Central banks managing trillions in global reserves are intensifying their shift toward gold, marking the highest net increase in gold accumulation in at least five years. According to the latest OMFIF survey, one in three central banks plans to boost gold holdings over the next one to two years, with a net 40% expecting to increase allocations over the next decade. This momentum follows years of record-high gold purchases, as reserve managers double down on the precious metal to hedge against currency volatility and geopolitical risk.
The trend is underpinned by concerns over the dollar’s stability, with 70% of surveyed central banks citing the U.S. political environment as a deterrent to further dollar investments-a figure more than double that of the previous year.
Euro Gains Favor as the Top Short-Term Alternative
The euro has rapidly emerged as the most in-demand currency for reserve diversification in the short term. The OMFIF survey found a net 16% of central banks plan to increase euro holdings in the next 12 to 24 months, up from just 7% a year ago. This renewed interest is attributed to the eurozone’s economic resilience and the bloc’s efforts to strengthen its financial infrastructure.
Reserve managers and analysts expect the euro’s share of global reserves to climb from 20% to as much as 25% by the end of the decade, with some predicting this milestone could be reached within two to three years if Europe expands its bond market and integrates its capital markets.
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Central banks purchased a record 1,037 metric tons of gold in 2023, the highest annual total since records began, underscoring gold’s enduring appeal as a reserve asset.
Yuan’s Long-Term Potential Attracts Strategic Allocations
While the euro is favored in the near term, the Chinese yuan is considered the primary long-term challenger to the dollar. Over the next decade, a net 30% of central banks expect to increase yuan holdings, with its share of global reserves projected to triple to 6%. The yuan’s growing appeal reflects China’s expanding role in global trade and finance, though capital controls and limited bond market depth remain obstacles to broader adoption.
Former Chinese central bank chief Zhou Xiaochuan and other experts acknowledge that the yuan’s ascent will require further reforms and greater international confidence in China’s financial system.
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U.S. Policy Uncertainty and Geopolitics Accelerate Reserve Shifts
U.S. policy volatility, including the impact of recent tariffs and political gridlock, closely ties the dollar's decline in favor among central banks. President Trump’s Liberation Day tariffs have sparked market turmoil, eroding the dollar’s safe-haven appeal and prompting central banks to seek greater diversification. Harvard economist Kenneth Rogoff notes that the euro’s rise is driven less by newfound confidence in Europe and more by diminished trust in the dollar’s stability.
This environment has led to increased inquiries from reserve managers about the risks to the dollar’s status, a phenomenon not seen even during the 2008 financial crisis.
Europe’s Opportunity to Solidify Its Reserve Currency Status
The European Union, as the world’s largest trading bloc, is poised to capitalize on the shifting reserve landscape. ECB President Christine Lagarde and other policymakers are advocating for deeper capital market integration and more joint borrowing to enhance the euro’s global standing. If these measures succeed, experts believe the euro could reach a 25% share of global reserves within a few years, solidifying its role as the leading alternative to the dollar.
Public pension and sovereign wealth funds are also showing increased interest in European assets, further supporting the euro’s upward trajectory.
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