Global Central Banks Shift Reserves from Dollar to Gold, Euro, and Yuan Amid Geopolitical Tensions

Central banks managing a collective $5 trillion in reserves are planning a strategic move away from the U.S. dollar, increasingly favoring gold, the euro, and China’s yuan. A recent survey by the Official Monetary and Financial Institutions Forum (OMFIF) reveals that a third of these banks intend to increase their gold holdings in the next one to two years. This comes amid growing geopolitical uncertainties and fragmentation of global trade, particularly following U.S. President Donald Trump’s Liberation Day tariffs in April, which disrupted markets and weakened confidence in the dollar.

Gold emerged as the strongest alternative, with a net 40% of central banks planning to boost gold holdings over the next decade. Confidence in the dollar has declined sharply, with the OMFIF report noting a drop in its popularity from first to seventh place among reserve assets. Seventy percent of surveyed banks cited the volatile U.S. political landscape as a key reason for shifting away from the greenback, double the percentage from the previous year.

In terms of currencies, the euro is currently the top beneficiary, with a net 16% of central banks looking to raise their euro holdings within two years. However, over the long term, the yuan is expected to gain more traction, with 30% of banks planning to increase yuan reserves and its global share predicted to triple to 6%. Experts believe that the euro could recover ground lost since the 2011 eurozone debt crisis, potentially reaching a 25% share of global reserves by the decade’s end.

Despite ongoing structural weaknesses in the European financial system, such as a fragmented capital market and limited bond supply compared to the U.S., there is renewed optimism around the euro. Central banks and sovereign wealth funds are reportedly more interested in euro-denominated assets, especially following Europe’s push to reduce reliance on the U.S., enhance defense capabilities, and support integration of its financial markets. Germany’s fiscal expansion and broader EU reforms are also adding momentum.

The OMFIF survey suggests the dollar’s share in global FX reserves could decline to 52% by 2035 from the current 58%, although it will likely retain the top spot. Meanwhile, the euro is seen rising to 22% or even 25% in the next decade. Analysts and former central bankers, including those from the ECB and China, agree the euro is the “only real alternative” for now, though reforms are needed. The yuan’s potential is still constrained by China’s capital controls, but its appeal is growing in the longer term.

Source: Reuters