Gold, the renminbi and the multi-currency reserve system
Source: World Gold Council
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Demand for gold is likely to rise as the world heads towards a multi-currency reserve system under the impact of uncertainty about the stability of the dollar and the euro, the main official assets held by central banks and sovereign funds.
This is the conclusion of a wide-ranging analysis of the world monetary system by OMFIF, the Official Monetary and Financial Institutions Forum formed around a core of public sector asset and reserve holders at the heart of world finance.
Driven by China’s desire to increase its financial influence, the Chinese renminbi is likely to emerge gradually as a genuine international currency as Beijing eases restrictions on its use in transactions and investments abroad, but is unlikely to pose any immediate threat to the dollar.
Any setbacks to the renminbi’s rise as a reserve currency will probably benefit gold as a result of doubts about the overall strength of world monetary arrangements.
The OMFIF report, the product of analysis of historical and contemporary data and discussions with global policy-makers and financial experts, explores the consequences for official asset management of greater dispersion of economic power around the world. It states: ‘The world is headed towards the uncharted waters of a durable multi-currency reserve system, where the dollar will share its pivotal role with a range of other currencies, including the renminbi.’
The OMFIF report includes a foreward by Prof. Lord (Meghnad) Desai, chairman of the OMFIF Advisory Board. In reflecting on the different economic scenarios for the five years 2013-18 which the report studies, he states: ‘Whether the world moves into full crisis with the end of the euro, or whether we have a recovery, or whether we experience something in between: all paths lead to towards a multi-currency system, in which gold’s role is likely to become more significant.