A recent survey shows central banks are becoming less reliant on the US dollar. This shift isn’t a sudden ditching of the dollar, but a gradual move towards diversification.
Growing Doubts About the Dollar
The Official Monetary and Financial Institutions Forum (OMFIF) surveyed 75 central banks worldwide. The results reveal growing concerns about the dollar’s dominance, with many looking for safer alternatives. The euro and the Chinese renminbi are emerging as popular choices.
Specifically, the survey found that:
- The dollar is the only currency showing a net decrease in demand among central banks this year.
- This decline is largely due to worries about the US political climate (cited by 70% of respondents), geopolitical instability, and US fiscal risks.
- Over half of the surveyed banks believe the US market’s exceptional status is ending.
Why the Shift?
The main reasons behind the move away from the dollar are:
- US Political Climate: A whopping 70% of respondents pointed to the US political environment as a reason to doubt the dollar – more than double the percentage from the previous year.
- Trade Protectionism and Geopolitical Uncertainty: Concerns about trade protectionism and broader geopolitical uncertainty were also significant factors, cited by 60% of respondents.
- Fiscal Concerns: Worries about US fiscal imbalances are also contributing to the shift.
Dollar Still Dominant, But Changing
Despite these concerns, the dollar remains a major player. 80% of surveyed central banks still see the dollar as a safe and liquid asset, and most expect it to remain the dominant global reserve currency (over 50%) for the next decade. The trend, however, is clearly towards diversification, not a complete abandonment of the dollar.