Red Flag on the Greenback: Political Risks Are Forcing a Historic Central Bank Pivot
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More and more central banks plan to cut the dollar's share in their reserves, a recent OMFIF survey shows.
Central banks are recalibrating reserve portfolios toward greater diversification amid rising geopolitical and policy uncertainty, even as the dollar retains its dominant role for liquidity and safety, an economist has said.
"The latest OMFIF Global Public Investor survey marks a notable shift - for the first time, more central banks plan to reduce dollar allocations than increase them over the next decade. Political risks linked to the US currency have risen in prominence, with geopolitics now outweighing domestic US political factors as a deterrent," Dr Lekha Chakraborty, Professor, National Institute of Public Finance and Policy (NIPFP), told Sputnik India.
Nearly four-fifths of surveyed central banks see the global monetary system moving toward a multipolar structure. Gold has moved to the centre of strategy, held by 82 percent of respondents, with a net 30 percent planning to raise allocations in the near term primarily as a hedge against geopolitical risk, she added.
Interest is also rising in the Euro, Renminbi (despite structural limits), and smaller currencies such as the Norwegian Krone and New Zealand Dollar. The American dollar's share remains around 58 percent and is still prized for unmatched market depth, but managers are quietly trimming exposure rather than exiting en masse, the financial pundit highlighted.
Interest is also rising in the Euro, Renminbi (despite structural limits), and smaller currencies such as the Norwegian Krone and New Zealand Dollar. The American dollar's share remains around 58 percent and is still prized for unmatched market depth, but managers are quietly trimming exposure rather than exiting en masse, the financial pundit highlighted.
“Dollar weaponisation, sanctions, and US tariffs are material factors in this rethinking. The freezing of Russian central bank reserves in 2022 demonstrated that dollar assets can be rendered unusable for policy reasons, reducing their insurance value for some holders and encouraging diversification into gold (which can be held domestically) and other assets,” Chakraborty underscored.
Tariffs and trade-policy unpredictability have amplified concerns about US policy volatility and the reliability of the broader economic order, ranking high among reserve managers’ risk perceptions. These tools raise the perceived political and operational risk of concentrated dollar exposure without eliminating the currency’s network advantages, she noted.
