“Gold Can NEVER Replace the Dollar!” Barry Eichengreen Reveals the REAL Reason Central Banks Are Buying Gold

Barry Eichengreen is a professor at UC Berkeley and wrote the standard history of the international monetary system.
His new book is Money Beyond Borders, from Princeton University Press.

For years Eichengreen has described the dollar’s decline in global reserve share as gradual, roughly half a percentage point per year, with no abrupt crisis on the horizon.

In this conversation he explains why that assessment has shifted and why gold, despite record central bank buying, cannot fill the dollar’s role.

Where the Dollar’s Lost Share Has Gone

The dollar’s share of global foreign exchange reserves has fallen from more than 70 percent at the turn of the century to under 60 percent.
Of that lost ground in the 21st century, the euro has gained none.

China’s renminbi has captured about a quarter. The remaining three-quarters has scattered to a group of smaller, non-traditional reserve currencies: the Australian and New Zealand dollars, the Singapore dollar, the Canadian dollar, the South Korean won, and several Nordic currencies.

These are the currencies of relatively small, open, well-managed economies that practice inflation targeting.

This dispersion has gone largely unnoticed because IMF data often does not break out the smaller currencies in detail.
Researchers must examine individual central bank annual reports to see the pattern.

China’s renminbi push has stalled and its share is now falling. Obstacles include underdeveloped financial markets, capital controls, questions about the independence of the People’s Bank of China, slower economic growth (now around 4 percent rather than double digits), demographic pressures, and growing trade resistance.

The euro’s limited progress stems from a shortage of safe euro-denominated assets, fragmented national financial markets, and political resistance to deeper fiscal and financial integration.

Why Central Banks Are Buying Gold

Central banks have purchased more than a thousand tonnes of gold annually for several years, roughly a quarter of annual mine supply.
Eichengreen reads most of this activity as structural catch-up and portfolio diversification rather than a deliberate vote against the dollar.

After the 2008-2009 global financial crisis, many central banks, especially in emerging markets, recognized the risks of heavy reliance on securities such as U.S. Treasuries.
A large number of these institutions held little or no gold historically and had used earlier holdings during past crises.

New or returning buyers include countries such as Guatemala, Indonesia, Malaysia, Cambodia, Uganda, and Kenya. Recent record quarterly buying (for example 289 tonnes in one recent quarter, led by Poland and China) has been offset by sales from Turkey, Russia, and Azerbaijan, producing the weakest net demand in four years. Eichengreen attributes the overall trend primarily to diversification motives, with growing concerns about the dollar and sanctions risk adding secondary motivation more recently.

Repatriating gold trades liquidity and interest income for physical security. The European wave of repatriation was influenced in part by political pressure, including a letter associated with Marine Le Pen. U.S. sanctions have accelerated the desire for assets that cannot be frozen easily. At the same time, holding gold abroad or in shared facilities carries its own risks, while domestic storage forgoes the ability to earn a return or deploy the metal quickly in interventions.

Why Gold Cannot Function as Money

Eichengreen believes that gold will not return as an integral part of the international monetary and financial system: It can serve as a store of value, but it fails as a unit of account (wages or contracts denominated in fluctuating ounces would be impractical) and as a means of payment.
Shipping gold bars for large commercial transactions is cumbersome, as illustrated by historical examples of countries moving physical metal by aircraft.

Gold cannot easily be lent, borrowed against in foreign vaults, or used for routine settlement.

After the United States closed the gold window in 1971, gold was severed from the dollar’s unit-of-account role. Central banks that buy gold typically hold excess reserves and accept the illiquidity trade-off for safety and diversification. Shanghai’s efforts to build a gold trading hub remain constrained by China’s capital controls and historical capital-flight risks. Liberalization has been slow.

For private investors, gold is a respectable commodity for portfolio diversification and a hedge.
It is not a substitute for currencies in trade or payments.

Eichengreen himself owns only inherited gold jewelry and has not made active purchases.
(Hey, he’s a UC Berkely Prof, what did you expect!?)

A Change of Mind on Timing

Eichengreen previously expected continued gradual erosion. He now worries more about an abrupt loss of confidence in the dollar before adequate alternatives are ready. He dates the shift in his thinking to April 2, 2025, which he refers to as “Liberation Day.”

He acknowledges that earlier forecasts, including in his 2011 book Exorbitant Privilege, underestimated how much ground would go to the smaller non-traditional currencies rather than to the euro or renminbi.

He also addresses Ray Dalio’s suggestion of a 10 to 15 percent gold allocation.
Eichengreen sees reason for caution given the U.S. fiscal trajectory and rising debt-to-GDP ratio, and he finds a modest shift out of bonds (in the range of 5 to 10 percent) understandable, without endorsing any specific figure.Stablecoins, CBDCs, and Risks to the SystemThe United States is placing a bet on private stablecoins, digital tokens fully backed by dollars or Treasuries, as a vehicle for international payments on blockchains. Eichengreen questions whether this is the right path.

Private issuance creates run risks, as seen when Circle’s reserves were affected by the 2023 Silicon Valley Bank episode. A serious failure could force fire sales of Treasuries and raise the question of whether the Federal Reserve would act as lender of last resort, introducing moral hazard.

He argues that the historical trend favors public authorities providing stable money through central bank digital currencies or tokenized reserves, approaches already advancing in Europe and China. If private stablecoins fail to gain lasting traction, the dollar’s international role could be further weakened.

If confidence in the dollar breaks without ready substitutes, capital would flow into less liquid assets such as real estate, other commodities, and gold. Credit costs would rise and global supply chains could be disrupted, putting globalization itself under strain.

Closing Perspective

Eichengreen remains a careful historian of monetary systems. He does not foresee gold reclaiming a central monetary function, nor does he expect any single currency to displace the dollar overnight. What has changed is his concern that the pace of adjustment could accelerate if confidence erodes faster than alternatives can develop.
The interview underscores both the slow structural shifts already underway and the new risks that have emerged in the mid-2020s.