Advantages and Disadvantages of the Holding of Gold Reserves by Central Banks - With Special Reference to the Swiss National Bank

Peter Bernholz

Swiss Journal of Economics and Statistics (SJES), 2002, vol. 138, issue II, 99-113

Abstract: It is advantageous for a country like Switzerland to hold part of its central bank reserves in gold, even given a discretionary monetary regime with flexible exchange rates. This in spite of the fact, that the return on gold reserves is usually lower than that on foreign exchange reserves. Reasons are first, the greater security of gold reserves kept at home. For foreign exchange reserves are claims against foreign banks and authorities, which can be blocked any time for political reason. Second, short and especially long-term movements of exchange rates are often more important than that of the gold price. Finally, the selling of gold reserves in favor of political authorities or purposes implies political struggle for the distribution of the proceeds as witnessed by recent events in Switzerland. Finally, in comparing the return on gold and foreign exchange reserves not only the respective nominal returns, but also the long-term development of the prices of gold and the respective foreign currencies have to be taken into account. For whereas the price of gold in Swiss francs has risen substantially, the price of the US dollar has fallen heavily since 1968.

Keywords: Swiss National Bank; gold reserves; monetary regimes (search for similar items in EconPapers)
JEL-codes: E50 E58 F31 N1 P16 P51 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (4)

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