Gold, Bitcoin and FX Reserves.

How a country like Mexico might someday exceed China as the country with the strongest balance sheet.

Countries, like companies, hold assets on their balance sheet. These are primarily Gold and treasury bills of other countries (FX reserves). No country that I am aware of (yet) holds Bitcoin. This is likely to change as El Salvador makes Bitcoin legal tender in September. In this article I argue that over a 20 year year period, choosing Bitcoin as a core asset could move a country such as Mexico (or Germany, France, Poland etc..) to the top spot.


As recently as 1971, the US was on the gold standard, and as such, owns more gold than any other country: over 8,000 Kgs, worth 471 Billion dollars. That would have seemed like a big number a few years ago, but the Federal Reserve balance sheet has ballooned to over 8 trillion dollars, and all the gold in the US vaults would not even cover half of the latest 1.2 Trillion dollar infrastructure bill.

Gold reserves by country

It’s also worth noting that the major protagonists of WW2: Germany, Italy France and the UK also own massive amounts of gold. The scars of the conflict are still fresh on the central banks of these countries.

FX Reserves

The second asset that countries own on their balance sheets is the currency of other countries, which for all non US countries means primarily the US greenback.

The main owner here is China which owns 3 trillion dollars of US treasury bills, followed by Japan, Switzerland India and Russia.

Again, I would like to point out that although the 3 Trillion dollars for China is a huge number, the Fed reserve balance sheet added more than that over the last 12 months with the COVID pandemic. So these “saving” countries are effectively holding an asset that is being massively inflated (in terms of supply) by the US Federal Reserve.

Putting the Two Together

If we put the Gold and FX together, a new pattern emerges. It’s clear that the old world (US and Europe) is massively long gold, versus Asia and Switzerland which are massively long dollars.

An astounding 77% of the US reserves are in Gold, but only 3% of China’s are. In the developing world, the percentages are also low. Mexico does not own massive amounts of Gold, although the sum of its dollars and gold is almost a third of ours,.

How Bitcoin could change things

As I have argued elsewhere, it is entirely possible that the price of Bitcoin relative to either USD or Gold could fluctuate by a factor of 10 or more in the next decade. If Germany moved say half of its gold reserves into Bitcoin, or Mexico moved half its USD reserves into Bitcoin, either of these countries could surpass the total reserves of the US, and possibly even China.

The move by El Salvador to standardize on Bitcoin could be the beginning of this. If Bitcoin is legal tender, then there is less need to hold massive dollar reserves. Holding Bitcoin actually starts to make sense. For the European major countries, France, Germany, Italy and the UK at least some diversification into Bitcoin makes sense. I don’t think they will budge for a while, but in 5 years I could see them start to nibble, and by the end of the 2020’s they could have substantial Bitcoin holdings.