Canada, home to some of the world’s largest gold-mining companies, recently announced that it had effectively liquidated all of the country’s holdings of the shiny metal and is moving to what a government spokesperson described as “easily tradable” assets.
It has been a long process. Canada held 1,088 tons of gold in 1955. By 2000, it was down to 46 tons. Today, just 77 ounces remain. This puts Canada in last place in the most up-to-date compilation of data on gold reserves compiled by an industry group, the World Gold Council. In the Council rankings, Canada is now in last place, well behind Albania, Haiti, Trinidad and Tobago, and Papua New Guinea.
Canada’s explanation for the selloff is reasonable enough: Actual bullion bars cannot be liquidated as easily as, say, government bonds. And over the long term, central banks and governments have generally gotten a better return by investing in safe assets such as U.S. Treasuries. But the real question is not why Canada has sold its gold; it’s why other countries remain so wedded to maintaining — even accumulating — stocks of the precious metal despite the fact that it no longer plays any role in the money supply.
The reason some countries hold on to gold may have little to do with sound fiscal policy. Instead, the practice reflects the less tangible or rational weight of history. A look at which countries own the metal — and which countries do not — presents an unexpected pattern. Countries that possess significant reserves tend to have some history as global hegemons, imperial powers or economic powerhouses — or aspirations to such status.
In a fascinating paper from 2012, two economists at the University of Santa Cruz — Joshua Aizenman and Kenta Inoue —crunched some numbers and found that “the intensity of holding gold is correlated with ‘global power’ — by the history of being a past empire.” This, they said, is especially true of “countries that are or were the suppliers of key currencies.”
The U.S. remains No. 1, just as it remains the world’s biggest economy and the issuer of the most common reserve currency. But the pattern reaches into the distant past. The Netherlands was an imperial heavyweight in the 17th century, but it lost that status long ago. Nonetheless, it holds the 10th largest gold reserves, even though it has a population of only 17 million.
Portugal, a country that once possessed an empire that stretched from Brazil to Angola to Macau, has 382 tons of gold, yet only has a population of about 11 million. The better-known imperial powers —
Germany, Italy, France, Russia, and of course, the U.K., all have gold holdings in the global top 20.
The trend extends beyond Europe. Japan, which sought to conquer much of the Pacific in the 20th century, and later became the world’s second-largest economy, is ranked No. 9 in gold holdings. Taiwan, which became an economic powerhouse in the second half of the 20th century, is ranked 14.
Likewise, European powers without a significant history of imperial ambition don’t seem to have much interest in gold. Finland, for example, is stuck between Argentina and Bolivia in its current holdings of gold. Ireland is even lower, sandwiched between Latvia and Lithuania. These nations are used to living in the shadow of a much bigger imperial power, and share a common history of having been conquered by those bigger neighbors.
But there are newcomers in the top 20, too. As Aizenman and Inoue point out, it’s no accident that two countries that have moved from bit players to powerhouses have been buying up gold. China is now ranked No. 6, having accumulated 1,762 tons. India is ranked No. 11, having amassed 557 tons.
China and Indian’s gold reserves, the researchers note, “increased in tandem with the sharp rise of their economic power.” In other words, they’re the latest countries to buy into an unspoken dogma that if you’re going to be a heavyweight, you need some heavy metal.
Which brings us back to Canada. It has been the plaything of empires, but has never harbored imperial ambitions of its own. And its policy makers have never felt a need to proclaim their greatness by accumulating piles of gold. As they would say to the rest of us who cling to this imperial relic: it’s all in your head.
Stephen Mihm, an associate professor of history at the University of Georgia, is a contributor to Bloomberg View