Exiting the "green" zone: what, if not the dollar, do the world's central banks want to invest in

The world's central banks are diversifying their reserves with might and main and plan to gradually move away from the dollar, but this will not happen immediately. Such conclusions are contained in the OMFIF Global Public Investor 2025 report, based on a survey of officials from 75 central banks and 15 pension funds. Regulators from different countries, investing their reserves, are now thinking much more about reducing risks than about profitability, and geopolitical instability only fixes and strengthens this policy. What trends currently exist in the competition of reserve currencies and other assets can be found in the Izvestia article.

Geopolitics in reserve

In the last few years, the global financial system has been hit by many shocks. At first, the pandemic led to the blocking of a significant part of international trade, a global recession and a sharp increase in the debt burden. Then the Ukrainian conflict, the "carpet" application of sanctions and the aggravation in the Middle East led to a crisis and a reorientation of global supply chains. Finally, trade wars and US tariffs against most countries of the world have brought economic uncertainty to a maximum.

Photo: REUTERS/Athit Perawongmetha

All this has become a serious headache not only for private and institutional investors, but also for central banks, which have accumulated assets worth many trillions of dollars. The traditional scheme of work "going into the dollar in a crisis" may be stalling now. The United States is faced with a colossal amount of debt, the cost of servicing which is constantly increasing. This problem did not appear yesterday, but the trade war launched by the Donald Trump administration has increased concern. However, the alternatives to this strategy still look questionable. It is not surprising that, according to the authors of the report, "investors have been counting the last year for ten."

According to the OMFIF document, bankers were most worried about tariffs. Of the managers of reserve assets, 31% named geopolitics as the main factor they would consider when making investment decisions. At the same time, 96% of those worried about geopolitical tensions are most concerned about duties and trade policy. However, they are confident that this is not a temporary deviation.: 80% believe that geopolitics will be among the three main decision-making factors over the years. It turned out to be more important than inflation, refinancing rates, and technological changes.

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So far with the dollar

The threat of a tariff war and the general state of the United States primarily hit the dollar (which may also be explained by the fact that it was overvalued before that). The US currency has become the only one that has lost in net demand over the past year. Last year, 31% of respondents expressed concern about the political climate in the United States, compared with 70% this year. At the same time, concern was expressed about the geopolitical and fiscal risks that the United States is experiencing. More than half of the representatives of the Central Bank and the largest pension funds believe that "American exceptionalism" in the financial markets will soon cease to exist.

Photo: IZVESTIA/Anna Selina

However, this does not mean that the central banks of the world are going to immediately abandon the dollar. 80% of them still believe that the US currency provides security and sufficient liquidity. The same percentage of funds in reserves remains deposited in dollars. The managers believe that there will be smooth diversification rather than rapid de-dollarization.

As for the euro, in this case, the Central Bank managers have mixed feelings. The number of supporters of increasing investments in euros exceeded the number of opponents by 16% — last year it was 7%. But at the same time, regulators are not happy about the returns on euro-denominated assets.

If we talk about emerging markets, central bankers from these countries are much more enthusiastic about the yuan, which they clearly prefer over the European currency. Overall, 32% plan to increase their investments in yuan, while 25% prefer euros. Only 2% are reducing their yuan investments, while about 10% intend to reduce investments in euros. Interestingly, one of the hardest currencies in the world, the Swiss franc, is not particularly popular: only 8% expressed a desire to increase investments in it.

Photo: IZVESTIA/Sergey Lantyukhov

Of the individual countries whose assets could replace American ones, Germany (47%) and India (46%) are most often mentioned. The first one is popular because of its low debt burden, which means that it is possible to actively increase borrowing over a fairly long period of time. The second one is characterized by rapid economic growth and a relatively open economy (compared to China).

In general, reserve managers do not expect a return to bull market conditions. Only 3% are optimistic about the prospects of global financial markets for the next 12-24 months, while almost 50% are pessimistic. Negative sentiment is noticeable in all regions, but it is especially pronounced in sub-Saharan Africa and Latin America, where more than half of reserve managers give a negative outlook. More and more of them consider the preservation of capital and liquidity to be a priority and are paying attention to safe haven assets.

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Gold is above all

The asset that attracted the most interest from central banks was gold. 32% of regulatory financial institutions intend to increase investments in the precious metal over the next year. Within 10 years, 40% of the Central Bank will increase its investments in it. Geopolitics (45%), protection from inflation (32%), and distrust of the financial system (20%) were again named among the main reasons. 89% of respondents expect prices above $3,000 per ounce in the medium term, while 21% predict prices above $3,500. Recall that over the past 12 months, the price of gold has jumped by 40%, which is one of the fastest rises in recent decades. According to the survey, 70% of the Central Bank stores physical gold bars, not ETFs or futures, some repatriate stocks from foreign vaults (Izvestia has already written about the corresponding intentions of Germany and Italy).

Photo: Global Look Press/Komsomolskaya Pravda

In general, the demand for gold has been growing at a systemic level every year since the financial crisis of 2008. And since 2022, central banks have added at least 1 thousand tons of gold to their "bins" annually. The Central Bank does not reach the historical maximum of 38.3 thousand tons reached in 1965, although it is rapidly approaching this mark. Mongolia is a typical example. This country with an economy of only $20 billion increases its gold reserves by 18-22 tons annually, that is, it spends almost 10% of GDP on this.

It is absolutely certain that the Central Bank does not want to invest in the stock market. Short-term government bonds of the most reliable countries are an alternative to gold. And despite all the expectations from bitcoin, government investors remain skeptical about it. Only 10% of central banks are seriously considering buying any digital assets due to volatility and regulatory issues.