At the end of May 2025, European Central Bank (ECB) President Christine Lagarde made headlines by addressing a question that has quietly loomed over global finance for years: is the US Dollar’s supremacy as the world’s reserve currency under threat right now?
Speaking candidly at the Foreign Policy Association’s Annual Financial Services Dinner in New York on 21 May 2025, Lagarde noted that the Euro remains “the second global currency” accounting for 20% of foreign exchange reserves but pointed to “a changing landscape” that could allow the Euro to assume “a greater international role.”
Ironically, just days after her comments, the ECB itself confirmed that it isn’t the Euro but gold that has taken a prominent position in global central bank reserves. In a striking admission published in its June 2025 report, The International Role of the Euro, the ECB acknowledged that gold is now the second-largest reserve asset globally, second only to the US Dollar.
In other words, central banks worldwide are turning to gold, an age-old asset, instead of the Euro as a hedge against growing uncertainty.
Gold’s Resurgence in the Monetary System
According to the ECB, by the end of 2024, gold accounted for 20% of global central bank reserves at market value. The US Dollar remained dominant at 46%, while the Euro lagged behind at just 16%.
Even more significantly, central bank gold holdings have now returned to levels not seen since 1965, the height of the Bretton Woods system, when the US Dollar was directly convertible into gold.
The Bretton Woods system was an international monetary framework established in 1944, at the height of efforts to rebuild the global economy following the devastation of the Second World War. Named after the location of the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire, the agreement brought together delegates from 44 Allied nations with the shared ambition of creating a stable and cooperative global financial order.
At the heart of the system was a new approach to currency valuation. The US Dollar was pegged to gold at a fixed rate of $35 per ounce, and in turn, all other participating currencies were pegged to the US Dollar. This made the Dollar effectively “as good as gold” and established it as the anchor of international finance. Other countries would maintain fixed exchange rates within narrow bands relative to the Dollar, and central banks were expected to intervene in foreign exchange markets to preserve these fixed values. What made this system unique was its blend of stability and flexibility: while it sought to prevent the sort of competitive devaluations and monetary chaos that had characterised the 1930s, it also allowed for adjustments in currency values under specific conditions, known as “fundamental disequilibrium.”
The architects of the system, including Britain’s John Maynard Keynes and Harry Dexter White from the United States, also recognised the need for global institutions to oversee and support this new order. The conference led to the creation of the International Monetary Fund (IMF), designed to provide short-term financial assistance and encourage monetary cooperation, and the World Bank, originally formed to fund the reconstruction of Europe and the development of poorer countries.
The early years of Bretton Woods delivered relative financial stability and underpinned the rapid recovery and growth of Western economies in the post-war period. However, over time, structural tensions emerged including the burden placed on the United States to maintain the convertibility of the Dollar into gold. As the US ran persistent balance of payments deficits throughout the 1960s, foreign central banks accumulated large Dollar reserves and began questioning whether the US had enough gold to back them. This scepticism grew as America ramped up military spending during the Vietnam War and increased domestic spending on social programmes.
By the end of the 1960s, the credibility of the Dollar’s link to gold was eroding. In August 1971, US President Richard Nixon suspended the Dollar’s convertibility into gold, a move widely known as the Nixon Shock. This unilateral decision effectively marked the end of the Bretton Woods system. By 1973, major economies had transitioned to floating exchange rates, and the gold-backed Dollar was no more.
Despite its collapse, the legacy of Bretton Woods remains significant. It institutionalised a Dollar-centric global financial system that still exists today, albeit without the gold standard. It established the IMF and World Bank as key pillars of international economic governance. Perhaps most importantly, it continues to serve as a reference point in debates about the future of the international monetary system. As central banks today revisit gold as a core reserve asset and question the long-term dominance of the US Dollar, many analysts see echoes of the pressures that once brought Bretton Woods to an end.
This development isn’t just symbolic. It marks a growing preference among central banks for physical assets over fiat-denominated reserves, reflecting broader concerns around debt, inflation, and geopolitical instability. It’s also a stark reflection of how confidence in the US Dollar, long considered the global standard, may be starting to erode.
The De-Dollarisation Trend
The rise in gold holdings is part of a wider shift known as “de-dollarisation”, a trend where central banks are deliberately reducing their reliance on the US Dollar in favour of alternative stores of value. This process has been gradual but unmistakable, especially in light of sanctions, banking crises, and currency volatility in recent years.
In fact, this trend was explored in greater detail in a recent Royal Mint article which laid out the global motivations behind the strategic shift. From emerging markets to developed economies, the pivot to gold is being framed not just as a financial hedge, but as a geopolitical safeguard.
Forecasting New Highs
Independent research from Metals Focus, one of the world’s leading precious metals consultancies, adds fuel to the fire. In their latest outlook, the firm forecasts that the surge in central bank demand is likely to drive gold prices to further all-time highs later this year.
While the typical investor might view gold as a defensive play during market uncertainty, this central bank activity suggests something more foundational is happening. Gold is no longer just a portfolio hedge; it’s becoming a cornerstone of institutional monetary policy once again.
A New Monetary Order?
The question now is whether we are witnessing the early stages of a shift toward a new kind of monetary order. One in which trust in traditional fiat currencies gives way to physical assets, with gold taking centre stage alongside or perhaps even in place of long-standing reserve currencies like the US Dollar.
Christine Lagarde’s comments may yet prove prophetic, not because the Euro is ascending, but because the system itself is rebalancing. Gold, with its historical legacy and intrinsic value, appears to be regaining its position as the silent anchor of global finance.
As central banks make their move, investors may wish to take note. The actions of those managing the largest reserves in the world are rarely random. In uncertain times, gold is not just a hedge. It’s a signal.