Managers at the reserves largely oppose digital assets

Managers at the reserves largely oppose digital assets

The US dollar continues to hold its position as the world's leading reserve currency, despite growing discussions about potential alternatives. Mark Sobel, US chair at OMFIF, believes that while the administration's actions may erode the currency's dominance, the dollar is not going anywhere soon.

The euro, Chinese renminbi (yuan), and a proposed BRICS shared currency are the main contenders to replace the dollar. However, each faces significant challenges.

The euro, the second most held reserve currency, makes up about 20% of global reserves. Its strengths include a large economic bloc, strong central banking, and robust financial markets. Yet, the euro’s lack of a common treasury, a unified European bond market, and fragmented political governance limit its appeal as a dominant global reserve currency.

The Chinese renminbi has been promoted as a potential rival, but it remains limited by capital controls, shallow financial markets, and transparency issues. These factors constrain the yuan’s wider acceptance by global central banks and investors seeking a stable store of value.

The BRICS shared currency concept is frequently discussed among Brazil, Russia, India, China, and South Africa as a way to reduce dependence on the dollar. However, structural challenges such as the absence of robust central banks, differing monetary policies, and geopolitical divisions make it impractical at present.

Other alternatives like cryptocurrencies and stablecoins are currently infeasible due to their volatility, lack of sovereign backing, and limited scale required for global reserve currency functions.

Some analysts speculate on a multipolar reserve currency system, but history and practical concerns show network effects favor a single dominant currency. Multiple simultaneous reserve currencies could increase transaction costs and economic instability.

The rise of central bank digital currencies (CBDCs) might influence future reserve currency dynamics by enabling more efficient cross-border payments and potentially reducing reliance on the dollar, but this is still emerging and not yet a direct replacement.

Jens Søndergaard, currency analyst at Capital Group, writes that a weaker dollar amid US policy volatility is creating opportunities for other currencies, but there is no real alternative yet. The senior economist at OMFIF writes that doubts are growing around the foundations of dollar dominance. Geoffrey Yu, senior EMEA markets strategist at BNY, writes that the dollar will remain the default currency, and other currencies will have to earn their higher status.

Harold James writes that countries have historically turned to gold in periods of instability, and today's environment is no different. OMFIF's Global Public Investor 2025 found that no central bank surveyed holds any digital assets, and 93% have no intention of doing so.

Nat Benjamin joins OMFIF to outline key considerations to foster a steady-state liquidity environment that supports stability and growth. Herbert Poenisch, senior research fellow at Zhejiang University, states that discussions about de-dollarisation fall short when it comes to finding a credible replacement for the dollar in cross-border transactions.

OMFIF's Global Public Investor series explores the investment strategies of central bank reserve managers, public pension funds, and sovereign funds across the world. Over the past year, 160 global public investors with over $24tn in total assets have engaged with their market-leading reports and events.

Massimiliano Castelli, head of strategy and advice at UBS Asset Management, states that reports of the dollar's demise are greatly exaggerated. Aaron Hurd, senior portfolio manager at State Street Investment Management, writes that lower returns and higher risk mark a change in dynamics for the US currency.

Jesper Koll, global ambassador and expert director of Monex Group, Japan, writes that de-dollarisation is creating an opportunity for Japan to move closer to the limelight. Pierpaolo Benigno and Edoardo Reviglio write that Europe has a strategic opportunity to develop its own safe asset.

It is not mentioned whether cryptocurrencies are a realistic alternative to the dollar in the current discussion. Cryptocurrencies may accelerate geopolitical shifts, but it is not mentioned whether they are a realistic alternative to the dollar. Michael Paulus, Alberto Torres, Sunil Kaushik, Natalie Tsui, Tobias Cheung, and others at Citi write that central banks are turning back to gold, and the role of gold is changing.

1. The dollar, despite discussions about potential alternatives, continues to be the world's leading reserve currency, with the euro, Chinese renminbi, and a proposed BRICS shared currency being the main contenders for a replacement.
2. The euro, the second most held reserve currency, faces challenges such as a lack of a common treasury, unified European bond market, and fragmented political governance, limiting its appeal as a dominant global reserve currency.
3. The Chinese renminbi is constrained by capital controls, shallow financial markets, and transparency issues, thus limiting its wider acceptance by global central banks and investors.
4. The BRICS shared currency concept faces structural challenges like the absence of robust central banks, differing monetary policies, and geopolitical divisions, making it impractical at present.
5. Analysts speculate on a multipolar reserve currency system, but history and practical concerns show network effects favor a single dominant currency, as multiple simultaneous reserve currencies could increase transaction costs and economic instability.
6. The rise of central bank digital currencies (CBDCs) might influence future reserve currency dynamics, but this is still emerging and not yet a direct replacement for the dollar.
7. Jens Søndergaard writes that a weaker dollar amid US policy volatility is creating opportunities for other currencies, but there is no real alternative yet. Geoffrey Yu writes that the dollar will remain the default currency, and other currencies will have to earn their higher status.
8. OMFIF's Global Public Investor series explores the investment strategies of central bank reserve managers, public pension funds, and sovereign funds across the world, and over the past year, 160 global public investors with over $24tn in total assets have engaged with their reports and events.

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