According to the Financial Times, citing research by the Official Monetary and Financial Institutions Forum (OMFIF), a British think tank, global central banks are increasingly turning to the US dollar in response to high interest rates in the United States.
The research shows that the proportion of central banks looking to increase their dollar holdings has tripled. A survey involving 73 state institutions managing a total of $5.4 trillion in international reserves revealed that 18% of global regulators plan to boost their investments in US dollars over the next two years. In 2023, only 6% of respondents shared this intention.
Nikhil Sanghani, managing director at OMFIF, cautions against expecting a shift away from the greenback within the next decade. On a 10-year horizon, regulators are forecast to reduce the share of US dollar reserves to 55%, down from the current 58%. Meanwhile, holdings of the Chinese currency could nearly double, from 2.3% to 5.5%. However, the renminbi is still unlikely to seriously challenge the dollar as the world's dominant currency, Sanghani stressed.
Despite the global trend towards de-dollarization, experts have noted a renewed interest in the dollar, while the pace of de-dollarization remains slow and bounded. This comes amid high interest rates, which make American equities more attractive than their Chinese counterparts. The Japanese yen has also suffered losses, with its value collapsing following changes in monetary policy by the Bank of Japan.
In the current landscape, market participants are exploiting differences in interest rates to secure risk-free returns. As a result, the currencies of countries with higher bank deposit yields are in greater demand, leading to their appreciation.