murboy/The Globe and Mail
Talk to any gold bug long enough, and eventually you’ll hear the same indignant lament: The Bank of Canada was foolish to sell off its gold holdings over the years, leaving it as the only G7 country without any of the shiny metal in its reserves. The staggering surge in bullion prices—gold topped US$3,815 per ounce in late September, up more than 40% over the past year and double where it was five years ago—has only reinforced that sentiment.
Indeed, if the Bank of Canada still held the same amount of gold it did in 1965—around 32.9 million ounces—that stash would now effectively equal the value of all of Canada’s international reserves, at roughly US$125.5 billion.
The Bank of Canada unloaded the last gold coins in its reserves in 2016, but the Bank began the process in the 1970s, arguing it made no sense to hold such an illiquid asset in a world where countries no longer fixed their currencies to the price of gold. By the mid-1990s, roughly 90% of the 1965 gold hoard was gone, replaced with more liquid foreign currency deposits and interest-bearing bonds. “I know this will drive the gold bugs crazy, but gold isn’t necessary to conduct modern monetary policy,” says Ian Lee, an associate professor at Carleton University’s Sprott School of Business. Yes, the 1965 gold holdings would be worth a lot of money, he says, “but the government’s job is not to maximize asset prices.”
Still, with the United States running massive deficits, and the Trump administration pursuing flailing tariff policies and attempting to seize control of the Federal Reserve, it’s raised questions about the U.S. dollar’s status as the world’s reserve currency. As of September, roughly 54% of Canada’s reserves were held in U.S.-dollar-denominated assets.
Here, too, Lee says such fears are overblown. “When you look at the totality of the foreign reserve market, there is no other currency that could replace the U.S. dollar,” he says. “My argument is not that the U.S. is wonderful; they’re just the least dirty shirt in the world for currency holdings.”
We’re not going back to the gold standard, Lee adds. “The U.S. dollar will be the reserve currency for the rest of the century.”