I don't think holding gold does much, but in theory, a central bank could prop up its currency by selling the gold. It's like selling any other asset.

> How does holding gold protect from devaluation?

I think the idea is to rise the value of your currency, you rise the demand for your currency, by selling for it something that everybody wants, like gold.

Of course this demand is artificial and you'll run out of hold to sell at some point, but it can hopefully carry you over thd bump.