The Central Bank of Kenya (CBK) is considering adding gold to its reserves to “diversify away from other currencies.”
Given that the Kenyan central bank holds most of its foreign reserves in dollars, this appears to be yet another step toward global de-dollarization.
During an interview on Bloomberg TV, CBK Governor Kamau Thugge said “a dedicated team” is assessing the feasibility of gold purchases, but he has not set any timeline.
Thugge specifically said Kenya needs “to diversify foreign reserves away from other currencies.”
Kenya currently only owns 0.02 tonnes of gold. By expanding its gold holdings, the Kenyan central bank aims to “hedge against currency volatility and strengthen financial stability.”
Eroding Dollar Dominance
Kenya is part of a growing trend of de-dollarization.
As of the end of last year, dollars made up 57.8 percent of global reserves. That is the lowest level since 1994, representing a 7.3 percent decline in the last decade. In 2002, dollars accounted for about 72 percent of total reserves.
Meanwhile, central banks are loading up on gold.
Official central bank gold demand topped 1,000 tonnes for the third straight year in 2024. To put that into perspective, central bank gold reserves increased by an average of just 473 tonnes annually between 2010 and 2021.
The pace of central bank gold buying picked up after the aggressive Western sanctioning of Russia. Other countries have noted the weaponization of the dollar and have taken steps to decrease their dependence on the greenback. Sticky price inflation and out-of-control federal spending, driving massive budget deficits, have also made other countries wary of the greeback.
According to a report by the Atlantic Council, “In recent years, and especially since Russia’s invasion of Ukraine and the Group of Seven (G7)’s subsequent escalation in the use of financial sanctions, some countries have been signaling their intention to diversify away from dollars.”
According to IMF data, between 2006 and 2023, central banks globally increased their official holdings by about 200 million troy ounces (6221 tonnes). This doesn’t account for the large amount of gold being purchased by the People’s Bank of China (and likely other countries) off the books.
This de-dollarization trend should raise Americans’ eyebrows.
The U.S. depends on this global demand for dollars supported by its reserve status to underpin its massive government. The only reason the federal government can borrow, spend, and run massive budget deficits to the extent that it does is the dollar’s role as the world's reserve currency. It creates a built-in global demand for dollars and dollar-denominated assets. This absorbs the Federal Reserve’s money creation and helps maintain dollar strength despite the Federal Reserve’s inflationary policies.
The world doesn't have to completely abandon the dollar to create negative impacts. Even a modest de-dollarization of the world economy would cause a dollar glut. The value of the U.S. currency would further depreciate. That translates to more price inflation at home. In the worst-case scenario, the dollar could collapse completely, leading to hyperinflation.
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