Central banks are leading a revolt against the US dollar and shifting to gold at a record pace, market expert says

• Central banks are turning away from the US dollar and shifting to gold, Ruchir Sharma wrote.
• Central banks account for a record 33% of monthly global demand for gold, he said in the FT.

Assurance in the dollar's dominance ignores signs that countries are serious about seeking alternatives, according to Ruchir Sharma.

This is illustrated when taking account of recent trends in gold: the safe haven commodity has surged 20% in the last half year.

But demand is coming from central banks reducing their dollar holdings, not the "usual suspects" made up of large and small investors, the chair of Rockefeller International wrote in The Financial Times on Sunday.

In fact, central banks account for a record 33% of monthly global demand for gold and are buying more gold than at any time since data began in 1950, he added.

"This buying boom has helped push the price of gold to near-record levels and more than 50% higher than what models based on real interest rates would suggest," said Sharma. "Clearly, something new is driving gold prices."

Nine of the top 10 central banks buying gold are in developing countries, including China, Russia and India, he said.

Those three countries, along with fellow BRICS nations Brazil and South Africa, are also part of an effort to create a new currency that is separate from the dollar.

"Thus the oldest and most traditional of assets, gold, is now a vehicle of central bank revolt against the dollar," Sharma wrote. "Often in the past both the dollar and gold have been seen as havens, but now gold is seen as much safer. During the short banking crisis in March, gold kept rising while the dollar drifted down. The difference in the movement of the two has never been so large."

He attributes the rush for gold to the increasing use of financial sanctions by the US and its allies, with as much as 30% of nations facing sanctions from the US, European Union, Japan and UK.

That's up from 10% in the 1990s. But after Russia's invasion of Ukraine, the West froze the country's currency assets and kicked it out of the SWIFT system.

"Suddenly, it was clear that any nation could be a target," Sharma wrote.

In the face of the dollar's weaponization, even US allies like Thailand and the Philippines are beginning to seek alternative currencies.

Most notably, the Chinese yuan has been growing its international reach, but Sharma cites another threat — the fact that the number of central banks attempting to create digital currencies has tripled in three years.

"The risk for America is that its overconfidence grows, fed by the "no alternative" story. That narrative rests on global trust in US institutions and rule of law, but this is exactly what weaponizing the dollar has done so much to undermine," Sharma wrote. "It rests also on trust in the country's ability to pay its debts, but that is also slipping, as its reliance on foreign funding keeps growing."

Others have been less wary of de-dollarization fears, citing that the trust in the greenback is difficult to replicate.

Commonwealth's Brad McMillan said even if a strong alternative was to emerge, it would take monumental effort and persuasion to replace the dollar.

And former Treasury Secretary Larry Summers said the yuan isn't a threat to the US dollar, largely because China isn't a predictable and reliable market.