There are growing questions over the dollar’s dominance in portfolios and public investors are seeking safe-haven assets, according to survey results published by the Official Monetary and Financial Institutions Forum (OMFIF) on Tuesday. This year’s GPI report, based on a survey of 75 central banks, shows the appetite for diversification continues for very different reasons. The foundations of the global economic order, underpinned by globalisation and the dollar, are shaking. Conducted from March to May this year, the survey revealed that 96% of reserve managers view US tariffs as a major geopolitical concern. This is not a temporary consideration: over 80% of reserve managers have geopolitics in their top three factors shaping longer-term investment decisions, ahead of inflation, real interest rates and technological change, the survey noted.
Reserve managers expect to move away from dollars and towards other currencies – especially the euro and renminbi – although this shift will be gradual, the survey noted. The dollar was the only currency that saw demand fall this year, while a net 16% of survey respondents intend to add to their euro holdings over the next two years, up from 7% last year. However, this preference is not across the board, with respondents from emerging markets more likely to add to their renminbi holdings.
Meanwhile, 32% of central banks plan to increase their exposure to gold in the next 12 to 24 months, with over 20% forecasting the price to surpass $3,500 per ounce. Gold is shining brightest as a diversifier, the survey noted as a dedicated ‘in-focus’ section reveals the precious metal is the most demanded asset class for central banks. According to the survey, diversification is the number one reason why central banks are buying gold, the second reason is as a hedge against geopolitical risks and the third factor driving demand is to hedge against inflation. However, the dollar’s reserve currency status is not yet under threat. Over 80% of central banks stated the dollar still provides safety and liquidity, and the vast majority expects it to constitute over 50% of global reserves over the next decade, according to the OMFIF survey.