By Alun John
LONDON (Reuters) – More global reserve managers are looking to increase exposure to the now high-yielding U.S. dollar as interest in it has deteriorated due to low yields and geopolitical tensions, the Official Monetary and Financial Institutions Forum said.
The data, from a study conducted by the think tank and published on Tuesday, challenges — at least in the short term — the trend toward de-dollarization, the idea that countries will diversify away from the dollar.
A net 18% of reserve managers surveyed said they planned to increase exposure to the US dollar in the next 12 to 24 months, more than any other currency. They cited the role of the dollar in world trade and expectations of higher relative returns as reasons.
But demand for Chinese currency among reserve managers has stalled.
“This is the first year that we are seeing a meaningful share of reserve managers looking to reduce their holdings of renminbi,” said Nikhil Sanghani, director of the OMFIF Economic and Monetary Policy Institute, referring to the Chinese currency by another name.
About 12% of the 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 planned to reduce their yuan holdings, while none did so in 2022 or 2021, when more than 30% of respondents said they planned to increase their exposure to the Chinese currency.
“Many managers cited market transparency and geopolitics as hurdles, and, at least in the short term, quite a few said it’s simply a yield point: policy rates are low in China and you can earn higher rates in the US or China. European government bonds now,” Sanghani said.
However, over the longer term, reserve managers still expected to increase their exposure to the Chinese currency.
Chinese interest rates are around 2.3%, compared to 4.5% for US 10-year government bonds.
The survey also found that central banks planned 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 to increase their exposure to gold this year, the survey found. If this were to happen, OMFIF calculates, it would mean that an additional $600 billion in reserves would consist of gold in the coming years.
