By Andrew Miller
A record level of central banks plan on reducing their dollar holdings over the next decade.
That’s according to a new survey of 74 central banks worldwide, published this week by the Official Monetary and Financial Institutions Forum (OMFIF).
It’s the first time since the survey started in 2023 that so many banks have decided to cut back from the US currency instead of increasing their supply.
The shift comes alongside ever-changing American foreign policy that includes a war in the Middle East and continuing tariffs. The instability has caused many global banks to “de-dollarize.” In fact, the dollar’s share of those reserves hit a two-decade low last year.
So, where’s the money going instead? Mostly the euro and the Chinese renminbi.
Almost every central bank surveyed values the renminbi for its useful diversification. In addition, two-thirds of banks noted an increasingly favorable trend towards the euro in global trade. The euro-dominated international debt reached record levels last year, alongside becoming the new leader in green bonds.
Smaller currencies are getting a look too. The Singapore dollar, the South Korean won, the South African rand have seen growing demand.
Then there’s gold. A record amount of central banks said they plan to buy more of it this year, even with prices up more than 20% over the past twelve months. Price hasn’t slowed the appetite. A little over half of central banks believe gold offers protection against geopolitical risk.
Despite a growing sense of risk tied to the dollar, there’s no need to worry about a total collapse. The report from the OMFIF stated that the dollar “still dominates portfolios and is expected to do so for the foreseeable future.”
This is a slow drift, not a stampede. But it’s a drift worth watching, because it’s the first time the needle has pointed this direction.
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