The dollar will continue to dominate foreign reserves around the world in the future, but its influence is expected to gradually weaken, according to a survey of central bank officials.
The British think tank OMFIF announced the results of a survey of 75 central bank officials, including foreign exchange reserves managers, through the 2023 Global Public Investor report on the 28th.
According to the survey, the average dollar share in each country’s foreign exchange reserves this year was 59%, higher than in 2021 (56%) and 2022 (57%). This was attributed to Russia’s invasion of Ukraine and its preference for safe assets due to global inflation.
However, as the de-dollarization progresses slowly but continuously, the proportion of the dollar is expected to fall to 54% in 10 years.
Among the major currencies, the only currency that has more responses to reduce holdings over the next 10 years was also the dollar.
OMFIF predicted that the yuan and the euro will benefit from efforts to diversify foreign exchange reserves.
Central bank officials said they would take a cautious stance on investing in China in the short term, citing market transparency and geopolitical tensions.
The number of respondents who said they would increase their yuan holdings over the next two years exceeded 30% last year, but decreased to 13% this year.
In the long run, 39% of respondents said they would increase their yuan holdings within the next 10 years, the highest among major currencies, but the share of holdings is expected to increase from less than 3% now to 6% in 10 years.
Meanwhile, the report estimated that foreign exchange reserves in each country fell by 5% (about $725 billion), saying 80% of respondents said they lost money due to inflation and bond investment losses caused by interest rate hikes last year.
85% of the respondents cited inflation as one of the three biggest economic concerns in a year or two, while 69% cited a global economic slowdown, which is expected to cause “stegflation” (a slowdown in high prices).
No respondents expected inflation to fall to the level of major central bank targets within a year or two, with 38% of respondents predicting an economic slowdown within the next 12 months.
