Written by Alun John
LONDON (Reuters) – More global reserve managers intend to increase exposure to the currently high-yielding U.S. dollar as their interest in it deteriorates due to lower yields and geopolitical tensions, the official forum of monetary and financial institutions said.
Data from a survey conducted by the think tank and published on Tuesday challenge – at least in the short term – the trend toward de-dollarization, the idea that countries will diversify their economies away from the dollar.
18% of reserve managers surveyed said they intend to boost exposure to the US dollar over the next 12 to 24 months, more than any other currency. They cited the dollar's role in global trade and expectations of higher relative returns as reasons.
But demand for the Chinese currency among reserve managers has stalled.
“This is the first year we have seen any meaningful share of reserve managers looking to reduce their RMB holdings,” said Nikhil Sangani, managing director of OMFIF's Economic and Monetary Policy Institute, referring to the Chinese currency by its other 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.
“A lot (of managers) cited market transparency and geopolitics as some of the hurdles, and at least in the near term, quite a few of them mentioned it's just a yield point — interest rates are low in China and you can achieve higher returns in the U.S. or the U.S.,” Sanghani said. : “European Government Bonds Now.”
He added that in the longer term, reserve managers still expect to increase their exposure to the Chinese currency.
The Chinese yield is about 2.3% compared to the 4.5% yield for 10-year US Treasuries.
The survey also found that central banks plan to continue increasing their exposure to gold, a trend that has already helped the precious metal rise to record levels this year.
The survey found that about 15% of respondents expect to increase their exposure to gold this year. If that happens, OMFIF calculates that an additional $600 billion in reserves would be made up of gold in the coming years.