Central Banks Warn Trillion-Dollar Debt Hammering US Dollar, Reveal Plans To Increase Chinese Yuan Holdings

Central banks around the world no longer look at the US dollar with the same certainty they did just years ago, according to a new survey.

Institutional asset manager Invesco surveyed 57 central banks and found they’re concerned America’s behavior on the geopolitical stage, plus its surging debt levels, are threatening the reliability of the dollar.

The US treatment of Russians in reaction to the country’s conflict with Ukraine is a glaring example of their concerns, the survey found.

“The freezing of Russian assets by Western nations has thrust the world’s reliance on the US dollar as the dominant reserve currency into the spotlight, raising questions about its long-term viability amidst high US debt levels. A growing percentage of central banks year-on-year believe that the US debt levels are negatively impacting the Dollar…

While very few actually see a world where the Chinese yuan becomes the world reserve currency, central bankers are still expecting to increase their renminbi holdings over time, driven by “strong performance and uncorrelated returns,” according to the survey.

Invesco’s report also found that central bankers believe that gold is another asset that has become more attractive now that the dollar has lost some of its charm.

“A substantial percentage of central banks are concerned about the precedent set by the US freezing of Russian reserves, with the majority (58%) agreeing that the event has made gold more attractive. Consequently, central banks now prefer to hold physical gold rather than gold ETFs or derivatives (figure 5.6). Physical gold holdings have increased the most when compared with 2020, while gold ETF usage has fallen.

‘Gold has played a crucial role during the last couple of years: We increased the exposure 8-10 years ago and had it held in London, using it for swaps and to enhance yields, but we’ve now transferred our gold reserves back to our own country to keep it safe – its role now is to be a safe-haven asset’ said one central bank based in the West.”