Alan John
LONDON (Reuters) – More global reserve managers are planning to increase allocations to the now high-yielding U.S. dollar as their interest in the dollar has weakened due to low yields and geopolitical tensions, the Official Monetary Institutions Forum said.
The think tank’s survey data, released Tuesday, challenges – at least in the short term – the trend toward de-dollarization, the idea that countries will diversify away from dollars.
A net 18% of reserve managers surveyed said they intend to increase exposure to the US dollar over the next 12 to 24 months, more than any other currency. They cited the role of the dollar in global trade and expectations of higher relative returns as reasons.
However, demand for the Chinese currency among reserve managers has stalled.
“This is the first year that we have seen a significant proportion of reserve managers looking to reduce their yuan holdings,” said Nikhil Sangani, managing director of the OMFIF Economic and Monetary Policy Institute, referring to the Chinese currency by another name.
About 12% of 73 central bank reserve managers surveyed by OMFIF plan to reduce their yuan holdings in the next 12 to 24 months, while 13% plan to increase them.
In 2023, only 3% said they intended to reduce yuan holdings, while no one did so in 2022 or 2021, when more than 30% of respondents said they planned to increase their dependence on the Chinese currency.
“Many (managers) noted market transparency and geopolitics as some of the obstacles, and, at least in the short term, quite a few noted that this is simply the point of return: interest rates in China are low and you can get better returns in the US or other countries. European government bonds now,” Sangani said.
However, in the long term, he added, reserve managers still expect their exposure to the Chinese currency to increase.
China’s yield is about 2.3%, compared with the 4.5% yield on the 10-year U.S. Treasury note.
The study also found that central banks plan to continue increasing their exposure to gold, a trend that has already helped the precious metal reach record highs this year.
About 15% of respondents expect their exposure to gold to increase this year, according to the survey. If that happens, OMFIF estimates, that would mean an additional $600 billion in reserves would be made up of gold in the coming years.