Central Banks Rely on Gold, Yuan to Counter US Dollar Woes

• Central banks around the world are concerned about the US dollar due to America’s behavior on the geopolitical stage and its surging debt levels.
• The survey conducted by Invesco found that central banks would prefer to hold physical gold rather than gold ETFs or derivatives, as a safe-haven asset.
• The survey also revealed that central bankers are expecting to increase their holdings of Chinese yuan over time, driven by “strong performance and uncorrelated returns.”

Central Banks Warn Trillion-Dollar Debt Hammering US Dollar

Central banks around the world no longer look at the US dollar with the same certainty they did just years ago, according to a new survey conducted by institutional asset manager Invesco. The survey found that 57 central banks are concerned about America’s behavior on the geopolitical stage and its surging debt levels which have threatened the reliability of the dollar.

Plans To Increase Chinese Yuan Holdings

The survey also revealed that central bankers are expecting to increase their holdings of Chinese yuan over time, driven by “strong performance and uncorrelated returns.” This is despite very few believing that it could become a world reserve currency in place of the US dollar.

Central Banks Prefer Physical Gold

Invesco’s report also found that central bankers believe that gold is another asset that has become more attractive now that the dollar has lost some of its charm. Most (58%) agreed that freezing Russian reserves by Western nations has made gold more attractive as an investment, resulting in increased physical gold holdings while usage of gold ETFS and derivatives has decreased substantially compared with 2020. One central bank based in the West said: “Gold has played a crucial role during last couple of years: We increased exposure 8-10 years ago and had it held in London… but we’ve now transferred our reserves back to our own country to keep it safe – its role now is to be a safe-haven asset.”

US Treatment Of Russians Is An Example Of Concerns

The US treatment of Russians in reaction to conflict with Ukraine is an example of their concerns regarding reliance on US dollars as a dominant reserve currency raising questions about its long term viability amidst high debt levels.

Conclusion

Institutional asset manager Invesco surveyed 57 global central banks who expressed concern over America’s behavior on geopolitics alongside soaring debt levels which have threatened reliability for US dollars as a dominant reserve currency. Central banks now prefer physical gold instead of ETFs or derivatives as well as increasing holdings for Chinese yuan due to strong performance and uncorrelated returns despite very few believing it could replace USD anytime soon