A recent study by the Official Monetary and Financial Institutions Forum (OMFIF) revealed that a larger number of central banks around the world intend to reduce their holdings of the US dollar over the next decade, compared to the number of institutions planning to increase those holdings, in a shift that is the first of its kind since the survey began.
The survey results showed that political risks associated with the dollar, along with rising uncertainty about US policies and geopolitical tensions, have prompted many reserve managers to reconsider reliance on the US currency as the cornerstone of global reserves.
This shift reflects the growing global debate about the future of the dollar as the world’s primary reserve currency, amid increasing calls for a more diversified monetary system that is less dependent on a single currency.
The report also revealed a parallel trend: central banks, sovereign wealth funds, and government pension funds are increasingly interested in expanding the use of artificial intelligence technologies in investment management and decision-making, considering the current volatility as a permanent feature of global markets and not just a temporary phase.
The dollar faces new challenges despite its continued strength.
The survey was conducted by the Official Monetary and Financial Institutions Forum, a London-based think tank founded in 2010, and included 90 central banks, sovereign wealth funds and government pension funds managing assets worth more than $10 trillion.
Although the US dollar is still up about 3% since the beginning of the year, supported by rising US interest rates, strong demand for US assets, and demand for safe havens during the war between the United States and Iran, the report indicates that this strength has not prevented official institutions from reassessing the long-term role of the US currency.
The forum’s chief economist, Yara Aziz, stressed that the old assumption of waiting for markets to return to normal has become less realistic, noting that public institutional investors have begun to deal with volatility as a permanent reality that requires new tools and strategies.
A multipolar monetary system is approaching
The survey showed that 79% of central banks and 60% of public funds believe that the global monetary system is gradually moving towards a multipolar model, in which reserves are distributed among several currencies instead of relying almost entirely on the dollar.
Although there is no clear alternative capable of replacing the dollar at the moment, central banks have already begun to diversify their reserves by increasing their investments in other currencies.
The report noted growing interest in currencies such as the Norwegian krone and the New Zealand dollar, along with increased demand for the British pound as a component of official reserves.
Central banks also maintained their plans to increase their holdings of the euro and the Chinese yuan, despite acknowledging that the two currencies still face structural challenges that limit their ability to fully compete with the dollar.
Despite these challenges, survey participants almost unanimously believe that the Chinese yuan is an effective tool for diversifying investment portfolios and reducing dependence on the dollar.
Gold is consolidating its position within global reserves.
The report revealed that gold has become a pivotal element in central banks’ reserve management strategies, following a series of record highs in recent years.
The survey indicated that 82% of central banks already hold gold in their official reserves, while a net 30% of participants plan to increase their allocations of the yellow metal over the next two years, making it the most attractive asset for adding new investments in the short term.
This trend reflects the continued reliance of central banks on gold as a means of hedging against geopolitical risks and economic volatility, in addition to its traditional role in diversifying reserves.
Artificial intelligence is becoming an essential tool for central banks.
Alongside the shifts in reserve management, the report showed a clear acceleration in the adoption of artificial intelligence technologies within central banks.
The survey revealed that more than 66% of central banks plan to increase the integration of artificial intelligence applications into their operations in the near future.
In contrast, no central bank in advanced economies expressed satisfaction with the current level of AI use, with only 9% of central banks across all participants believing the current level of use is sufficient.
Monetary institutions primarily use artificial intelligence in data analysis and internal operational processes, but the report indicated a clear gap between advanced and emerging economies, with more than 89% of central banks in developed countries using artificial intelligence technologies, compared to only 44% in emerging markets.
Real assets and emerging markets attract investors
The report also showed a shift in the priorities of public funds, with real assets, such as infrastructure projects and real estate, topping the list of preferred investments.
The survey revealed that approximately 60% of public funds intend to increase their investments in these assets over the next two years, outperforming various other asset classes.
The report also revealed an improved outlook towards emerging markets, with the percentage of funds planning to increase their investments in these markets rising to 38%, compared to 27% in last year's survey.
Conversely, the percentage of institutions planning to increase their investments in advanced economies has fallen to just 25%, down from 47% a year ago, indicating a clear shift in the attitudes of institutional investors.
Despite this shift, the survey showed that the United States and China remain the most attractive markets for global investment, benefiting greatly from the rapid boom in artificial intelligence technologies and the huge growth and investment opportunities they generate.
