More global reserve managers are planning to increase their exposure to the now high-yielding U.S. dollar, as interest in China's yuan has declined due to low returns and geopolitical tensions, according to the Official Monetary and Financial Institutions Forum (OMFIF).
The data, from a survey conducted by the think tank and published on Tuesday, challenges the trend towards de-dollarisation, the notion that countries will diversify away from the dollar, at least in the short term.
A net 18% of reserve managers surveyed indicated their intention to boost exposure to the U.S. dollar over the next 12-24 months, more than any other currency. They cited the dollar's role in global trade and expectations of higher relative returns as key reasons.
Conversely, demand for China's currency among reserve managers has stalled.
"This is the first year we've seen a significant share of reserve managers looking to downscale their renminbi holdings," said Nikhil Sanghani, Managing Director of the OMFIF Economic and Monetary Policy Institute, referring to China's currency by its other name.
Approximately 12% of the 73 central bank reserve managers surveyed by OMFIF plan to reduce their yuan holdings in the next 12-24 months, while 13% plan to increase them.
In 2023, only 3% said they intended to reduce yuan holdings, compared to none in 2022 or 2021 when over 30% of respondents planned to increase their exposure to the Chinese currency.
"Many managers highlighted market transparency and geopolitical issues as obstacles, and in the near term, quite a few mentioned that it's primarily a returns issue - policy rates are low in China, and you can earn higher yields in U.S. or European government bonds now," Sanghani said.
However, in the longer term, reserve managers still anticipate increasing their exposure to the Chinese currency.
China's 10-year bond yield is around 2.3%, compared to a 4.5% yield for the 10-year U.S. Treasury note.
The survey also found that central banks plan to continue increasing their exposure to gold, a trend that has already pushed the precious metal to record highs this year.
Approximately 15% of respondents expect to increase their exposure to gold this year, the survey found. If this occurs, OMFIF calculates that an additional $600 billion of reserves could be made up of gold in the coming years.
Paraphrasing text from "Reuters" all rights reserved by the original author.
