• Central banks globally are planning to reduce their U.S. dollar reserves over the next decade, according to an OMFIF survey, as diversification toward the euro, yuan, and gold gains momentum.
  • The dollar remains dominant due to liquidity and safety, but a growing number of reserve managers cite U.S. policy stance, trade protectionism, and geopolitical risks as drivers for reducing exposure.
  • The trend is gradual and uneven, with emerging markets leading the shift while advanced economies maintain larger dollar positions.

Dollar's Grip Eases

The dollar's share of global foreign exchange reserves has edged lower in recent IMF COFER data, even as it retains its status as the world's premier reserve currency. An OMFIF survey released this week reveals that more central banks now expect to cut dollar holdings over the next decade, with the euro and China's renminbi emerging as the main alternatives, though both face structural challenges.

"The dollar's liquidity and the depth of U.S. markets are unmatched, but we are seeing a deliberate, strategic pivot among reserve managers," said a senior central bank official familiar with the survey results. The official spoke on condition of anonymity, citing the sensitive nature of reserve allocation discussions.

Gold and Non-Dollar Currencies Gain

Gold purchases have surged as central banks seek an independent store of value and hedge against currency volatility. Data from the World Gold Council shows that central bank gold buying remained elevated in 2024, with emerging economies in the Global South accounting for the bulk of purchases. The shift is partly fueled by concerns over U.S. sanctions and trade frictions, which have prompted reserve managers to diversify away from dollar-denominated assets.

"The trend is more pronounced among countries that face geopolitical tensions with the U.S.," said a strategist at a European asset manager. "They are reallocating toward gold and non-dollar currencies to reduce vulnerability."

Gradual Transition

The transition is incremental rather than abrupt, as the dollar's dominance is underpinned by its deep markets and safety. Advanced economies such as Japan and Germany retain large dollar positions, while many emerging markets accelerate diversification. The euro and yuan face structural hurdles: the eurozone lacks a unified fiscal authority, and China's capital controls limit the yuan's appeal as a reserve asset.

"The dollar will remain the king for years to come, but the trajectory is clear," said a former IMF economist. "Central banks are slowly building a more multipolar reserve system."

Correction: An earlier version of this article incorrectly stated the OMFIF survey's timeframe. The survey refers to plans over the next decade, not immediate changes.