Central Banks Buy Record Gold as Dollar Dominance Shifts

Central banks purchased 863 tonnes of gold in 2025. This figure stands well above the 473-tonne annual average recorded between 2010 and 2021. The sustained demand signals a strategic move to diversify reserves away from the US dollar.

The US dollar remains the primary settlement currency for global trade. However, geopolitical tensions and sanctions concerns are driving nations to seek alternatives. Emerging economies are increasingly using local currencies to reduce exposure to dollar fluctuations.

Reserve diversification drives gold demand

Gold serves as a neutral asset not tied to any single monetary policy. According to the World Gold Council, central bank buying hit 1,136 tonnes in 2022. Purchases continued at 1,051 tonnes in 2023 and 1,045 tonnes in 2024.

This trend reduces concentration risk in national balance sheets. By holding more gold and other currencies, central banks lower their dependence on dollar-denominated assets. The shift supports gold prices as a hedge against financial stress.

Trade fragmentation increases market complexity

Local-currency trade can reduce transaction and hedging costs for participants. It offers greater financial sovereignty to nations vulnerable to external policy decisions. However, moving away from a common settlement currency creates market fragmentation.

Pricing and settlement across multiple currencies add operational complexity to global trade. This shift may introduce higher volatility in international commodity flows. Countries must balance efficiency gains against the risks of a fragmented trading system.

Dollar dominance remains entrenched but challenged

A complete replacement of the US dollar is unlikely in the near term. The size of the US economy and depth of its financial markets sustain investor confidence. Nevertheless, a gradual decline in dollar dominance is possible.

India supports rupee-based bilateral trade to reduce costs. The country does not advocate for replacing the dollar entirely. GN markets/commodities (en-US) notes that this pragmatic approach reflects broader trends in reducing transaction friction while maintaining economic ties.