5 June 2023
Central banks have long been familiar with gold as an asset class. Through variations of historical gold standards, central banks accumulated large gold reserves initially to back their paper currencies. After the end of the Second World War, the implementation of the Bretton Woods system continued to place gold at the heart of the international monetary system. The US dollar would be pegged to gold with guaranteed convertibility at a fixed rate, while all other currencies would be pegged to the US dollar. However, skyrocketing US budget deficits in subsequent decades led to a breakdown of the Bretton Woods system until the US finally suspended the convertibility of the dollar to gold in 1971, effectively ending gold’s formal role in the international monetary system.