A fresh survey of almost 100 central banking institutions that collectively manage in excess of $9.5 trillion in foreign-exchange reserves reveals a marked shift in perceived threats to the international financial system. Conducted between January and March, respondents elevated geopolitical tensions to the top of their risk lists, with nearly 70% ranking geopolitics as their primary concern.
Most answers were collected prior to the strikes on Iran on February 28, though a buildup of geopolitical strain had already been under way earlier in the year, including the January dispute between the United States and Denmark over Greenland. That accumulation of incidents appears to have influenced the sharp increase in the prominence of geopolitical risk among reserve managers.
Geopolitics supplanted last year’s leading worry, U.S. trade protection, and represents a substantial increase from 2024, when 35% of respondents named geopolitics as their foremost worry during a period when the war in Gaza had again raised concerns over Middle East stability.
Looking out over a five-year horizon, inflation and interest rates continue to be the central issues reserve managers expect to shape their strategies. Just over half of respondents placed inflation and interest rates at the top of their 5-year concerns. That share, however, is notably lower than the 76% who ranked inflation and rates as the main issue in last year’s survey. Over the same medium-term window, geopolitics was cited as a major factor by almost 30% of respondents - roughly double its share from the previous year.
The survey also highlighted strains in confidence toward the U.S. dollar. Between January of last year and January of this year, the dollar depreciated by more than 12% against a basket of major currencies, although it has since recovered approximately one-third of that lost ground. Eighty percent of reserve managers either agree or strongly agree that the greenback remains the principal safe-haven currency, yet many respondents signalled that the dollar’s dominant role is increasingly under scrutiny.
All submissions to the survey were anonymous, but one Asia-Pacific central banker was quoted as saying: "Over the next five years, global FX reserves managers will rigorously assess whether the U.S. dollar’s role as the dominant global reserve currency continues, amid rising global fragmentation."
Corroborating that sentiment, 16% of central banks said the dollar’s role would influence their reserve management decisions over the coming five years, up from just over 3% in the prior survey.
Attitudes toward U.S. fixed income have shifted as well. Only about one-third of respondents now expect U.S. bonds to outperform those of other Group of Seven economies and China, a decline from more than half in last year’s survey and down sharply from over 70% in 2024.
Precious metals, and gold in particular, remain a favoured asset amid heightened geopolitical uncertainty. Nearly three-quarters of central banks reported holding gold in their reserve portfolios, a slight increase from the prior year, and almost 40% of respondents indicated they were contemplating adding further gold exposure.
The survey paints a picture of reserve managers recalibrating priorities: geopolitical risk has surged to the top of short-term concerns, real and expected shifts in currency and sovereign bond dynamics are influencing strategy, and gold continues to serve as a portfolio anchor for many institutions amid the elevated uncertainty.
Key points
- Geopolitical tensions ranked as the top global risk by nearly 70% of surveyed central banks, displacing concerns over U.S. trade protection.
- Over a five-year outlook, inflation and interest rates remain the most-cited issues, though their importance has fallen from 76% to just over half.
- Confidence in the U.S. dollar and U.S. sovereign bonds has shown signs of erosion, while gold holdings are marginally higher and nearly 40% of central banks are considering increasing gold exposure.
Risks and uncertainties
- Escalating geopolitical tensions that have become the primary short-term risk - relevant to FX markets, reserve management, and safe-haven assets.
- Potential weakening of the U.S. dollar’s dominant reserve-currency status, which could affect currency allocation and international liquidity strategies.
- Lowered confidence in U.S. sovereign bonds relative to peers, introducing uncertainty for fixed-income portfolios and sovereign-debt markets.