[By Observer.com, Zhang Jingjuan] Under the circumstances of global trade fragmentation and geopolitical turbulence, the US dollar's dominant position is gradually weakening, and central banks around the world are turning to gold, the euro, and the renminbi.

According to Reuters on the 24th, the Official Monetary and Financial Institutions Forum (OMFIF) will release a report that night. According to the report, one-third of central banks managing a total of $5 trillion in assets plan to increase their gold holdings within the next one to two years, after excluding those planning to reduce their reserves, reaching the highest level in at least five years.

This survey of 75 central banks was conducted from March to May, and it first revealed the impact of President Trump's "Liberation Day" tariffs on April 2nd - a policy that triggered market turbulence and led to a decline in the safe-haven asset, the US dollar, and US Treasury bonds.

Central banks have been increasing their gold holdings at an unprecedented rate, with 40% of them planning to increase their gold holdings over the next decade. "After years of record-high central bank gold purchases, reserve managers are doubling down on this precious metal."

OMFIF said that the US dollar, which was the most popular currency among the surveyed central banks last year, has now dropped to seventh place. As many as 70% of the surveyed central banks said the US political environment hinders their investment in the US dollar.

In terms of currencies, the euro and the renminbi have benefited the most from central banks reducing their exposure to the US dollar and shifting toward a diversified allocation.

Among the central banks surveyed by OMFIF, 16% said they plan to increase their euro holdings within 12 to 24 months, making it the most sought-after currency (up from 7% a year ago), followed closely by the renminbi.

Over the next decade, the renminbi will be more favored, with 30% of central banks planning to increase their holdings, and its share of global reserves is expected to rise to 6%.

Three sources who directly deal with reserve managers told Reuters that they believe the euro has the potential to regain the share of reserves lost after the 2011 European debt crisis by 2030. They mentioned that after "Liberation Day," reserve managers' attitudes toward the euro became more positive. This means that the euro's share in foreign exchange reserves could rise from about 20% currently to about 25%.

Max Castelli, head of global sovereign market strategy and advisory at UBS Asset Management, said that after "Liberation Day," reserve managers repeatedly called to ask if the US dollar's safe-haven status was at risk.

"In my memory, no one has ever asked this question before, not even after the 2008 financial crisis," Castelli said.

OMFIF's survey showed that the average expectation for the US dollar's share in global foreign exchange reserves by 2035 is 52%, still the largest reserve currency, but down from the current 58%.

Gold IC photo

The report stated that the respondents of the OMFIF survey expect the euro's share in global reserves to reach about 22% in 10 years.

Professor Kenneth Rogoff, former chief economist at the International Monetary Fund (IMF), told Reuters via email before the OMFIF report was released that the euro's share in global reserves is almost certainly going to rise in the coming years, not because Europe is being favored, but because the US dollar's position is declining.

However, sources who directly communicate with reserve managers said that if the eurozone increases its bond issuance volume, which is much smaller than the $29 trillion US Treasury market, and integrates its capital markets, it may attract more reserve funds faster.

ECB President Christine Lagarde also called for action to support the euro as a viable alternative to the US dollar.

Reuters pointed out that the momentum for change has accelerated, and Europe is reducing its reliance on the United States by increasing defense spending.

Francesco Papadia, senior researcher at the Bruegel think tank, said that reserve managers he discussed with are more willing to pay attention to the euro than before.

Bernard Altschuler, head of global central banking at HSBC, believes that the euro achieving a 25% share in global reserves within 2 to 3 years is "realistic."

Castelli also estimates that by the end of the 2020s, the euro is expected to recover to a 25% reserve share.

Francesco Papadia, who managed ECB market operations during the European debt crisis, said he estimates the euro could recover to 25% as early as two years.

Meanwhile, the renminbi is gradually increasing its share under the trend of diversifying global foreign exchange reserves. Wu Yisi, director general and head of the RMB internationalization team at Standard Chartered, recently told an interview that after the US implemented "reciprocal tariffs," she clearly felt that overseas institutions' interest in the renminbi has further increased.

She pointed out that although China's government bond yields are lower than those of certain countries like the US, Chinese government bonds have low correlation with global bonds. From the perspective of risk management in global foreign exchange reserve asset allocation, overseas central banks and other asset management institutions allocating Chinese government bonds would be a beneficial choice for diversifying their portfolio risks.

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