Top Fiat vs Gold in 2022: Focus on Inflation

It is time for my traditional yearly post to find out which fiat could beat the conventional store of value this year.

Let us see below how you predicted the future back at the end of December 2021.

Poll Results

The U.S. dollar was again the favorite bet for many of you. The next choice was the British pound, likely because it finished second in 2021. Among the top three bets, the Canadian dollar was an interesting choice that could be justified by the previous top ranking.

This time I changed the list of currencies to include only the top 5 currencies based on real foreign exchange turnover according to the Bank for International Settlements as per the table below.

OTC Foreign Exchange Turnover By Currency

Source: Bank for International Settlements

The following top 5 fiat currencies are listed in the table above: U.S. dollar (USD), euro (EUR), Japanese yen (JPY), British pound (GBP) and Chinese yuan (CNY).

It is worth noting some changes that I spotted in the table above. The most visible one is the tremendous gain in the share of Chinese yuan (orange highlight) from only 0.9% in 2010 up to 7% in 2022. This high velocity could help CNY take the #4 spot next decade.

Which one will give up? British pound’s share has been amazingly stable over the last decade, around 13% at #4. From 19% to 16.7%, the Japanese yen's share is slowly declining. These two could be replaced in the rankings.

The euro is losing share even more sharply (blue highlight) than the yen, and a large part of that 8.5% loss could have contributed to the yuan's gains. The U.S. dollar (red highlight) is still the “king currency” dominating the chart with 88.5%, and this figure is rising.   

Which currency could lose its ranking to the Chinese Yuan in the next decade?

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Let us check the diagram below with Year 2022 results for these top 5 currencies.

Top 5 Currencies 2022

Diagram by Aibek Burabayev; Source: IDC

The full ranking for Y2022 looks as follows:

  1. US dollar is unchanged
  2. Euro -6%
  3. Chinese yuan -8%
  4. British pound -10%
  5. Japanese yen -12%

The aggressively hawkish Fed focused on raging inflation spurred strong demand for the U.S. dollar in 2022. The king currency has been moving the opposite way from gold - the dollar has been rising while gold is sinking.

In the last two months, the tables have turned, and we are seeing gold rising and the dollar weakening.

As a result, the net change for the whole year 2022 is zero and it takes the top place in the rating. It means that keeping either the U.S. dollar or gold was the right idea in terms of storing value.

Other currencies lost a lot to gold in 2022. Compared to other top countries, the main factor was the rapid tightening in the United States.

Among the specific factors for each currency are the energy crisis in Europe, the COVID-19 situation, chronic stress in the real estate sector in China, the death of Queen Elizabeth and a political crisis in the U.K., and negative interest rates in Japan.    
Euro ranked #2 losing 6%, Chinese yuan has dropped 8% at #3 spot, British pound has weakened by 10% at #4 and the Japanese yen is the ultimate outsider with a huge loss of 12%.

Which fiat currency will come out on top versus gold in 2023?

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I really appreciate your strong support and all your valuable thoughts shared last year.

I wish you good luck in the New Year 2023!

Aibek Burabayev Contributor

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from for their opinion.