In the global economy, especially in the eyes of those who have been promoting interconnectivity of financial systems and phasing out of fiat currencies, the gold-hoarding trend is not welcomed the news. Around the world, central banks have been stocking up on gold supplies and this includes huge international powers like China and Russia. They are by no means the only ones doing this and the trend is showing no signs of stopping.
The climate that has been steadily shaping through this process is one of rising uncertainty and even fear. The same relates not just to the global economy but also the geopolitical state in many regions, including that of the Western nations. Yet, in the same haze of possible problems on the horizon, the chance for bitcoin and crypto as a whole might be shaping up in an unexpected manner.
Rush to Buy
Central banks are hoarding up gold and there is no argument to show this is not true. While a year or so ago, the idea of these massive central banking institutions going on big gold purchase ventures seemed odd, the info that came since then has not debunked these claims. Instead, a pattern of many central banks stocking up on the precious metal is completely accurate.
Their purchases account for much of the buying pressure on gold that has sent its price skyrocketing recently. All of this can be explained by a process of de-dollarization. In that setup, strangely enough, bitcoin could become a part of the same process of dropping the USD as a backup currency.
In Russia and China, central banks have been named as the biggest buyers of gold bullion in 2019. Both nations are diversifying their financial reserves in the face of ongoing sanctions in the case of Russia and the ongoing trade war with the US when it comes to China.
The hoarding is seemingly a long-term process for both nations and thus something that could be easily emulated by others. In the case or Russia, this means the sphere of influence of the old USSR and a handful of additional countries, including Syria and Venezuela.
China, on the other hand, has an even wider playing field with its two decades of checkbook diplomacy. This is why central banks in many Asian and African nations could soon start exploring the same trend inside of their own borders, even if the amounts of gold they purchase are nowhere near the ones of these two superpowers.
Central Banks Branching Out
The gold buying process was recently examined by experts. Australia & New Zealand Banking Group economist believes that the central banks of China and Russia will continue to hoard gold for their reserves in the coming years. They also stated that the trade war and sanctions make such move logical and that these encourage both powers to diversify their reserves.
However, there is a deeper element to all of that. The world of 2019 might be a place where esports, social media, and other novel elements are dominating the public sphere, but behind that is the issue of geopolitics remains a burning problem. Currently, global stability is at its lowest in almost two decades, with a range of conflicts acting as arenas where powers and superpowers are trying to create their influence.
On a larger scale, the ongoing China and US trade war is slowly moving into the regular news category, showcasing that it will continue in some shape or form, even if a resolution to the surface disputes can be found. In an atmosphere of uncertainty, gold offers a chance for banks to build a great hedge.
This is the essential reason why so many other banks will continue to seek it out on a global level, regardless of their alliances and leanings when it comes to other large powers. But, in that case, as the proponents of bitcoin and other cryptocurrencies want to indicate, crypto would be a great option for the same need.
The concept of comparing crypto to gold goes a long way back. It first started with the moment when the price of a single bitcoin took over the then-active price of gold. While this meant absolutely nothing, the media and then the public latched onto it like mad. Today, many are still trying to compare the two and showcase advantages of either one or the other.
For example, the crypto supporters will always point out that no one knows the total supply of gold in the world, and as of lately, the solar system as well. This could, in theory, render gold useless if one company managed to take back an asteroid full of gold from the solar system’s asteroid belt. While it would retain some value at that moment, the actual price dynamic for gold would be gone.
But space is even further than regular mining technology that could quickly advance in a few short years and tap into large gold reserves that were previously inaccessible. For these crypto supporters, the problem that bitcoin has is the simple matter of track record – it has not been around for long enough to get the support of the users. Gold, on the other hand, was around forever and it got the trust of users many thousands of years ago. But, looking at what class of assets can do, crypto is definitely a much more agile, versatile and stable (in terms of supply) candidate.
With the advantages that bitcoin undisputedly has, is there a chance that central banks from China or Russia would be willing to buy BTC tokens? As it stands now, the possibility of that occurring is really low, mainly because these banks operate in a complex and strict legal framework.
It is undoubtedly true that many at those banks, including the Chinese PBoC, are actively looking at crypto and blockchain in all shapes and forms, but them buying BTC, ETH or any other existing digital currency would be an imaginably difficult process that would need a whole new legal framework. This framework would need to be made and defined by both regulators and legislators, meaning that for now, bitcoin stands to get very little from central banks buying gold.