Central Banks Are Tilting Away From the Dollar. What They’re Buying Instead.

Gold bars are presented at the German central bank in Frankfurt in 2017. (Arne Dedert / dpa / AFP / Getty Images)

International central banks are charting a move away from the dollar, but because there is no single alternative for the U.S. currency, they plan to buy up euros, China’s yuan, and more gold.

That is the takeaway from a report published Wednesday morning by the Official Monetary and Financial Institutions Forum, known as OMFIF. The results are based on discussions with 10 central banks, who manage about $6.5 trillion in total.

Researchers at the forum held confidential one-on-one calls with reserve managers from the central banks of Germany, Poland, Spain, and Italy. The Bank of Korea, two African central banks, and three from Latin America took part as well, Yara Aziz, a senior economist at the organization, told Barron’s.

The conversations, held between July and September, offer a candid view of what the banks are doing with their money.

A European reserve manager was quoted as saying “we are moving from a bipolar to a multipolar reserve system, but the euro is not ready yet to lead.” An interview with an emerging-market central bank found that it is looking to allocate 10% to 15% of its reserves to domestically mined gold.

While the dollar remains the anchor of global reserves, trust in U.S. policy has weakened. That is leading to a slow but deliberate move into other assets, the report said. Gold, the euro, and yuan, or renminbi, are clear beneficiaries of the trend, Aziz wrote.

When central banks change their reserve allocations, it sends a signal to the market that a country’s currency, asset prices, or trading power could be headed higher or lower. Reserve managers don’t want speculators to invest based on their moves, so they tend to say little about what they are up to.

That gives added value to any reports about their views. Still, the findings in the latest report aren’t a surprise.

The dollar’s share of global reserves fell to 56.32% by the second quarter from 59% at the start of 2024, according to the International Monetary Fund, which said the slide is partly the result of a decline in the currency’s value. A fall report from OMFIF, based on a survey of 75 central banks conducted in April, showed the dollar was the only currency for which net demand has fallen.

The latest report takes all these “findings and asks what they look like in practice,” wrote Aziz in an email to Barron’s. “The picture is not a single replacement for the dollar. It is a gradual shift toward a more mixed composition.”

The dollar is critical to the world’s financial machinery. It makes up about 55% of international loans, way above the roughly 20% for the euro, Federal Reserve data show. A similar amount of exports are billed in dollars, while 30% are in euros. Only 4% are in yuan.

U.S. debt also has no match. ‘There’s no European Treasury market,” one manager said. “We have European bonds, but not a real fiscal union. Until that changes, reserve managers will keep treating the euro as secondary.”

The U.S. Treasury market is the most liquid in the world, making it more likely that investors, or central banks, can buy or sell the debt without affecting overall prices.

Other tidbits from the report are that reserve managers feel inclined to move their portfolios toward shorter-duration government bonds because it can be sold quickly during periods of stress.

On gold, one manager said that “holding gold signals independence.” Even those hesitant to add more gold seemed doubtful about selling any.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com.