Gold has officially overtaken the euro as the second-largest asset in global central bank reserves, according to a new report from the European Central Bank (ECB). The shift marks a major development in the international monetary system, driven by record central bank purchases, heightened geopolitical tensions, and rising inflation concerns.

By the end of 2024, gold accounted for approximately 20% of global official reserves—comprising both foreign exchange and gold holdings—surpassing the euro’s 16% share. This milestone underscores a growing trend among central banks to seek stability and diversification away from traditional fiat currencies.

According to the ECB report released on Wednesday, central banks purchased more than 1,000 tonnes of gold in 2024 alone—twice the average annual volume seen over the past decade. Global gold holdings by central banks now total 36,000 tonnes, approaching the historical peak of 38,000 tonnes recorded in 1965 during the Bretton Woods era.

The price of gold has surged nearly 62% since the beginning of 2024, reaching an all-time high of US$3,509.90 (A$5,396.90) per troy ounce in April. As of the latest trading, gold futures in New York were up 0.5%, sitting at $3,361.70 per ounce.

The ECB noted that the strong demand for gold emerged in response to the Russia-Ukraine war, which began in 2022, and has remained robust due to ongoing geopolitical uncertainty and economic fragmentation. “Central banks continued to accumulate gold at a record pace, and some countries have been actively exploring alternatives to traditional cross-border payment systems,” the report said.

Despite gold’s rise, the ECB emphasized that there have been no significant changes in the international use of the euro to date. However, the report cautioned that the global role of the euro faces mounting challenges—not only from geopolitical realignment but also from the increasing use of cryptocurrencies in international trade.

ECB President Christine Lagarde reaffirmed the strength of the euro, citing the region’s rules-based institutions and stable economic policies as key pillars of global trust. “Upholding the rule of law remains essential for maintaining, and potentially increasing, global trust in the euro,” she said.

Lagarde also highlighted the potential of the digital euro and improvements in cross-border payment infrastructure as tools to strengthen the euro’s international role. These advancements, particularly those involving settlement on distributed ledger technology (DLT) platforms, are expected to enhance the efficiency and resilience of European financial markets.

As central banks continue to adapt to a changing global order, the evolving dynamics between gold, fiat currencies, and emerging digital systems will likely shape the future of international reserves for years to come.

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