Gold emerges as top beneficiary from reserve diversification
Euro seen gaining in the short term; yuan poised for long-term rise
As global trade fragments and geopolitical tensions rise, central banks managing trillions in foreign reserves are increasingly looking beyond the U.S. dollar. According to a report from the Official Monetary and Financial Institutions Forum (OMFIF), due to be published later on Tuesday, gold, the euro, and China’s yuan are emerging as the preferred alternatives.
The survey, conducted between March and May among 75 central banks monitoring a total of $5 trillion in assets, showed that one in three banks plan to increase their gold reserves in the next one to two years—the highest proportion in at least five years. The trend comes after U.S. President Donald Trump’s April 2 “Liberation Day” tariffs, which created financial market volatility and undermined confidence in the traditionally safe-haven U.S. dollar and Treasuries.
“Following several years of record levels of gold purchases by central banks, reserve managers are doubling down on the precious metal,” OMFIF said.
Gold remains the biggest winner, with a net 40% of central banks expecting to boost holdings over the next decade.
Meanwhile, confidence in the dollar is fading. Once the top currency in OMFIF’s 2023 survey, it has slipped to seventh place this year. Seventy percent of respondents cited U.S. political instability as a deterrent—more than double the share from the previous year.
In terms of currency diversification, the euro and yuan are poised to gain the most. Over the next 12 to 24 months, a net 16% of central banks plan to increase euro reserves, making it the most in-demand currency, up from 7% last year. The yuan follows closely, with a longer-term appeal: by 2035, a net 30% of central banks expect to hold more yuan, potentially tripling its global reserve share to 6%.
Sources directly involved with reserve managers told Reuters they see the euro regaining ground lost during the 2011 eurozone debt crisis, potentially restoring its share of global reserves to 25% by decade’s end from the current 20%. Sentiment toward the euro has improved markedly since the Liberation Day tariffs.
“This is the first time I can recall central banks questioning the dollar’s safe-haven status—not even in 2008 did this happen,” said Max Castelli, head of global sovereign markets strategy at UBS Asset Management.
According to the OMFIF report, central banks forecast the dollar’s share of global reserves to drop from 58% today to around 52% by 2035—still dominant, but increasingly diminished.
Euro’s Window of Opportunity
Respondents expect the euro to account for about 22% of global reserves within the next decade. Harvard professor and former IMF chief economist Kenneth Rogoff told Reuters, “The euro’s share will likely rise, not because Europe is viewed so favorably, but because confidence in the dollar is waning.”
However, the euro’s potential hinges on Europe expanding its bond market, which is currently overshadowed by the $29 trillion U.S. Treasury market, and on greater integration of EU capital markets. ECB President Christine Lagarde has urged policy action to strengthen the euro’s role.
“The euro is currently the only viable alternative to make a significant change in reserve composition,” said Bernard Altschuler, global head of central bank coverage at HSBC. He considers a 25% reserve share for the euro within 2–3 years “realistic” if structural issues are addressed.
The European Union, the world’s largest trading bloc, has renewed efforts to reduce its reliance on the U.S., boosting defense spending and launching joint borrowing initiatives. Germany is leading with increased fiscal support, and the EU aims to unify its capital markets further.
OMFIF’s survey also found that public pension funds and sovereign wealth funds see Germany as the most attractive developed market.
UBS’s Castelli confirmed a sharp rise in euro-related inquiries, predicting a 25% reserve share by the end of 2020. At the bullish end, Francesco Papadia—former ECB markets chief—believes the euro could hit that mark within two years.
“There’s more willingness among reserve managers to consider the euro,” said Papadia, now a senior fellow at think-tank Bruegel. Zhou Xiaochuan, China’s central bank governor from 2002 to 2018, echoed this sentiment but noted that Europe still has “homework to do” before the euro can fully rival the dollar.
📄 Reference Link
Read the original article at Reuters:
https://www.reuters.com/world/china/central-banks-eye-gold-euro-yuan-dollar-dominance-wanes-2025-06-24/
