tend to increase gold holdings in response to the risk of sanctions. many of the largest year - on - year increases in individual central banks ’ gold holdings appear to have occurred at times when those countries were, or thought they might become, subject to financial sanctions. the year 2022 again vividly illustrates the point. russia ’ s aggression against ukraine resulted in sanctions, whereby approximately half of the russian central bank ’ s international reserves were frozen. 17 some countries sought to acquire alternative assets that were less exposed to sanctions. gold is likely to have been a beneficiary. 18 whether or not this shield against political risk can work in practice, when needed, depends on several factors, such as physical location and access to markets for transactions. moreover, if a country must sell gold, it will probably happen during a situation of global distress, and the amplified impact on price that is typical of such situations might even make the move self - defeating. 19 more generally, gold has its drawbacks : it is, as i said, costly to store, transport, and secure ; it doesn ’ t bear interest ( though it can, to an extent, be lent out in the form of term deposits ) ; and it is difficult to sell. how long gold will stay with us, we cannot tell. even keynes, in the end, agreed ( how reluctantly i am not sure i know ) to an indirectly gold - based system at bretton woods. 20 mises famously, if less successfully, argued in favour of the gold standard, and said that one was free to call it a barbarous relic, to the extent that one did not object to the application of the same term to every historically determined institution. from today ’ s perspective, it is less a question of first principles than one of practical costs and benefits, as well as prudent financial management. however, looking at the enduring attraction of gold, not just as an ornament but also in its incarnation as money, one cannot entirely escape the thought that there is something in this unusual chemical element that goes beyond the rational arguments arslanalp, s., eichengreen, b. & simpson - bell, c. 2023. gold as international reserves : a barbarous relic no more? imf wp / 23 / 14, washington dc : usa. see appendix. cepr, in search of russia ’ s foreign assets, january 2023. nikkei, gold snatched up by central banks at

in the country. among the others, as reported by the ft, the government had signed contracts with five gold refineries to convert jewellery handed over under the programme into gold bullion that would contribute to the country ’ s central bank reserves. world gold council, gold demand trends full year 2022, january 2023. ‘ treaty on monetary reform ’, 1932. world gold council, you asked, we answered : the history, context and outlook for central bank gold buying, march 2023. the first is obvious ( with so much gold held by central banks, any significant sale is bound to impact prices hugely ), but of little use as an explanation for any increase. default is impossible, though price movements are not. in fact, the price of gold fluctuates greatly : its annual volatility over the last 50 years has been around 19 per cent, compared with 15 per cent for global equity. 8 low storage costs per unit of value used to be one reason why precious metals functioned as a store of value for much of recorded history ( from antiquity to florence ’ s fiorino, britain ’ s gold pound, france ’ s napoleon ), along with other features such as inalterability and ( to an extent ) intrinsic utility. however, the cost of physically storing gold is nowadays incomparably higher, per dollar or euro or pound sterling or franc, than holding costs for most substitutes available today ; and, while transferring electronic money costs next to nothing, actually moving gold from one country to another, as in the textbook representation of the gold standard, is as cumbersome and costly as it has always been. therefore, even gold ’ s use as a store of value must have something to do with history. yet also, perhaps, with risk, especially super - tail risk. electronic reserve assets can conceivably disappear in extreme circumstances ; gold cannot. ( you might theoretically conceive of a planetary catastrophe that would pulverise even gold, but in such circumstances this is not likely to be the most pressing of humankind ’ s problems ). which brings us to the more interesting reasons why central banks still hold significant amounts of gold reserves. let ’ s start with ‘ normal ’ market risk. with regard to diversification benefits, as this audience knows very well, an ample empirical literature shows that gold has a low correlation with other traditional asset classes. 9 according to a recent estimate, 10 gold has shown a monthly correlation of 0.