Central Banks Expect Dollar to Reign Supreme for Another 25 Years

(Bloomberg) -- Foreign-exchange reserve managers at central banks around the globe expect the dollar to remain dominant for at least another quarter-century.

Roughly 66% of managers believe the greenback will remain the reserve currency of choice over the next 25 years, according to a UBS Asset Management survey of 30 central banks. The U.S. currency accounts for about 62% of global central banks’ $11.7 trillion foreign-exchange reserves, the International Monetary Fund said last month.

The finding comes as questions emerge over the state of the so-called strong dollar policy and countries like Russia vocally diversify out of the greenback. Bank of England Governor Mark Carney railed against the dollar’s hegemony in August, bemoaning the currency’s “domineering influence” on trade. But still, the dollar is “the ultimate safe-haven currency,” according to UBS.

“The dominance of the U.S. dollar in global reserves -- an average share above 60% over the last 25 years -- has been a constant feature of FX reserve management,” UBS analysts Massimiliano Castelli and Philipp Salman wrote in a report released Wednesday. “This is particularly surprising because speculations about the imminent demise of the dollar have become a stable refrain over the past decades.”

The Chinese yuan is expected to chip away at the dollar’s share, however. UBS found that 38% of respondents see it becoming a reserve currency on the level of the dollar or the euro in the quarter-century to come. The euro accounted for just over 20% of reserves in the second quarter, according to IMF data.

Other findings in the survey:

• 82% of respondents named a global economic slowdown and the return of deflationary trends as the main risks facing the world economy, up from 0% in last year’s survey
  • Trade wars ranked as the top concern among survey participants for another year
• 77% of respondents said that they are invested in or are considering allocating reserves to the yuan
  • The average long-term target allocation to the yuan was roughly 4.2% among respondents, up from 3.2% in last year’s survey
• 67% of participants named gold’s performance “during times of crisis” as driving their decision to invest in the previous metal, while 46% mentioned it as “part of their policy to hedge U.S. dollar exposure”

To contact the reporter on this story: Katherine Greifeld in New York at kgreifeld@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Nick Baker

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