With a single hegemonic currency there were not many choices to make. Although the combined capital market of the EU-11 is not yet as large as that of the U.S., it is still dramatically larger than any of the previously individual European markets. Any central bank looking to diversify its reserves now has a real alternative. But one thing seems fairly clear. Now that countries have a genuine choice between two global currencies, there are likely to be significant moves in and out of them as sentiment ebbs and flows.
Gold is the only external asset which is no one else's liability.
Now that we have the euro, some countries may decide to take the relatively simple decision to define their basket as some weighted combination of that currency and the dollar in order to hedge their bets. An even more effective hedge, however, can be constructed by incorporating some gold. Most central banks do not see it as their business to take risks. In 1995, the Executive Board held a long and thoughtful discussion on the subject and came to some important conclusions. These included the view that gold provided a fundamental strength to the IMF's balance sheet, and the Board felt that the Fund should continue to hold a relatively large amount of gold among its assets, not only for prudential reasons but also to meet unforeseen contingencies.