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Why Central Banks are considering Bitcoin for their coffers

Photo of: Nathan VDH
by Nathan VDH

A recent survey suggests that central banks may well be looking for an inflation hedge, which could lead some of them directly to digital gold, Bitcoin (BTC), although for the time being, the default asset chosen by central banks remains gold.

In this survey on the state of central bank gold reserves conducted by Central Banking, 26 respondents, mainly from Europe and the Americas, said they “generally expect central bank gold reserves to increase over the next 12 months”, with no respondents expecting a decrease.

Although central bankers were not asked about their ideas for building up a reserve of BTC or altcoins, it seems that a significant and growing group of central bankers would prefer to keep a basket full of everything but… trust money.

The authors of the survey wrote: “The COVID-19 pandemic has not, on the whole, changed central banks’ views on gold, although nearly a quarter of respondents said they considered gold a more attractive asset”.

The paper highlights signs that while central bank reserve fund managers are not yet thinking outside the box, they are at least getting closer to the point where they may need to do so.

The authors added: “When determining a central bank’s gold holdings, the benefits of diversification emerge as the most relevant factor for reserve managers”.

In fact, 64 percent of respondents said the benefits of diversification were “very relevant” in determining their institution’s gold holdings, with low interest rates also appearing in the “very relevant” column for 41 percent of respondents.

Four respondents said that the weakening U.S. dollar was also “very relevant” to their current position on buying gold.

In total, 62% of the central bankers surveyed said they expected global central banks to increase their gold reserves over the next 12 months.

And 18% of those surveyed said that, of their total reserves portfolio, 20-49% were dedicated to gold.

One European nation’s central banker was quoted as saying: “The growing demand from emerging market central banks reflecting current geopolitical, political and economic conditions, as well as structural changes in the global economy, is likely to continue into the future.

While central banks, arguably the most conservative of all asset buyers, are likely to continue their gold rush for the time being, it is clear that investors are looking for an asset that can serve as a store of value, while companies are increasingly turning to Bitcoin as a hedge against inflation.