Digital managers robustly oppose the adoption of digital assets
In a world where economic power dynamics are constantly evolving, the role of the US dollar as the dominant reserve currency is being challenged. A new multi-currency reserve system is taking shape, with the Euro, Chinese Renminbi (RMB), Japanese Yen, digital currencies, and gold emerging as potential alternatives.
The OMFIF's Global Public Investor 2025 survey revealed that no central bank surveyed holds any digital assets, and 93% have no intention of doing so. However, this does not diminish the growing interest in these alternatives.
The Chinese Renminbi has grown in international stature due to China’s large economy, substantial trade surplus, and its inclusion in the IMF’s SDR basket. Yet, geopolitical tensions, capital controls, and convertibility issues limit its potential as a full replacement for the dollar. It is expected to remain an important reserve currency especially in the Global South.
The Euro and Japanese Yen remain significant global currencies, with central banks actively diversifying reserves into these currencies. The Euro benefits from the European Central Bank’s policy actions, and the Yen has a role in Asia’s financial landscape, contributing to a more fragmented but multipolar currency structure.
Digital currencies, particularly central bank digital currencies (CBDCs) like China’s e-CNY and the digital Euro, are reshaping cross-border payments by enabling faster, cheaper settlements without dependence on the dollar-based system. However, decentralized cryptocurrencies currently lack the broad trust needed to supplant the dollar globally.
Gold remains a critical safe-haven asset amid geopolitical and economic uncertainty. Many central banks have increased gold holdings as a hedge, reflecting doubts about the dollar’s long-term stability and political volatility. Gold thus serves as a non-sovereign diversification tool alongside other currencies.
The global financial system is moving towards polycentrism with a shift away from a single hegemonic currency. The dollar’s share of reserves is declining slowly but remains dominant (about 58% in 2024). The fragmentation reflects shifting economic power centers, with increasing use of currencies like the yuan, ruble, dirham, rupee, Euro, and Yen in regional and international trade.
Monetary policy divergence among major central banks contributes to a “policy mosaic” reducing the dollar’s uniform influence on global capital flows. This diversification challenges dollar dominance and encourages competition among reserve currencies and assets.
Despite these shifts, some experts argue that the dollar's demise is exaggerated. Mark Sobel, US chair at OMFIF, states that while the administration's actions may erode the dollar’s dominance, it is not going anywhere soon. Geoffrey Yu, senior EMEA markets strategist at BNY, states that the dollar will remain the default currency, and other currencies will have to earn their higher status. Massimiliano Castelli, head of strategy and advice at UBS Asset Management, echoes these sentiments.
In conclusion, while the US dollar retains a leading role, a multi-currency reserve system featuring the Euro, Renminbi, Japanese Yen, enhanced by digital currencies and the safe-haven status of gold, is increasingly shaping a fragmented yet more resilient global financial landscape. The future of global reserves is likely to be characterised by a more diverse and dynamic currency landscape.
- The OMFIF's survey reveals that no central bank currently holds any digital assets, but there is increasing interest in these alternatives.
- The Chinese Renminbi has grown in international stature, yet its potential as a full replacement for the dollar is limited due to geopolitical tensions, capital controls, and convertibility issues.
- Central banks are actively diversifying reserves into the Euro and Japanese Yen, reflecting a more fragmented but multipolar currency structure.
- Digital currencies, like central bank digital currencies (CBDCs), are reshaping cross-border payments and enabling faster, cheaper settlements, but they lack the broad trust needed to supplant the dollar globally.
- Gold remains a critical safe-haven asset amid geopolitical and economic uncertainty, and many central banks have increased gold holdings as a hedge against the dollar's long-term stability and political volatility.
- The global financial system is moving towards polycentrism, with a shift away from a single hegemonic currency, and the dollar's share of reserves is declining slowly.
- Monetary policy divergence among major central banks contributes to a "policy mosaic" that reduces the dollar's uniform influence on global capital flows and encourages competition among reserve currencies.
- Despite the shifts occurring in the global financial landscape, some experts argue that the dollar's dominance is not going anywhere soon, and other currencies must earn their higher status.
