Revaluing Official Reserves: International Experience

Colin Weiss, chief economist in the Federal Reserve's Global Financial Flows division, examines historical cases of using revaluation gains from gold and foreign exchange reserves to finance government needs. This is a systematic analysis with examples that's particularly relevant against the backdrop of rising U.S. debt and debates over monetizing central bank assets. The research is especially interesting in 2025, as the United States faces a record budget deficit while other major players, including Russia and China, actively diversify their reserves.

It's worth noting that the Federal Reserve has not previously published any materials on this topic and has never made corresponding official statements.

The paper analyzes the use of revaluation gains from official reserves (gold and foreign currency) as an alternative financing source for governments with high debt burdens. The author focuses on five international cases over the past 30 years (Germany, Italy, Lebanon, Curaçao and Sint Maarten, South Africa), where such revaluations enabled covering deficits or losses without raising taxes or issuing debt.

Weiss traces the roots of the issue to reserve accounting practices: global central banks can value gold at historical cost or fair value, with unrealized gains/losses held in "revaluation accounts." Low interest rates and rising debt (following the 2008 and 2020 crises) forced governments to seek alternatives: revaluation thus allows monetizing "dormant" assets without physical sales. For example, in the U.S., gold is valued at the statutory price of $42.22 per ounce (since 1973), but the market price of ~$3,300-3,500 makes potential revaluation of these reserves at over $800 billion (3% of GDP) attractive for covering deficits.

Similarly, Belgium in 2024 discussed revaluation to finance spending, but this sparked disputes about ECB independence. Historically, such measures were applied during crises: after World War II, countries like Italy used gold for stabilization, though this often masked deeper problems. The author provides recent examples: South Africa in 2024–2027 is using 150 billion South African rand (2% of GDP) from gold revaluation to reduce debt burden. Overall, the scale of revaluations has consistently grown: from the 1990s through the 2020s, they covered between 0.5% (Germany) and 11% of GDP (Lebanon). The trend is transforming the structure of global finance and the role of central banks: from guardians of stability to "financial rescuers" of governments.

In the context of 2025, with global government debt at $100 trillion, according to IMF data, revaluations may become the norm, but they amplify risks: issuance without reforms leads to inflation.

However, the main vulnerability is undermining central bank independence and fiscal discipline. Revaluation masks deficits but doesn't solve them. Cascading effect risks also grow: if markets doubt regulators' independence, this will trigger capital outflows and rising interest rates. The author warns: in the U.S., this could weaken the dollar as a reserve currency, especially with its share in global reserves declining to 59% (IMF, 2024). Another problem is inequality: reserve income goes to elites, while risks (inflation) fall on the population.

The research is a valuable overview of a rare topic, with clear examples and recommendations: revaluations can mitigate crises but require transparency and reforms. The author emphasizes that in an era of high debt, this is a tool, not a panacea. Recommended for economists and policymakers: the paper contextualizes why revaluations are a "last resort" and suggests viewing them as a bridge to fiscal discipline. Without structural changes, revaluations will only postpone the crisis.

Summary

Gold reserve revaluation can temporarily ease fiscal pressure but doesn't solve structural problems and may undermine central bank independence. However, for "chronic" sovereign debtors, it may become an inevitable measure in response to growing fiscal pressure.