Central Banks to Reduce Dollar Holdings for First Time

A survey of 90 major investors (central banks, pension funds, and sovereign wealth funds holding about $10 trillion in total) found that, for the first time in history, more central banks aim to reduce their US dollar holdings over the next ten years than to increase them. 

The survey was conducted by a London-based think tank called OMFIF. The main reason behind this survey is the rising political risk associated with the US currency. This reason raises one major concern: whether the dollar should keep being the world’s main “reserve currency, the currency every country trusts and stockpiles. 

The dollar is not collapsing at the moment; in fact, it has risen by 3% this year. This increase is supported by higher US interest rates, which boost demand for US assets, and a “flight to safety” prompted by the US-Iran war. People often turn to the dollar during times of fear, even if they have long-term doubts about US politics. However, both countries are moving toward progressive discussions and may be able to ease tensions through diplomatic efforts.

Even so, about 79% of central banks and 60% of public funds think the world’s monetary system is moving towards a multipolar setup, which means instead of having one dominant currency, several currencies should share importance. As part of that, smaller currencies are gaining popularity as central banks have been increasing the amounts they hold in Norwegian krone and New Zealand dollars. They are more interested in British pounds. 

They also want euros and Chinese yuan, but they noted structural issues that make both currencies less attractive than they could be. Almost everyone surveyed considers the yuan useful for diversifying their portfolios. 

However, Gold is the real star of this survey. It’s now held by 82% of central banks and has hit record-high prices, becoming central to how these institutions manage their reserves. In fact, gold is the single asset that central banks most want to add to in the near term, with 30% planning to expand their gold holdings over the next year or two. 

Overall, trust in the dollar as the only safe option is quietly declining, even though it’s still the strongest currency in the short term. Central banks are avoiding buying more gold, spreading into smaller currencies, leaning harder into emerging markets and real assets.