financing

• Stop Worshiping Central Banks

• Central Bank Myths Drag down World Economy

• Ideology and Dogma Ensure Policy Disaster

• Inflation Phobia Hastens Recessions, Debt Crises

• Inflation Targeting Farce: High Costs, Moot Benefits

• Fighting Inflation Excuse for Class Warfare

• When Saviours Are the Problem

• Finance Drives World to Stagflation

Available online at: Beware Independent Central Banks