Year LXVII, 2025, Single Issue, Page 45
MONETARY CHAOS AND THE RUSH FOR GOLD
On 15 August 1971, Richard Nixon suspended the convertibility of the US dollar into gold, effectively bringing to an end the international exchange rate system established at Bretton Woods in 1944—a mechanism that, since the war, had placed the US dollar in a dominant position as the world’s reserve currency and monetary standard for global trade. The Bretton Woods system rested on several pillars. First, it linked the US dollar to gold, setting a price of 35 dollars per ounce. This recognised the intrinsic value of the US currency and gave central banks the opportunity to convert dollars into gold. Second, it established fixed exchange rates between the dollar and the currencies pegged to it. Third, it created the International Monetary Fund and the International Bank for Reconstruction and Development (IBRD, or World Bank), tasked with providing loans. These pillars were founded on the reality that the Americans had emerged as the war’s true victors and the USA was the world’s leading power, wielding significant weight in international decision-making.
The end of the Bretton Woods system led, within just a few years, to the replacement of fixed exchange rates with floating ones—a model known to introduce significant uncertainty and make planning extremely difficult, especially in the context of international trade. In this new environment, the US economy continued to dominate, using both competitive devaluations and strategic revaluations to offload the costs of its domestic difficulties onto the rest of the world, including Europe. The situation was further exacerbated by speculative activity, particularly targeting weaker countries and currencies, which at times seriously slowed development and adversely impacted employment.
With many countries already wrestling with monetary problems, 1973 also saw the outbreak of the Oil Crisis, during which the world’s main oil-exporting countries took back control of their wells and, after halting exports for a time, sent the price of crude oil soaring—raising it by 70 per cent between 1973 and 1974 alone. While this translated into higher production costs for many countries around the world (European countries in particular), the United States was largely shielded from the impact, as the oil-producing countries began selling their oil in US dollars, thereby accumulating vast petrodollar reserves, which they then reinvested in US Treasury securities.
Up until the advent of the euro, Europe—largely through its own shortcomings—remained subject to the effects of US economic and monetary policy. It had, indeed, long been apparent that the single market required a single currency. In 1992, with the Treaty of Maastricht, the irrevocable decision was made to create a single European currency. Even though the euro would not come into effect until 2002, it quickly emerged as a credible alternative and eventually went on to become the world’s second most widely used currency. That said, it still—for now at least—has only around a third of the impact of the dollar, which continues to be used in around 90 per cent of transactions on the foreign exchange market and 54 per cent of international trade transactions.
Although the dollar and the US economy still command parts of the global system today, their dominance is no longer as strong as it once was. This is due both to the advent of the euro and to the growing importance of the renminbi within China’s sphere of influence. More recently, this dominance has weakened further, mainly due to the scale of US national debt (approximately $2.4 trillion) and the erratic trade policies of Donald Trump, who, among other things, has announced his intention to increase this debt—a prospect that has shaken confidence in the currency and triggered a marked shift towards gold as a safe-haven asset.
At the same time, global investment policy has also seen a significant change. As pointed out by Eric Albert1 financial market actors are behaving in a highly unusual way: they are simultaneously selling American stocks, US Treasury bonds and dollars. This is not normal behaviour. In fact, when stock markets collapse, investors usually fall back on US Treasury bonds, since they are considered the world’s safest asset and the dollar the ultimate safe-haven currency.
Both as a reserve asset for central banks, which insist on the need for a stable benchmark, and as a personal safe haven, gold has now replaced the euro as the second most important reserve asset held by central banks. This is partly an effect of widespread global unrest, which is generating uncertainty and driving the search for an asset that is deemed safer than currencies.
Gold now costs over 3,000 dollars per ounce, and for at least the past three years, central banks, as a whole, have been purchasing more than 1,000 tons annually. Reserves of this precious metal are thus reaching historic levels. And the various ongoing conflicts are only exacerbating uncertainty and prompting banks and private individuals to turn to gold reserves.
The exposure of central banks to the dollar has therefore decreased. And yet, despite this, it remains clear that without an alternative currency to rival it, the dollar is destined to remain the world’s main currency for international trade and its main source of liquidity, since gold cannot fulfil these functions.
As recently pointed out by economic historian Barry Eichengreen,2 the shift towards gold ‘is less from its merits as a reserve asset than from the limitations of the alternatives’.
A further issue linked to the instability being generated by the behaviour of Trump and the US government is that of the security of foreign gold deposits in the United States. As noted by Gillian Tett,3 ‘In recent weeks, politicians in Germany and Italy have demanded the repatriation of their gold bars, worth an estimated $245bn. So have others.’
Let us not forget that Italy possesses 2,451 tonnes of gold, making it the third largest holder of gold reserves worldwide, after the USA and Germany. And 1,061.5 tonnes (just under the half the total), worth approximately 130 billion dollars, are still stored in the American vaults.
Meanwhile, Chinese leaders have started calling for greater use of the renminbi in trade, developing the Cross-Border Interbank Payment System (CIPS) to rival the US-controlled SWIFT Interbank Payment System.
For the euro, these developments represent yet another missed opportunity to establish itself as an international currency alongside the dollar, and highlight the lack of real political unity in this area as well. As recently stated by Fabio Panetta, Governor of the Bank of Italy, addressing a meeting of the Italian Banking Association at Bocconi University,4 a first step in the right direction could be the issuance of a common bond, because without this it will be impossible to achieve the investments that Europe so desperately needs.
Anna Costa
1 Eric Albert, Domination du roi dollar: chronique de huit décennies d’une mort annoncée, Le Monde, 7 May 2025.
2 Barry Eichengreen, How gold became the world’s refuge from uncertainty, Financial Times, 13 June 2025.
3 Gillian Tett, Gold glitters as mistrust spreads, Financial Times, 26 June 2025.
4 Fabio Panetta, Back to the future: forward-looking considerations on monetary policy normalization, https://www.bancaditalia.it/media/notizia/lezione-del-governatore-fabio-panetta-all-universit-bocconi/.
