• Central banks around the world are increasingly concerned about the US dollar due to its high debt levels and geopolitical influence.
• The survey found that central banks expect to increase their holdings of Chinese yuan over time due to “strong performance and uncorrelated returns”.
• Gold has become more attractive as a safe-haven asset, with central banks preferring physical gold rather than ETFs or derivatives.
Central Banks Wary of US Dollar
A survey conducted by institutional asset manager Invesco revealed that 57 central banks around the world have grown wary of the reliability of the US dollar due to its surging debt levels and geopolitics. This is in response to America’s treatment of Russians amidst the conflict with Ukraine.
Increasing Holdings of Chinese Yuan
The survey discovered that many central bankers are expecting to increase their renminbi holdings over time, driven by “strong performance and uncorrelated returns”. This suggests that while few believe there will be a world where Chinese yuan becomes the global reserve currency, they still want it as part of their portfolio for higher yields and safety reasons.
Gold Becomes Attractive Asset
In reaction to what happened between US and Russia, most (58%) surveyed believed gold became more attractive as an asset. Consequently, physical gold holdings have increased the most when compared with 2020; even more so than gold ETF usage which has fallen in contrast. One West based central bank said this about gold: “We increased exposure 8-10 years ago… but we’ve now transferred our gold reserves back to our own country to keep it safe – its role now is to be a safe-haven asset.”
Rising Debt Levels Hurt Dollar
The rising debt levels in US is seen negatively impacting the dollar according to majority surveyed in this study making other assets like Chinese yuan or Gold attractive for holding reserves instead.
Global reliance on US dollar as a dominant reserve currency is increasingly being questioned due to various geopolitical factors plus rising debt levels in USA prompting Central Banks around the world look for alternatives like Chinese Yuan or Gold for their reserves instead.