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Central banks never held beanie baby reserves, whereas thousands of tons of gold are held among central bank reserves. Why do you suppose they hold it?

rsj_hn 5y ago
It is the remnant of pre-fiat money era when foreign trade was settled via specie flows. Although it was no longer possible for individuals to show up at the Fed and demand some gold for the dollar, it was still possible for nations to do that under the Bretton Woords system setup by Keynes to manage postwar international trade. When France demanded a large gold shipment from the U.S. to settle accounts, Nixon exited Bretton Woods agreement. However that lack of convertability still left central banks with lots of Gold reserves that were no longer required to clear trade deficits, so they mostly sat on them. Some central banks decided to sell some of their gold and others bought some, but it is now basically another asset (like Beanie Babies) although gold lasts a lot longer and is more durable, and central banks have spent 100 years collecting it prior to the end of Bretton Woods. For more info, see https://www.imf.org/external/about/histend.htm https://www.imf.org/external/about/histend.htm Fun Fact: Many people still think that foreign trade is settled via specie flows, which is why they get all confused about how the US will "pay back" China, when of course China has already been paid (in dollars) and those dollars are not convertible to anything else. If China wants to, for example, use those dollars to retire its own RMB debt, it will need to sell those dollars for something like oil on the international commodity markets, and then sell the oil to its own people for their RMB, and then use those RMB to retire their own bonds. But of course China does not rely on anyone else to supply it with RMB anymore than the US relies on China to supply it with dollars. Once you take settlement of specie flows out of the mix, there is little reason to hold dollars other than sentimentality for the old metallic era.

rsj_hn 5y ago

It is the remnant of pre-fiat money era when foreign trade was settled via specie flows. Although it was no longer possible for individuals to show up at the Fed and demand some gold for the dollar, it was still possible for nations to do that under the Bretton Woords system setup by Keynes to manage postwar international trade. When France demanded a large gold shipment from the U.S. to settle accounts, Nixon exited Bretton Woods agreement. However that lack of convertability still left central banks with lots of Gold reserves that were no longer required to clear trade deficits, so they mostly sat on them. Some central banks decided to sell some of their gold and others bought some, but it is now basically another asset (like Beanie Babies) although gold lasts a lot longer and is more durable, and central banks have spent 100 years collecting it prior to the end of Bretton Woods. For more info, see https://www.imf.org/external/about/histend.htm https://www.imf.org/external/about/histend.htm Fun Fact: Many people still think that foreign trade is settled via specie flows, which is why they get all confused about how the US will "pay back" China, when of course China has already been paid (in dollars) and those dollars are not convertible to anything else. If China wants to, for example, use those dollars to retire its own RMB debt, it will need to sell those dollars for something like oil on the international commodity markets, and then sell the oil to its own people for their RMB, and then use those RMB to retire their own bonds. But of course China does not rely on anyone else to supply it with RMB anymore than the US relies on China to supply it with dollars. Once you take settlement of specie flows out of the mix, there is little reason to hold dollars other than sentimentality for the old metallic era.