According to a survey conducted by the Official Monetary and Financial Institutions Forum (OMFIF) and published on Tuesday, an increasing number of global reserve managers are planning to increase their exposure to the high-yielding US dollar while decreasing their interest in China’s yuan. The shift is primarily driven by concerns over low returns and geopolitical tensions associated with the yuan.
The survey reveals that a net 18% of reserve managers surveyed intend to boost their exposure to the US dollar in the next 12-24 months, citing the dollar’s global trade dominance and expectations of higher relative returns. This challenges the prevailing trend of de-dollarization, which suggests diversification away from the US dollar.
Conversely, demand for China’s currency among reserve managers has stalled. Approximately 12% of the surveyed central bank reserve managers plan to reduce their yuan holdings in the next 12-24 months, while only 13% plan to increase them. This marks a notable shift from previous years when a significant portion of respondents expressed intentions to increase their exposure to the Chinese currency.
Factors such as market transparency, geopolitics, and relatively low policy rates in China were cited as reasons for the reduced interest in the yuan. Managers noted the ability to earn higher yields in US or European government bonds as an attractive alternative.
However, the survey suggests that in the longer term, reserve managers still anticipate increasing their exposure to the Chinese currency. China’s 10-year bond yield currently stands at around 2.3%, significantly lower than the yield of 4.5% on the 10-year US Treasury note.
The survey also highlights the continued interest in gold among central banks. Around 15% of respondents indicated their plans to increase their exposure to gold this year. If realized, this could result in an additional $600 billion of reserves being allocated to gold in the coming years, further contributing to the record-high prices of the precious metal observed this year.
