Central Banks’ Quiet Turn From the Dollar Puts U.S. Financial Power Under Pressure
For the first time, more central banks plan to cut rather than raise their dollar holdings over the next decade, even as a record 82% now keep physical gold reserves, according to a new global survey. The shift signals a slow but meaningful rethink of monetary power that could reshape how governments manage sanctions risk, financial security, and their exposure to U.S. policy.
A quiet but consequential rebalancing is underway in the way central banks see the world’s reserve currency. For the first time, more monetary authorities plan to reduce their dollar holdings than increase them over the coming decade, according to a new global survey released in late June. At the same time, 82% of central banks now hold physical gold, up sharply from 71% a year earlier.
Taken together, the findings point to a gradual diversification away from over‑reliance on the U.S. dollar and toward tangible assets viewed as safe outside the reach of any single government. The survey, conducted among central banks worldwide, suggests that while the dollar remains dominant, confidence in its unquestioned primacy is softening at the margins.
Central banks move slowly by design; their planning horizons stretch years, and abrupt shifts are rare. That makes the directional change captured here significant. When more institutions say they intend to trim dollar allocations than to add to them, the message is not about an imminent crash but about a recalibration of risk. For reserve managers, the question is less whether the dollar will remain the main global currency and more how to insure against political and sanctions shocks tied to Washington.
The expansion in physical gold holdings is part of that hedge. Gold is nobody’s liability: it cannot be frozen as easily as bank deposits or securities held in foreign jurisdictions, and it does not depend on the creditworthiness of any state. The fact that more than four‑fifths of central banks now hold bullion, up 11 percentage points in just a year, suggests that recent episodes — from the freezing of Russian central bank assets after the 2022 invasion of Ukraine to broader sanctions use — have left a mark on institutional memory.
For officials in Washington, the signal is subtle but uncomfortable. The dollar’s centrality has given the United States powerful leverage over the global financial system, enabling it to impose sanctions, control access to dollar funding, and influence global liquidity. If more central banks diversify into other currencies and gold, U.S. tools lose a bit of edge at the margins: sanctions may bite less sharply, and coordinated action through dollar channels may meet more workarounds.
At the same time, diversification is not simple. Deep and liquid markets in alternative reserve currencies remain limited; the euro, yen, and yuan all carry their own political and economic risks. That is why many central banks appear to be pairing modest currency diversification with larger allocations to gold rather than betting heavily on any one rival currency. The move is less a vote for a new hegemon than an insurance policy against over‑dependence on the old one.
The human stakes, while less visible than on a battlefield, are real. Reserve choices affect how governments weather crises, defend their currencies, and cushion citizens from imported inflation. A country that holds more diversified and resilient reserves may be better able to stabilize food and fuel prices in a shock, or to keep paying for critical imports if cut off from Western banking channels. Conversely, mismanaging this transition or moving too abruptly could spook markets and trigger the very volatility central banks try to avoid.
For investors and policymakers, the memorable takeaway is this: dollar dominance doesn’t have to vanish for U.S. financial power to erode — it only has to be questioned enough that others start paying for options. The survey suggests that moment has arrived.
The next signals to watch include actual reported changes in reserve composition over the coming years, additional large gold purchases by emerging‑market central banks, and any moves by major economies to settle more trade in non‑dollar currencies. Official rhetoric around sanctions and “monetary sovereignty,” particularly from countries in the Global South, will also show whether this quiet shift hardens into a more explicit strategy of hedging against U.S. power.
Sources
- OSINT