A gold reserve refers to a stockpile of the metal that is generally held by a nation. It is therefore considered a national asset and is commonly overseen by a nation's central bank. One notable exception is the case of the International Monetary Fund (IMF), which has one of the largest stockpiles in the world. At one time, these stockpiles were used to determine how wealthy a country was because the amount of currency issued was linked to the amount of gold held. In modern times, gold is considered to be more of an alternative to holding large quantities of currency.
The tendency to stockpile gold and to use it as a measurement of wealth extends back for centuries. There was a time when the global financial system operated according to what is known as the gold standard. This was a monetary system that directly connected the amount of gold in a country's reserve with the amount of currency that it produced. The logic behind this was that if the gold were redeemed, the equal value of currency should be received for it.
Although this monetary system was replaced, countries have continued the practice of maintaining stockpiles. Just as people hold quantities of money in a savings account in case they need it in the future, many nations maintain a gold reserve as one their financial assets. Another similarity is that banks are often the guardians of individuals financial assets and, likewise, a nation's central bank generally is responsible for the gold reserve.
There are a number of reasons why a gold reserve is viewed as a good idea. To begin with, a stockpile of gold is often considered protection in the event that a particular currency may lose a significant portion or all of its value. Consider, for example, the euro, which is a currency used by most of Europe. If that currency became useless, those countries with a gold reserve would still have some financial assets.
Another benefit of a gold reserve is that it is readily transferable. Gold is a metal that can be exchanged for financial value in most countries around the globe. Nations can therefore use their gold reserve as collateral against loans. They can also use these stockpiles to satisfy debts, but doing so is considered rare. It is common for these stockpiles to be held for decades and for countries to continue adding to them.
