Why does the Bank of France buy gold ?

The central bank of a country is a financial institution whose role is to ensure the stability of the banking system. It indeed ensures several main missions:

• Lending money to commercial banks;
• The circulation of coins and notes (we speak of fiat money);
• Price stability.

To guarantee price stability, central banks take into account key rates to minimize deflation and inflation (up to 2%). Policy rates refer to the rates set on a daily basis by central banks. These interest rates allow them to know how much they can lend to commercial banks. The rates are then passed on to the loans that commercial banks make to businesses and individuals.

Central banks therefore have the role of controlling the cost of money, as well as the quantity of money in circulation within a country. These financial institutions also ensure foreign exchange reserves.

Each country has its own central bank.

There is a central bank for each monetary zone. The European Central Bank (or ECB) is therefore the central bank of the euro zone. It is she who manages the monetary policy of all the countries that make up the euro zone. (19 countries of the European Union are part of the euro zone).

The European Central Bank's mission is to issue the euro and maintain its purchasing power as well as price stability throughout the euro zone.

Several groups of people are at the management of the European Central Bank. Among them is the general council, composed of the president and vice-president, with presidents and governors of the central banks of the eurozone countries. The ECB is also managed by the Governing Council and the Executive Board.

The Bank of France holds several tons of gold. There are exactly 2,436 tonnes of it, which are located in the Underground, a one-hectare armored cellar, located 27 meters underground, or 40 meters below the suspended auditorium in Paris. The reserves also include old franc notes.

The gold of the Bank of France represents the fourth national stock, just after the United States, Germany and Italy. Combined, the central banks own around 30,000 tonnes of gold.

The 2,436 tonnes of gold from the Bank of France are worth around 80 billion euros.

Since the Covid-19 crisis, central banks have become buyers of gold. The interest for central banks in owning gold lies in several factors:

• Gold is a safe haven in times of crisis: the stability of the metal is a long-term investment that protects assets and wealth against inflation and monetary devaluation;
• The gold reserves of the Bank of France guarantee the value of the currency issued: the value of the printed notes must correspond with the value of gold owned;
• Gold stocks can be sold to increase assets: this process is used in periods of economic calm;
• Selling gold allows you to increase your assets;
• Holding gold offers the financial independence of a state: the central bank can trade gold on the markets for raw materials.

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