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Central Banks Warn Trillion-Dollar Debt Hits US Dollar, Reveals Plans To Increase Chinese Yuan Holdings

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Central banks around the world no longer look at the US dollar with the same certainty as they did years ago, according to new research.

Institutional asset manager Invesco surveyed 57 central banks and found that they are concerned about the US’s behavior on the geopolitical landscape, as well as its rising debt levels, which threaten the reliability of the dollar.

The United States’ treatment of the Russians in response to the country’s conflict with Ukraine is a stark example of their concerns, according to the survey.

“The freezing of Russian assets by Western nations has highlighted the world’s reliance on the US dollar as the dominant reserve currency, raising questions about its long-term viability amid high US debt levels. A growing percentage of central banks year after year believe that US debt levels are negatively affecting the dollar…

While very few actually see a world in which the Chinese yuan becomes the world’s reserve currency, central bankers still hope to increase their renminbi holdings over time, buoyed by “strong performance and unbeatable returns.” correlated”, according to the search.

The Invesco report also found that central bankers believe gold is another asset that has become more attractive now that the dollar has lost some of its allure.

“A substantial percentage of central banks are concerned about the precedent set by the US freezing of Russian reserves, with a majority (58%) agreeing that the event has made gold more attractive. Consequently, central banks now prefer to hold physical gold rather than ETFs or gold derivatives (Chart 5.6). Physical gold holdings increased the most compared to 2020, while the use of gold ETFs decreased.

“Gold has played a crucial role in the last two years – we increased the exposure 8-10 years ago and kept it in London, using it for swaps and to increase yields, but now we move our gold reserves to our own country to hold it. safe: its role now is to be a safe-haven asset,” a Western-based central bank said.

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