Global reserve managers are generally optimistic about the global economic outlook, expecting moderate growth and inflation in the next five years. However, they are deeply concerned about escalating geopolitical tensions, which they see as the biggest threat to this positive outlook. This was revealed in an annual survey conducted by UBS Asset Management, which polled 40 leading central banks managing over $15 trillion in foreign exchange reserves.
The survey found that 87% of respondents identified further escalation in geopolitical conflicts as the biggest risk to the global economy. This concern has led to increased diversification efforts, with 41% of reserve managers expanding their investments across regions and currencies.
Gold has emerged as a popular diversification strategy, with 24% of respondents increasing their gold exposure in the past year and 30% planning to do so in the coming year. The recent decision to use frozen Russian assets to finance Ukraine has raised concerns about the safety of foreign exchange reserves, potentially revitalizing gold as a safe haven asset.
While geopolitical tensions are a concern, the U.S. dollar’s dominance in foreign exchange reserves remains largely unchanged, with participants reporting an average dollar holding of 55%. However, five participants have introduced the Chinese yuan as a new currency in their reserves, highlighting the growing importance of the Chinese economy.