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Global Central Banks Diversifying Forex Reserves from USD, Euro to Gold, Other Currencies: CareEdge Report

So, central banks around the world are slowly moving their money away from just relying on the US dollar and euro. They're putting more into other currencies like the British pound, Japanese yen, and Chinese yuan, and they're buying a lot more gold, too. This shift is really about wanting safety and a hedge against all the global uncertainty and financial risks out there. Even with these changes, though, the US dollar is still the undisputed heavyweight champion of the global financial system.

Key Points: Central Banks Shift Reserves from USD & Euro to Gold, Yen, Yuan | CareEdge Report

  • US dollar's share in global reserves falls from 66.1% to 58.5% over two decades
  • Euro's reserve share also declines from 24% to 20.4% in same period
  • Currencies like Japanese Yen and British Pound see increased allocation by central banks
  • Central bank net gold purchases surge to nearly 1,100 tonnes in 2022, highlighting safe-haven demand
  • Report cites geopolitical risks and search for asset safety as key drivers for diversification
  • Despite shift, US dollar remains dominant in international payments, with share rising to 47%
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Central banks diversifying forex reserves from USD & Euro to gold and other currencies: CareEdge

A CareEdge Ratings report reveals a steady decline in the US dollar and euro's share of global forex reserves, with increased allocations to gold, yen, yuan, and pound.

"Share of the US Dollar and the Euro in the global central bank reserves has been steadily declining. However, the shares of GBP, Yen, and CNY have increased. - CareEdge Ratings Report"

New Delhi, December 23

Global central banks are gradually diversifying their foreign exchange reserves away from the US dollar and the euro, increasing exposure to other currencies and gold, highlighted a report by CareEdge Ratings.

The report showed that the share of the US dollar in global central bank reserves has steadily declined over the years.

It stated "Share of the US Dollar and the Euro in the global central bank reserves has been steadily declining. However, the shares of GBP, Yen, and CNY have increased"

During the period 2000-09, the US dollar accounted for 66.1 per cent of total global central banks reserves. This share fell to 62.9 per cent in 2010-19 and declined further to 58.5 per cent during 2020-24.

A similar declining trend was observed in the euro's share, which reduced from 24.0 per cent in 2000-09 to 21.9 per cent in 2010-19 and further to 20.4 per cent in 2020-24.

In contrast, other reserve currencies have gained prominence. The share of the British pound, Japanese yen and currencies grouped under "others" has increased during the same period.

The share of the yen rose from 4.2 per cent in 2000-09 to 6.7 per cent in 2010-19 and further to 10.6 per cent in 2020-24. The share of GBP (Great British Pound) increased from 3.6 per cent to 4.2 per cent and then to 4.8 per cent over the same periods, reflecting a gradual shift towards diversification in reserve holdings.

Alongside currency diversification, the report highlighted a sharp rise in net gold purchases by central banks globally.

Net gold purchases increased from under 100 tonnes in 2010 to around 500-600 tonnes annually between 2011 and 2015. Although purchases moderated to around 400 tonnes during 2016-17, they rebounded strongly to nearly 650 tonnes in 2018.

After a dip to around 250 tonnes in 2020, central bank gold buying surged again, reaching about 450 tonnes in 2021. The trend strengthened further in recent years, with net gold purchases rising sharply to nearly 1,100 tonnes in 2022 and remaining elevated at around 1,000 tonnes in both 2023 and 2024.

The report noted that the sharp increase in gold accumulation reflects a shift towards asset safety and hedging against rising global uncertainty, geopolitical risks and financial volatility

Despite these changes, the report emphasised that the US dollar continues to dominate the global macroeconomic and financial system. The dollar remains the primary unit of account and medium of exchange in international payments, with its share rising from around 32 per cent in 2010 to 47 per cent in 2024.

However, the report added that growing concerns over the reliability of the US dollar as a long-term store of value are prompting central banks to adopt a more balanced reserve strategy.

While the dollar remains dominant, the data points to a gradual but undeniable shift away from excessive dollar dependency.

- ANI

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Reader Comments

P
Priya S
Interesting data! The shift is slow but clear. I hope our policymakers are paying close attention. Diversifying into gold and other stable currencies can protect our economy from external shocks. The surge in gold buying post-2020 says a lot about global uncertainty.
R
Rohit P
While diversification is good, let's not get carried away. The report itself says the dollar's share in international payments has actually INCREASED to 47%. It's still the king. Any move away has to be very calculated and gradual. A sudden shift could backfire.
S
Sarah B
As someone who follows global finance, this is a significant trend. The move to gold is particularly telling—it's a classic hedge against volatility. The geopolitical tensions (Ukraine, Middle East) are definitely pushing central banks towards tangible assets.
K
Karthik V
Good analysis by CareEdge. The rise of the Yen and "other" currencies is notable. Makes me wonder if there's a future where the Chinese Yuan or maybe even a digital currency basket plays a bigger role. The world's economic power balance is shifting.
M
Meera T
My father always said "Sonay ki chamak kabhi nahi jhuki" (the shine of gold never fades). This report proves that ancient wisdom still holds in modern finance. Hope RBI continues to build up our gold reserves sensibly. It's about national security as much as finance.

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