Central banks’ concern about geopolitical tensions has surged this year, now ranking as the top global risk, according to a new survey conducted among institutions managing over $9.5 trillion in reserves.
The survey, carried out by Central Banking Publications with more than 100 institutions between January and March, found that nearly all responses were collected before the February 28 strikes on Iran. However, tensions were already escalating, starting in January with the dispute between the United States and Denmark over Greenland.
As a result, nearly 70% of banks now classify geopolitics as their major risk. This factor surpasses American commercial protectionism, which was the top concern last year, marking a significant increase compared to the 35% recorded in 2024, during the Gaza conflict in the Middle East.
Looking ahead five years, inflation and interest rates remain the primary factors expected to influence reserve management, with just over half of central banks ranking them as top priorities.
However, this figure has significantly decreased compared to last year’s 76%. Additionally, geopolitics is now widely cited by nearly 30% of respondents, double the proportion from the previous year.
The survey also reflects a test of confidence in the US dollar. The American currency has depreciated over 12% against a basket of major currencies from last year to this year, although it has recovered about a third of the lost ground since then.
Around 80% of reserve managers agree or strongly agree that the greenback remains the world’s primary safe haven currency, despite many acknowledging its dominance is increasingly being questioned.
Although responses are anonymous, a central banker from the Asia-Pacific region stated: “Over the next five years, global reserve managers will rigorously evaluate whether the role of the US dollar as the dominant global reserve currency persists, in the face of growing global fragmentation.”
The survey also reveals that 16% of central banks believe the dollar’s role will influence their reserve management decisions over the next five years, compared to just over 3% last year.
Confidence in American bonds has significantly deteriorated as well. Only a third of respondents expect US Treasury securities to outperform those of other G7 economies and China, down from over half last year and over 70% in 2024.
Gold, on the other hand, continues to benefit from geopolitical uncertainty. Almost three-quarters of central banks report holding gold in their reserves, a notable increase from last year, while over 40% say they are considering increasing their exposure. (Reporting by Marc Jones; Editing by Chris Reese)
