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Banking

The Dollar Isn't Dead. But Central Banks Are Buying Less of the Story.

For the first time, more of the world's reserve managers plan to cut their dollar holdings than increase them. It is not a dethroning. It is a confidence warning.

Market MunchiesΒ·Jun 30, 2026Β·3 min read
The Dollar Isn't Dead. But Central Banks Are Buying Less of the Story.

The dollar is still king. But more central banks are starting to hedge the crown.

For the first time in OMFIF's annual survey of public investors, more central banks said they expect to cut dollar holdings than increase them over the next decade. That does not mean the dollar is about to lose its reserve-currency status. It does mean the world's most cautious money managers are getting less comfortable relying on it as heavily as they used to.

The finding comes from OMFIF's annual Global Public Investor survey, which covered 90 central banks, public pension funds, and sovereign wealth funds overseeing about $10 trillion. The shift is being driven by political risk, sanctions anxiety, and a growing belief that the financial system is becoming less dollar-centered.

Gold is the obvious winner

The clearest beneficiary of that caution is gold. It is held by 82% of central banks surveyed, and a net 30% plan to increase their holdings over the next one to two years, more than any other reserve asset. Gold has no issuer, is less exposed to foreign-policy decisions, and can serve as a hedge in a world where financial infrastructure itself has become a tool of geopolitical leverage.

A separate World Gold Council survey of 76 central banks reinforces the same signal with sharper numbers. A record 45% of respondents said they expect to add gold over the next 12 months, and 74% expect the dollar's share of global reserves to be moderately or significantly lower within five years. Central banks have now been net buyers of gold for 16 consecutive years, a dramatic reversal from the decades of selling that preceded it.

No replacement is ready

Other currencies are gaining interest, but none are ready to replace the dollar. Central banks reported growing interest in the Norwegian krone, the New Zealand dollar, and the British pound. They maintained intentions to add euros and Chinese renminbi, but flagged real structural problems with both: capital controls limit the renminbi's usefulness as a true reserve currency, while fragmented eurozone government debt markets complicate the euro's case. Reserve managers who plan to diversify into the yuan generally view it as a useful diversification tool, not a genuine alternative to the dollar.

The market paradox

Even as the survey points to long-term erosion, the dollar has been thriving in the short term. It has rallied roughly 3% this year, lifted by higher US interest rates, strong demand for American assets, and a flight to safety triggered by the Middle East conflict. There is, for now, simply no clear alternative currency ready to take its place.

That paradox is the real story here. IMF data shows the dollar's share of allocated foreign exchange reserves stood at 56.77% in the fourth quarter of 2025, down only slightly from 56.93% the prior quarter, with the renminbi still at just 1.95%. The erosion is real, but it is happening in fractions of a percentage point per quarter, not in dramatic single moves. The survey captures a shift in confidence well ahead of any shift in actual reserve composition.

What to watch

  • Gold buying: A record 45% of surveyed central banks plan to add gold this year. If prices stay supported despite a strong dollar, official demand may be part of the reason.
  • IMF COFER data: Survey intentions are one thing. Actual reserve changes are another. The dollar is still 56.77% of allocated reserves, so this is a slow-moving story.
  • The euro and yuan: Both are obvious alternatives on paper. Both still have structural problems in practice.
  • Geopolitical risk: Sanctions, frozen reserves, US-China tension, and Middle East instability are the accelerants.

The bottom line

The dollar is not being dethroned. It is being hedged.

Central banks still need dollars because no other currency can match the depth, liquidity, and reach of US markets. But the old assumption that dollar reserves are politically neutral is fading, and that is why gold is moving from legacy asset to strategic insurance for the institutions that manage the world's official money.

For investors, this is not a panic story. It is a slow regime-change story, the kind that shows up quarter by quarter in reserve data, gold demand, and the quiet decisions of the world's most conservative money managers.

Sources