Central banks cut dollar, turn to gold
Central banks worldwide are increasingly shifting their foreign exchange reserves away from the U.S. dollar, favoring gold, the euro, and China's yuan amid rising geopolitical tensions and concerns over U.S. fiscal policy. A forthcoming report from the Official Monetary and Financial Institutions Forum (OMFIF) reveals that one in three central banks are managing a combined $5 trillion plan to increase their gold holdings over the next two years. This survey, conducted between March and May, highlights the impact of recent geopolitical events, including the repercussions of Donald Trump's tariffs.
Gold has become a preferred asset, with central banks purchasing over 1,000 tonnes annually, making it the second-largest reserve asset globally. Approximately 40% of central banks intend to boost their gold reserves over the next decade. In contrast, the U.S. dollar, once the most favored currency, has dropped to seventh place in this year's survey, with 70% of respondents citing the discouraging U.S. political environment.
The euro is gaining traction, with 16% of central banks planning to increase their euro holdings in the next two years, up from 7% last year. The euro's share of global reserves is projected to reach about 22% in ten years, contingent on Europe enhancing its bond market, which currently lags behind the $29 trillion U.S. Treasury market. Meanwhile, nearly a third of central banks expect to increase their yuan holdings, with its share of global reserves anticipated to triple to 6%.
China is actively promoting the yuan's international use through digital currency initiatives and trade agreements with countries like Russia and Saudi Arabia. While the U.S. dollar remains the dominant global reserve currency, its share is steadily declining, signaling a shift toward a more multipolar financial system as central banks diversify to mitigate economic and political uncertainties associated with U.S. policies.
