Volume II · After Gold · Money Research

09 — Pandemic, Inflation and Weaponised Reserves, 2020–2026: Where the System Stands

Pandemic fiscal spending and central-bank balance sheets

When COVID-19 shut the world economy in March 2020, governments and central banks did in weeks what had taken years after 2008. The Fed cut rates to zero in two emergency moves (3 and 15 March), announced unlimited bond purchases on 23 March, reopened swap lines with foreign central banks, and for the first time bought corporate bonds; its balance sheet went from $4.2 trillion to nearly $9 trillion by 2022. Congress passed the $2.2 trillion CARES Act on 27 March 2020, the first of about $5 trillion of pandemic spending including direct cheques to households; the deficit reached 15% of GDP in 2020, the highest since 1945. The ECB launched a €750 billion Pandemic Emergency Purchase Programme on 18 March, later enlarged to €1.85 trillion, and in July 2020 the EU agreed to borrow €750 billion jointly for a recovery fund — the first common European debt, the "Hamiltonian moment" the eurozone crisis had failed to produce. Britain, Japan, Canada and Australia did the same in proportion. US broad money grew by about 40% in two years, the fastest since the Second World War.

The inflation (2021–23)

Inflation rose sharply after the pandemic. Fiscal transfers, changing demand, supply-chain disruption and, from February 2022, energy prices during the Ukraine war (“Wars, Invasions and Money, 1971–2026”) were potential channels with different timing. The sizes of their contributions require a matched economic analysis; a larger central-bank balance sheet or money aggregate alone does not establish the cause. US consumer-price inflation reached 9.1% in June 2022, and central banks later raised rates and reduced some asset holdings. The British gilt-market intervention, US bank failures and Credit Suisse resolution had different triggers and balance-sheet exposures; describing all of them as mechanically caused by rate rises would erase those distinctions. The precise inflation, rate and crisis comparisons elsewhere in this paragraph remain for source review.

The weaponisation of reserves and the return of gold (2022–26)

The 2022 freeze of Russian central-bank assets prompted debate over where states hold reserves and who controls access to them; its effect on each central bank's allocation cannot be inferred from aggregate shares alone. The ECB estimated gold at 27% of official reserves including gold at end-2025, above the euro (15%) and US Treasuries (22%) in that measure. It attributed most of gold's rise in share to price valuation: holding gold at its end-2023 price would put gold and the euro at roughly 16% each and Treasuries at 26%. ECB, June 2026, chart 7. Separately, IMF COFER put the dollar at 57.13% of foreign-exchange reserves in 2026 Q1. COFER excludes monetary gold, SDRs and IMF reserve positions, and its 2025 Q3 methodological revision replaced the former “allocated/unallocated” split and revised historical observations. The two percentages must not be added, substituted or read as proof that a dollar-share change financed gold purchases. IMF COFER; IMF 2026 Q1 data brief.

American debt, the Fed and the tariffs (2025–26)

US fiscal and trade policy changed sharply in 2025–26, with tariff authority contested in court and federal funding briefly interrupted. A funding gap began on 1 October 2025 and ended when a funding measure was signed on 12 November; the Congressional Research Service counts 42 full days of gap, while inclusive agency-closure dates may be counted differently. CRS, *Federal Funding Gaps*, p. 9.

On 20 February 2026, in Learning Resources, Inc. v. Trump, a six-Justice Supreme Court majority held that the International Emergency Economic Powers Act (IEEPA) did not authorise the president to impose tariffs; the three dissenters would have upheld that authority. The opinion resolved statutory authority in the cases before the Court, not the amount or timing of any importer refunds. A separate presidential proclamation imposed a 10% temporary surcharge on covered imports, with specified exclusions, from 24 February under Section 122 of the Trade Act of 1974; the statute limits that surcharge to 150 days absent congressional extension. Other tariff authorities and rates require separate measures and dates. Supreme Court slip opinion, syllabus and judgment; Federal Register, Proclamation 11012, pp. 9341–42.

Kevin Warsh took office as chair of the Federal Reserve Board and was selected FOMC chair on 22 May 2026. The FOMC held its federal-funds target range at 3.50–3.75% in June and July. In July, three of twelve voting members preferred a 0.25-point increase. The July minutes report May total PCE inflation at 4.1% year on year, a staff estimate of 3.7% for June, and a June unemployment rate of 4.2%; those are different series and observation dates. The staff attributed higher inflation to several factors, including earlier tariffs, energy and input costs related to the Middle East conflict, and AI-related demand. These observations do not show that the war alone set rates or that the June projections required a hike by year-end. Federal Reserve, Warsh oath and FOMC selection; Warsh, July testimony on June hold; July FOMC minutes, staff review and policy vote.

Europe, Japan, China and the rest

National responses to war, energy-price shocks and financial pressure differed. In March 2025 Germany's constitutional changes enabled a €500 billion infrastructure and climate-investment fund; the EU's Readiness 2030 plan outlined a route to up to €800 billion in additional defence investment by 2030, rather than an amount already spent; and NATO allies committed in June 2025 to 5% of GDP annually for core defence and related security investment by 2035. Bulgaria adopted the euro on 1 January 2026. Bundesregierung, infrastructure fund; Council of the EU, Readiness 2030; NATO, 5% commitment; ECB, Bulgaria's euro adoption. In October 2025 US Treasury agreed to an up-to-$20 billion Exchange Stabilization Fund arrangement with Argentina's central bank; the bank drew $2.5 billion in an executed currency swap that month and fully repaid it in December 2025, closing the position. An agreement ceiling is not an amount received. US Treasury FY2025 Agency Financial Report, “Exchange Stabilization Agreements,” printed/PDF p. 136.

The 2026 energy shock

The conflict that began on 28 February 2026 sharply impeded oil flows through the Strait of Hormuz (“Wars, Invasions and Money, 1971–2026”). In its 22 June assessment, the IEA described the near closure as the largest global energy-supply disruption in its history and estimated oil flows through the strait at an average 2.7 million barrels per day in March–May, against around 20 million barrels per day before the conflict. These are IEA estimates for specified periods, not a verified September shipping condition or a single cause of each national outcome. IEA, 22 June supply assessment, opening. The IMF's July update projected global growth of 3.0% in 2026 and 3.4% in 2027, with uneven effects from war and AI-related demand; it did not report final growth outcomes. IMF, July 2026 WEO Update, overview. Gold had reached the World Gold Council's USD-series record of $5,405/oz on 29 January, before the conflict. WGC reported a $4,027/oz July-end USD price after the series tested $4,000 during July, and $4,563/oz at end-August. Dated gold prices alone cannot attribute the price path to the conflict. WGC July 2026, table 1; WGC August 2026, table 1.

Where money stands in September 2026

The dollar still plays major roles in trade invoicing, foreign-exchange dealing, lending and reserves. Dollar-denominated stablecoins extend some payment uses, but they are not the same thing as central-bank reserves. At end-2025 market prices, gold represented 27% of the ECB's broad official-reserves measure, which includes gold and foreign exchange; its higher share was largely a price effect. The euro and dollar shares in IMF COFER measure the currency composition of foreign-exchange reserves only. Comparing these measures requires the denominator, date and valuation convention beside each number. ECB, June 2026, chart 7; IMF COFER.

Key takeaways

The pandemic and subsequent supply shocks were followed by sharp inflation and monetary tightening. The 2022 reserve freeze renewed attention to gold's custody and issuer-risk properties, but a causal reallocation of reserve portfolios cannot be established from market-value shares alone. At end-2025 gold exceeded both the euro and US Treasuries in the ECB's broad official-reserves measure, largely because its price had risen; the IMF's COFER dollar share refers only to foreign-exchange reserves and excludes gold. Reserve holdings, trade invoicing and payment use answer different questions. ECB, June 2026, chart 7; IMF COFER.