US dollar loosens grip on central bank reserves worldwide as gold takes over

Dubai: The US dollar remains the world’s dominant currency for trade and finance. Yet central banks are steadily buying more gold and reducing the share of dollar assets in their reserve portfolios. Here’s what the latest data shows — and why it matters.

The US dollar extended its losses on Wednesday after retreating from a two-week high, even as fresh data pointed to a much bigger story unfolding behind the scenes.

Against the Japanese yen, the dollar traded at 162.08, down 0.1%. The euro rose 0.1% to $1.1433, while the British pound gained 0.1% to $1.3401. The New Zealand dollar hovered near a one-month high at $0.5819, while the Australian dollar was little changed at $0.6983.

The US Dollar Index, which measures the greenback against a basket of six major currencies, slipped to 100.81 after falling 0.35% in the previous session, its biggest daily decline in nearly two weeks.

Short-term moves in currency markets happen every day. The bigger shift attracting attention is taking place inside central banks, where reserve managers are gradually changing what they own.

One of the biggest assets they have traditionally held is US Treasury securities — bonds issued by the US government and denominated in US dollars. Central banks buy these bonds as one of their main dollar reserve assets because they are considered safe, pay interest and can be easily bought or sold.

A new report by the European Central Bank (ECB) shows that gold has overtaken US Treasury securities as the largest single reserve asset held by central banks worldwide.

That marks a notable shift in the composition of global reserve assets, even though the US dollar continues to dominate international trade, lending and finance.

Central banks hold foreign exchange reserves to help stabilise their currencies during periods of market volatility, pay for imports if needed, meet external debt obligations and reassure investors that they have enough financial resources during times of crisis.

Those reserves are typically made up of foreign currencies, government bonds and gold. The exact mix differs from country to country depending on its financial strategy and economic needs.

For decades, US Treasury securities have been one of the most widely held reserve assets because they are backed by the US government and can be traded easily in global financial markets.

Gold has always formed part of reserve portfolios too, but its importance has increased sharply over the past few years.

According to the ECB, gold accounted for 27% of global official reserve assets at the end of 2025, up from 20% a year earlier. Over the same period, the share of US Treasury securities fell to 22%, down from 25%.

One of the main reasons was the sharp rise in gold prices. The ECB said gold prices climbed 64% during 2025, increasing the value of central banks’ existing holdings and lifting gold’s share of global reserves.

The figures reflect the market value of reserve assets rather than simply the amount of gold purchased. Even so, central banks around the world have also been adding to their gold reserves in recent years.

The rise in gold does not mean the US dollar has lost its position as the world’s leading reserve currency. International Monetary Fund (IMF) data shows that all US dollar-denominated assets still accounted for 57% of global foreign exchange reserves at the end of 2025.

That was down from 64% a decade earlier, but it still means well over half of the world’s official reserves remain invested in dollar-denominated assets. In other words, central banks are diversifying their reserve portfolios rather than abandoning the dollar.

The decline has not been uniform across countries. Research by the Federal Reserve Bank of New York found that part of the decline reflected Russia’s move away from dollar assets following its 2022 invasion of Ukraine and the sanctions that followed.

The study also found that countries described as “geopolitically distant” from the United States increased their holdings of dollar assets rather than reducing them. China’s reported holdings of US Treasury securities have also fallen significantly since 2013.

At the same time, analysts note that official US Treasury data may not fully capture China’s total exposure because some securities are held through financial centres such as Belgium and Luxembourg.

Even as central banks diversify their reserve portfolios, the dollar remains the currency most widely used in global trade. The ECB estimates that about 40% of global exports continue to be invoiced in US dollars, a share that has remained broadly unchanged this century.

The Atlantic Council estimates the figure is even higher at 54%, while China’s yuan accounts for only about 4% of global export invoicing. This means companies around the world still overwhelmingly buy and sell goods in dollars, regardless of where those goods are produced.

The dollar also remains the world’s dominant currency for international lending. According to the Bank for International Settlements (BIS), banks outside the United States held $14 trillion in US dollar-denominated liabilities at the end of 2025, up from $5 trillion in 2000.

Comparable euro-denominated liabilities stood at around $3 trillion, roughly double their level at the start of the century. The figures highlight the dollar’s continuing role in cross-border banking, trade finance and international borrowing.

The latest data shows two trends unfolding at the same time. Central banks are increasing the role of gold in their reserve portfolios while gradually reducing the share of dollar-denominated reserve assets, including US Treasury securities.

At the same time, the US dollar continues to dominate global trade, cross-border lending, banking and official foreign exchange reserves. For now, the shift is not a replacement of the dollar but a diversification of reserve assets. Gold is becoming a bigger part of central banks’ portfolios, while the dollar remains the foundation of the global financial system.