New Delhi: There may be growing calls for a move away from the US dollar, but a new survey of officials from central banks around the world suggests such a scenario is unlikely to play out anytime soon. Neither are central banks moving rapidly away from the dollar, nor are they readily adopting an alternative currency.
Official Monetary and Financial Institutions Forum (OMFIF), an international think-tank This primarily concerns central banking, a survey of 75 managers of central bank reserves was released on Tuesday. In addition to their views on the reserve currency, respondents also said that their concerns have shifted from simple inflation to the prospect of stagflation – a combination of high inflation and stagnant growth.
survey report title Global Public Investors 2023comes as many countries They are also calling for trading in currencies other than the US dollar.
“A total of 6 percent of respondents expect their dollar share to decrease over the next 10 years,” the survey reports. “But this change would be in line with a slow, decades-long trend of de-dollarization. On average, respondents expect the dollar’s share of total reserves to decline slightly to 53 percent over the next decade, from less than 60 percent now.
On the other hand, the survey found that central bank respondents expect the growth of the Chinese renminbi to be gradual – with the currency expected to reach 6 percent of global reserves over the next 10 years, up from just under 3 percent at present. Is.
“In the near term, most reserve managers plan to adopt a cautious stance on China,” the report said. “The share of respondents willing to increase renminbi holdings over the next two years has dropped by more than half to 13 percent from 30 percent in 2021 and 2022.”
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Barriers to investing in the renminbi and increasing interest in the euro
The report noted that the majority of respondents cited market transparency and geopolitics as the main barriers to investing in the renminbi. However, it added that there is “significant demand” for the currency in the medium term. Nearly 40 percent of central banks plan to increase their holdings in the renminbi over the next 10 years – more demand than any other currency.
This medium-term interest in the Chinese currency is driven by, among other things, China’s growing role in the global economy.
Another development in the way central bank money managers are managing their portfolios is the emergence of the euro as an increasingly attractive alternative.
“Interest in the euro is growing among reserve managers,” the report said. “A total of 14 percent of central banks plan to increase their euro holdings over the next two years, while a net zero say they will do so in 2021 and 2022. No other currency has higher net demand in the near term.”
The report states that this could be due to rising interest rates in Europe. However, it added that the dollar will continue to dominate despite increased interest in the euro.
“Overall, central banks expect the dollar to continue to dominate, and the renminbi is unlikely to make significant gains as a reserve asset any time soon,” the report said.
fear of stagflation
Survey respondents said the prospect of stagflation is now a bigger concern for them than current inflation.
“Not just inflation, but stagflation is the major concern this year,” the report said. “Nearly 70 percent consider a global economic recession to be among their top three concerns – more than twice as many as in 2022.”
In addition, 38 per cent fear a global economic recession in the next 12 months, the report said.
Another change in the thinking of central bank money managers is that geopolitical tensions are becoming a medium-term issue rather than a short-term one.
“When OMFIF ran a GPI survey shortly after Russia’s invasion of Ukraine last year, 85 percent of respondents listed geopolitics among their top three concerns affecting reserve management over the next 12-24 months. This year the share has dropped to 51 per cent,” the report said.
However, this does not mean that geopolitics is no longer a concern – according to the report, it simply means that the time frame of these concerns has changed.
“But in the medium to long term, geopolitics is of greatest concern,” the report said. “Geopolitical tensions were rated as the number one factor affecting reserve management over the next five to 10 years, and 83 percent listed it in their top three.”
(Edited by Uttara Ramaswamy)
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