The impacts of geopolitical risks on gold, oil and financial reserve management

Abstract

This study explores the influence of geopolitical risks on national reserves and resource management strategies across 108 countries from 1990 to 2021. Using the Geopolitical Risk (GPR) index and major geopolitical events, and applying a two-step system GMM approach, we find that geopolitical risks adversely influence a country's ability to accumulate total reserves relative to its external debt. This indicates considerable challenges in resource management amid geopolitical instability. We also find that the role of different types of reserves varies, with gold serving as a safe haven and financial and other reserves being used to meet immediate economic needs. Additionally, the role of natural resources like oil emerges as an alternative revenue stream in geopolitically risky contexts. Our findings underscore the necessity for flexible and robust economic policies to mitigate the impacts of geopolitical risks on national reserves and resource management.