Central banks’ concern about geopolitical tensions has skyrocketed this year, now ranking as the top global risk, according to a new survey of institutions managing over $9.5 trillion in reserves.
The study, conducted by Central Banking Publications with over 100 institutions, took place between January and March. Nearly all responses were collected before the February 28 strikes against Iran, but tensions were already escalating, highlighted in January by the dispute between the United States and Denmark over Greenland.
As a result, close to 70% of banks classify geopolitics as their major risk. This factor surpasses American trade protectionism, which dominated concerns last year, marking a significant jump from the 35% recorded in 2024, when the Gaza war threatened to destabilize the Middle East.
Looking ahead five years, inflation and interest rates remain the main factors expected to influence reserve management, with just over half of central banks placing them at the top of their priorities.
However, this figure has declined significantly from last year’s 76%. At the same time, geopolitics are now widely cited by almost 30% of participants, double the proportion observed the previous year.
The survey also reveals a test of confidence in the dollar. The US currency lost over 12% against a basket of major currencies from January last year to this year, though it has regained about a third of the lost ground since then.
Around 80% of reserve managers agree or strongly agree that the greenback remains the main global safe haven currency, even as many acknowledge that 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 assess whether the role of the US dollar as the dominant global reserve currency continues in a context of increasing global fragmentation.”
The survey also shows that 16% of central banks believe the dollar’s role will influence their reserve management decisions over a five-year horizon, compared to just over 3% last year.
Confidence in US bonds has also significantly deteriorated. Only a third of respondents expect US Treasury securities to outperform those of other G7 economies and China, compared to 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 figure higher than last year, while over 40% say they are considering increasing their exposure. (Reporting by Marc Jones; Editing by Chris Reese)
