July 12, 2023 - 7:00am

With much talk of new trade deals being denominated in yuan and investors looking for alternatives to the greenback as a reserve currency, a recent survey of central bankers and sovereign wealth fund managers provides new insight into the politics of the global economy.

Published this week, the annual Invesco Global Sovereign Asset Management Study showed respondents looking more favourably on gold, reflecting the precious metal’s long-held status as a safe asset in times of inflation, market volatility and geopolitical uncertainty. More striking than the shift to gold, however, was central banks reporting that they are repatriating gold reserves from abroad — with 68% of countries keeping gold reserves at home in 2022, compared with 50% in 2020. While the price of gold may wax and wane, the fact that central banks are bringing gold home suggests that a less tangible and perhaps ultimately more precious global asset — trust — is also growing scarce.

As with the slowly ebbing status of the dollar as the world’s reserve currency, the repatriation of gold has the same origin: the US-led seizure of nearly half of Russia’s $640 billion reserves of foreign exchange held abroad, inflicted as punishment for Moscow’s invasion of Ukraine last year. Since then, the idea of using Russian assets to pay for Ukrainian reconstruction has even been raised.

Whatever one’s view of the course of the Ukraine war or the depravity of Vladimir Putin, the repatriation of the world’s gold reserves shows that this war is having significant long-term effects that go far beyond Eastern Europe. If central banks no longer trust other (read: Western) states to hold stocks of their precious metal, it suggests that countries around the world increasingly see the US as a global freebooter rather than as the sheriff for global capitalism. As with the status of the dollar, the shifting balance of the world’s gold reserves underscores just how much of global capitalism depends on an ethereal political faith in the stable functioning of the US state.

Given how important American stewardship of the global economy has been to maintaining its hegemony, it is worth asking why the US froze Russian assets. Why did the US risk its own position as imperial arbiter of the global economy? For all that the Americans might be expected to respond to the Russian invasion of a Western ally, it is not difficult envisage that they could nonetheless have fended off demands to freeze Russian assets. They could have cited any number of reasons to justify such a policy — the necessity to preserve the market, global capitalism, the rules-based order, or whatever — in public, and perhaps more sotte voce, explained the need to preserve the status of the greenback in private.

In any case, as we now know, the sanctions have done little to impede Putin’s war machine. The fact that the US decided to treat Russia — an industrialised, nuclear-armed major power and primary commodity exporter — as if it were Libya, or Serbia, or Iraq indicates not only a total lack of strategic foresight in Washington DC, but also a lack of understanding of the basis of US global supremacy.

What the repatriation of the gold reserves and the slow grinding processes of de-dollarisation indicate is that unipolarity is ultimately incompatible with the smooth functioning of a global capitalist economy. While global capitalism has been synonymous with American influence and power for the last 30 years, if not since the end of the Second World War, a new and more multipolar era reminds us that capitalism is bigger than the fortunes of any single state. The question for the rest of us is: what will we make of capitalism in an era in which the US no longer leads it?

Philip Cunliffe is Associate Professor of International Relations at the Institute of Risk and Disaster Reduction, University College London. He is author or editor of eight books, as well as a co-author of Taking Control: Sovereignty and Democracy After Brexit (2023). He is one of the hosts of the Bungacast podcast.