Central Banks Plan to Reduce U.S. Dollar Reserves
More global central banks expect to reduce their U.S. dollar holdings than increase them over the next decade, according to a new OMFIF survey.
The report found that political uncertainty surrounding the United States and rising geopolitical risks are changing how public investors view the dollar.
This marks the first time the Official Monetary and Financial Institutions Forum survey has recorded a net shift away from the U.S. currency.
Dollar’s Reserve Currency Role Faces New Questions
The findings come amid growing debate over the dollar’s position as the world’s leading reserve currency.
Uncertainty over U.S. policies and heightened geopolitical tensions have encouraged central banks and sovereign investors to reconsider how they manage their reserves.
The London-based think tank surveyed 90 institutions, including central banks, sovereign wealth funds and public pension funds.
Together, the participants manage approximately $10 trillion in assets.
Many respondents now see financial market volatility as a permanent feature rather than a temporary disruption.
As a result, public investors are testing new strategies, including the greater use of artificial intelligence.
OMFIF senior economist Yara Aziz said the traditional assumption that investors can wait for market conditions to return to normal is becoming increasingly unrealistic.
Dollar Remains Strong Despite Diversification Plans
Although central banks are considering lower dollar allocations, there is still no clear replacement for the U.S. currency.
The dollar has gained around 3% this year, supported by higher U.S. interest rates, strong demand for American assets and safe-haven buying linked to the U.S.-Iran conflict.
However, 79% of central banks and 60% of public funds believe the global monetary system is moving toward a more multipolar structure.
This could result in reserve assets being distributed across a wider range of currencies.
Smaller Currencies Gain Reserve Interest
Currencies outside the eight most widely held reserve currencies are gradually attracting more attention.
Central banks have shown interest in increasing their holdings of the Norwegian krone and New Zealand dollar.
Demand for the British pound has also strengthened.
Survey participants still plan to increase allocations to the euro and the Chinese renminbi. However, they said structural challenges continue to limit the appeal of both currencies.
Despite those concerns, almost all respondents considered the Chinese yuan an effective tool for portfolio diversification.
Gold Becomes Central to Reserve Strategies
Gold has become an increasingly important part of central bank reserve management.
The precious metal is already held by 82% of the central banks included in the survey.
After reaching a series of record highs, gold has moved closer to the centre of many reserve allocation strategies.
Over the next one to two years, gold is the asset that central banks are most likely to increase.
A net 30% of respondents said they intended to raise their gold allocations during that period.
Central Banks Prepare to Expand AI Use
Artificial intelligence is also becoming a greater priority for central banks.
More than 66% of central banks surveyed plan to increase their use of AI in the near term.
No advanced-economy central bank said it was satisfied with its current level of AI adoption. Across all central banks, only 9% said current usage was sufficient.
AI is currently used mainly for data analysis and back-office operations.
However, adoption rates vary significantly between developed and emerging economies.
More than 89% of central banks in developed markets use AI, compared with 44% in emerging economies.
Public Funds Favor Infrastructure and Real Estate
Among public investment funds, physical assets remain highly attractive.
Almost 60% of respondents plan to increase their exposure to infrastructure and real estate over the next one to two years.
Demand for these assets was stronger than for most other investment categories.
The survey also recorded growing interest in emerging markets.
Approximately 38% of global public funds plan to increase their allocations to emerging economies, up from 27% in the previous year.
By comparison, only 25% intend to increase exposure to developed economies, down sharply from 47% last year.
United States and China Remain Top Markets
Despite the broader move toward diversification, the United States and China remain the most attractive individual markets for public investors.
Their strong positions in the global artificial intelligence industry contributed to their popularity.
The findings suggest that central banks and public funds are not abandoning major markets. Instead, they are seeking broader diversification across currencies, precious metals, physical assets and emerging economies.
