Central banks think the US has become riskier. They plan to sell dollars and buy gold

Key Points:

• For the first time, more central banks plan to reduce their dollar holdings than increase them over the next decade, signaling rising political risk tied to the US currency amid geopolitical tensions and unpredictable US foreign policies.
• The survey by the Official Monetary and Financial Institutions Forum (OMFIF), involving 74 central banks, highlights a shift away from the dollar, with its share in foreign exchange reserves hitting a two-decade low last year.
• Despite this trend, the dollar remains dominant in central bank portfolios, maintaining about 58% of allocations over the past five years, though gradual de-dollarization is pushing some banks toward the euro and Chinese renminbi.
• The euro and renminbi are gaining appeal, with increased central bank interest in euro holdings and recognition of the renminbi as a diversification tool; demand for other currencies like the Singapore dollar, South Korean won, and South African rand is also rising.
• Geopolitical risk is boosting demand for gold, with a record number of central banks planning to increase gold investments as a hedge against instability, reflecting growing concerns about the international monetary system's stability.