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Business Times
05-07-2025
- Business
- Business Times
Reserve managers overwhelmingly reject digital assets
THAT the US will inevitably devalue or renege on its sovereign debt, probably through inflation and money-printing, found easy consensus at a recent private dinner for family offices and sovereign funds attended by the Official Monetary and Financial Institutions Forum (OMFIF). A furious and intractable row broke out, however, about whether gold or Bitcoin was the better alternative to the US dollar, while the renminbi and the euro went unmentioned. If a reserve manager were also present it would perhaps have swung the argument. OMFIF's Global Public Investor (GPI) 2025 found that not a single central bank surveyed holds any digital assets, and 93 per cent have no intention of doing so. Of the institutions in question, representing US$5 trillion of global reserves, there were outliers in the Middle East plus a lone voice in Europe. The pronounced conservativism extended beyond distributed-ledger technology assets to the technology itself: 82 per cent of respondents neither use it nor intend to in future, even though some of their central bank digital currency teams are getting ready to do so. What is holding the vast majority of reserve managers back from the crypto party, at a time when the same survey found 58 per cent looking for diversification? Even though they resemble reserve-like money more than they resemble securities, the main reason not to hold stablecoins is very simple. Regulators – including central banks – are mostly intent on preventing them from paying a yield (which is also why their operators are incredibly profitable). As Larry Hathaway, global investment strategist at Franklin Templeton, explained at the launch of the GPI report, there wouldn't be many takers for this kind of 'negative carry', and reserve managers might as well directly hold the kind of government money market instruments that sit in stablecoins' collateral pools. Daniela Klingebiel, who helped manage the Reserve Advisory and Management Partnership for the World Bank, added a host of other factors militating against stablecoins as a reserve asset, rather than as a means of payment. These include legal and counterparty risk, custodial complexity, regulatory ambiguity, technical risk, credit risk (of the coin issuer) and the risk of de-pegging, which for example both USDC and USDT have done, and happens occasionally to money market funds, which somewhat resemble stablecoins. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up What about digital assets that more resemble securities or commodities, such as Bitcoin? Some observers refer to it as the 'new gold', primarily on the basis of its programmatic scarcity. Similar ecosystem obstacles exist to those for stablecoins, Klingebeil explained, in addition to the nature of the asset itself, which is volatile, illiquid and harder to trade compared to typical reserve assets. Nor is Bitcoin (yet, at least) used for cross-border trade and capital flows, both of which also significantly determine a national reserves managers' allocation strategy. What of the 7 per cent of reserve managers at least keeping an eye out? At the GPI launch, Jan Kubicek, board member of the Czech National Bank, said 'we can pretend there is no such thing as Bitcoin or gain some hands-on experience with it', adding that this does not immediately equate, say, to 2 per cent of reserves. The ecosystem differences to other types of assets, including auditing and accounting treatment, posed major challenges, 'but still we are open to experimenting with it'. The CNB has also explored the potential benefits of (non-)correlation, but 'not discovered any miraculous stabilising force' through a portfolio holding of Bitcoin, though all these factors may significantly change 'as it becomes more financialised'. Public pension and sovereign funds, whose allocation objectives are more return-focused and less complex and systemic than central banks, are more adventurous. In the same survey, 7 per cent of those respondents already hold digital assets, and a further 20 per cent intend to. Facts on the ground march on. US President Donald Trump has announced that the US would set up a strategic bitcoin reserve. The Genius Act, presaging the mainstream adoption of stablecoins in the US, has been passed by the Senate and awaits approval in the House of Representatives. Fannie Mae and Freddie Mac may soon treat cryptoassets as legitimate collateral for housing finance. The future path of stablecoins remains intriguing. They lack the value creation of programmatic scarcity and, for the most part, have no yield. They are not backed, for now, by central bank reserves, merely government debt and fiat cash. They have de-pegged in the past. OMFIF has heard that hedge funds are waiting to test them in a market dislocation. So why bother? Stablecoins are saving counterparties material sums on payments. At an off-record event convened by a global universal bank and some of its key wholesale customers as well as OMFIF, a major consulting firm said that it is already using stablecoins for internal cross-border payments. The bank in question, a major transactions services player for whom this could be an existential headache, could afford to relax a little, though. A leading multilateral development bank in attendance said that it did not wish to take on the theoretical risks of using stablecoins even for a short time, and would prefer to use the service in development by the bank, which uses stablecoins in the background to remit more quickly and cheaply. If, in the end, the stablecoin and distributed ledger technology boom make the regulated financial sector faster and cheaper, it will have ended up at a version of the regulated Liability Network, thanks to the advancing threat of the opposite, which will leave the financial system broadly as it is. OMFIF The writer is chairman of the Digital Monetary Institute at the Official Monetary and Financial Institutions Forum.
IOL News
04-07-2025
- Business
- IOL News
Betting on the dollar as the world turns to gold
Gold remains the most demanded asset class for central banks globally, especially among emerging markets seeking to hedge against geopolitical risks and financial sanctions. Image: File AS global financial markets grow increasingly fragmented and unpredictable, central banks — marked by escalating geopolitical tensions, economic uncertainty, and structural volatility — are being forced to rethink their investment strategies to navigate a rapidly evolving global financial landscape The OMFIF Global Public Investor (GPI) 2025 report offers a comprehensive insight into how institutions such as the SA Reserve Bank (Sarb) are adapting to these shifting dynamics, with particular emphasis on currency diversification, asset allocation, and risk management. OMFIF (the Official Monetary and Financial Institutions Forum) is an independent think tank specialising in central banking, economic policy, and public investment. It serves as a neutral platform for engagement between the public and private sectors worldwide, producing research and hosting events to enhance understanding of the global economy. South Africa finds itself in a unique position within this context. As one of the most developed economies in Africa, the Sarb plays a pivotal role in regional monetary coordination and serves as a bellwether for emerging market reserve strategies. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ According to the GPI 2025 report, the Sarb ranks 38th globally, holding $66.2 billion (about R1.2 trillion) in international reserves — a 6% annual increase that underscores its growing importance in the global reserve architecture. The report highlights a broader trend among sub-Saharan African central banks, where 93% intend to grow their international reserves over the next one to two years. This ambition is particularly evident in countries such as Ghana, Nigeria, and Kenya, which have seen double-digit increases in their reserve holdings. South Africa, however, stands out not only for its relatively large reserves but also for its stability and institutional maturity. 'Reserve management cannot be isolated from monetary policy or financial stability,' the report noted. 'Our investment decisions must support, rather than complicate, broader policy objectives – especially during periods of stress.' This cautious approach is emblematic of the Sarb's philosophy under the current leadership. Zafar Parker, Head of Financial Markets at the Sarb, elaborated: 'South Africa has historically had significant gold holdings due to its status as a major gold producer. Although there have not been substantial additions to gold reserves recently, the rise in gold prices has increased gold's share of total reserves. 'At the end of 2019, gold comprised about 11% of total gross reserves; it now accounts for nearly 20%. The recent fluctuations in gold prices have demonstrated its value as a haven and its role in a diversified portfolio of reserve assets. However, there has been no decision to reduce other exposures and increase gold holdings.' Gold remains the most demanded asset class for central banks globally, especially among emerging markets seeking to hedge against geopolitical risks and financial sanctions. Over 30% of central banks expect to increase their gold holdings over the next 12–24 months, while more than 40% anticipate doing so over the next five to 10 years. Yet South Africa, despite being one of the world's largest historical producers of gold, has taken a measured stance. While rising gold prices have naturally boosted the metal's share in the country's overall reserves, the Sarb has not pursued active accumulation, according to the report. 'Amid rising economic uncertainty and geopolitical tensions, the importance of gold as a portfolio diversifier has grown,' said Tuvshingerel Tumenbayar, the acting director, and Azjargal Amarsaikhan, senior economist at the Bank of Mongolia. 'We regard gold as a strategic asset that supports risk mitigation and strengthens financial security in rapidly evolving global conditions.' The report found that South Africa's reluctance to increase gold holdings reflected a broader tension between tradition and modernity in reserve management. While gold offered insulation from fiat currency volatility, the Sarb appeared to prioritise liquidity and yield through traditional instruments such as US Treasuries. 'Geopolitical risks to central bank reserves are currently considered possible, though their likelihood remains low,' Parker explained. 'We assess them because of the significant impact they could have if they were to occur. Given this risk has recently evolved from 'unthinkable' to 'unlikely but conceivable', we have not yet developed models for assessing geopolitical exposures; modelling the impact of geopolitical risk on reserve assets is very complex. Consequently, we address the issue qualitatively on a case-by-case basis.' He further said: 'We also have existing credit risk and country risk limits that can be adjusted in response to increased geopolitical risks in specific regions.' The GPI 2025 report underscored a notable shift in global reserve behaviour: while many central banks were exploring alternative currencies and asset classes, the US dollar remained the dominant reserve currency. South Africa is no exception. 'As a safe-haven asset, US Treasuries will continue to dominate financial markets,' the report quoted a central bank from sub-Saharan Africa as saying. Parker echoed this sentiment, emphasising the enduring relevance of the greenback: 'While geopolitical risks influence reserve management, South Africa sees the dollar retaining its importance despite ongoing volatility.' Sarb maintained a strong exposure to US Treasury bonds, reflecting confidence in the depth, liquidity, and resilience of the US's debt market, according to the report. This conservative posture aligned with broader trends observed across emerging markets, where capital preservation remained the top priority. 'Capital preservation is the main investment priority for 61% of survey respondents,' the report stated. 'Reserve managers are becoming wearier of volatility and the possible need to intervene — the share of respondents that prioritise liquidity rose to 29% from 20% in 2023.' Parker expanded on Sarb's approach: 'Our currency choices are mainly influenced by trade activity and foreign debt issuance. In recent years, we have been somewhat overweight in the dollar, relative to the weights implied by these metrics. This was due to the ultra-low or even negative interest rates available on safe assets from other major economies, which undermined the core reserve-management objective of capital preservation. 'Now that interest rates seem to be stabilising comfortably above zero, across most major jurisdictions, a more balanced currency allocation may be achievable again. The dollar is nonetheless likely to retain an important role, alongside other currencies that are important for our trade and borrowing.' Geopolitical risk emerged as a defining theme in the GPI 2025 report. Among reserve managers, 31% selected geopolitics as the primary economic factor driving their investment decisions over the next 12–24 months, up from just 4% last year. Tariffs, trade wars, and regional conflicts have prompted a re-evaluation of traditional reserve compositions. 'Diversification remains important, but it is no longer sufficient,' observed one official quoted in the report. 'We must embed optionality into our governance frameworks — ensuring that our policies and processes allow rapid adaptation to shifting conditions.' For South Africa, this means maintaining a delicate balance between diversifying away from the dollar and preserving access to deep, liquid markets. While interest in the euro and renminbi (RMB) is growing globally, with sub-Saharan Africa showing particular enthusiasm, Sarb remains cautious. 'Until significant progress is made across all core reserve asset dimensions, cryptoassets will remain outside the realm of central bank reserve management,' warned World Bank experts, Erik Feyen, Marco Ruiz, and Daniela Klingebiel. South Africa is also taking a wait-and-see approach to digital innovation in reserve management, focusing instead on enhancing traditional tools and infrastructure. 'We continue to explore the feasibility of incorporating public equities into our strategic asset allocation,' Parker revealed. 'However, our focus remains on maintaining a high degree of liquidity and capital preservation, especially in light of macroeconomic headwinds.'
Finextra
04-07-2025
- Business
- Finextra
CBDC pilot projects seeing adoption in Ghana and Thailand – Giesecke + Devrient
Raoul Herborg, managing director, central bank digital currency (CBDC) solutions at Giesecke and Devrient (G+D) spoke to Finextra on their release of a recent survey on CBDC progress worldwide, and what we can expect from CBDCs in the coming years. 1 This content has been selected, created and edited by the Finextra editorial team based upon its relevance and interest to our community. Herborg provided an overview of the report released by G+D in collaboration with OMFIF, which collected responses from 34 central banks worldwide, including the Bank of Ghana, Bank of Thailand, and European Central Bank, and in-depth interviews with senior representatives concerning the implementation of CBDCs into the mainstream banking ecosystem. G+D has been working on several pilot projects to launch retail CBDCs. Explaining the revolutionary potential of CBDCs, Herborg stated that CBDCs can transfer the benefits of cash into the digital world, and would be a public means of payment without transactions fees or the need of a commercial bank – they will be an alternative method of payment comparable to PayPal, Visa, and Mastercard, intended to expand accessibility and inclusivity. 'It's this idea of transferring the capabilities of cash into digital world,' Herborg commented. Herborg emphasised that CBDCs will not replace commercial alternative payments, but provide a public alternative. Commercial banks will not be left on the sidelines of CBDC innovation, and are involved in the progress with central banks acting as a platform for developing new services. The report found that 48% of the global central banks surveyed in the report expect to issue a CBDC within the next three to five years, and 50% of central banks are developing CBDCs to preserve monetary sovereignty. Key motivators for implementing CBDCs are financial inclusion, offline payment capabilities, and preserving the role of central banks in emerging markets. However, motivations differ according to region, with Europe prioritising sovereignty and African markets focusing on financial inclusion. Herborg stated that in countries in Africa there has been an influx of mobile money providers, but many come with exorbitant fees on transactions, onboarding, and other features. Providing examples of pilot projects that have seen significant progress and success, Herborg describes CBDCs launched by the Bank of Ghana and Bank of Thailand. With Bank of Ghana, G+D launched a pilot in a rural area where they provided cards to people without smartphones. Herborg detailed that the users were reluctant at first, but as they followed the project and continued to survey adoption, there was a significant uptake. The Bank of Ghana reported a 60% increase in usage. 'For the people in that village, it was the first digital payment in their life. They had only used cash. We had a use case where people were bringing their cash to the merchant to exchange it to CBDC on a card, because they considered the money on the card to be more secure than the cash. That was definitely a big success, that proved that the technology works and can deliver financial inclusion to people in very rural areas.' With the Bank of Thailand pilot project, there was also a need for offline support that offered working payment solutions. The report found that 20% of respondents were satisfied with their offline payments functionality, up from 0% in 2023. These onboarding processes were not exclusive to a G+D or Bank of Thailand app, but were integrated into the existing technologies of commercial banks – in this case Siam Bank. Challenges facing CBDC adoption include political approval, regulatory alignment, and protecting against security breaches. Herborg explained: 'If you look at countries in Europe, it's a lot about sovereignty. If you want to pay in Europe, it's not easy to pay without using a non-European payment solution. Here in Germany, I'm not sure I have ever used in any European online payments solution. I use PayPal, Visa, and MasterCard - there are no European solutions. Therefore, sovereignty is a big topic. You can imagine, with the current political situation, it's a risk being dependent entirely on North American solutions.' Herborg went into detail on the progress of the digital euro from the European Central Bank: 'If you look at Europe, there's this huge project of the digital euro. There has a big political policy aspect, because it's not only the European Central Bank that wants to drive the topic, but there's also regulation. Since regulation is currently discussed among the European Commission, there also needs to be political approval. That's another learning, confirmed by that report - technology is one thing in that you have to provide great usability, but it's also about the political process that is needed in order to make it really happen.' Herborg shared an optimistic outlook for CBDC development in the coming years, highlighting their its potential to enhance the ever-evolving digital payments landscape.
Business Times
02-07-2025
- Business
- Business Times
Central banks are ditching the greenback: What's in favour instead?
[SINGAPORE] Central banks hold a variety of assets, each serving a specific purpose tied to their mandate of maintaining monetary and financial stability. Beyond mandate, a central bank's holdings are also influenced by its policy frameworks and economic conditions. Historically, the US dollar, sovereign bonds and gold are the cornerstones of many portfolios. But with market turmoil sparked by US President Donald Trump's tariff moves, the currency hit a 50-year low in the first half of 2025, tumbling by 10.7 per cent. These days, central banks are moving away from the greenback, according to a survey of 75 central banks conducted by the Official Monetary and Financial Institutions Forum (OMFIF) between March and May. The US dollar was knocked off the most popular pedestal last year to seventh place this year, according to the OMFIF survey. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up The Business Times goes back to basics, and throws some light on how central banks weigh their options. What types of assets do central banks traditionally hold? The key types of assets held by central banks include: Allocating a weight to each asset The composition of what each central bank holds reflects its unique priorities – whether it's exchange rate stability, inflation targeting, or crisis response readiness. 'Some central banks may hold a larger portion in foreign exchange reserves to manage currency volatility, while others may favour gold for its role as a safe haven asset,' said Dan Chang, trading representative at PhillipCapital, in an interview with BT. Let's take the US Federal Reserve as an example. The primary assets on its balance sheet are: US Treasury securities: used for open market operations to influence interest rates and manage liquidity. Mortgage-backed securities: added post-2008 to support the housing market and credit flow. During crises, the Fed may also hold corporate bonds or other assets under emergency programmes to stabilise markets. But for the Monetary Authority of Singapore (MAS), it is different due to the Republic's exchange rate-based monetary policy framework: Since 1981, MAS has conducted monetary policy by managing the Singapore dollar exchange rate. It does not control domestic interest rates or money supply growth. Exchange rate policy is the only form of monetary policy in Singapore. It holds a significant portion of its assets in foreign reserves, which are actively managed and diversified to ensure Singapore dollar stability. Does not hold Singapore Government Securities the way other central banks hold their own bonds. Why central banks are shying away from the US dollar These are the structural factors behind this phenomenon: Economic sanctions Growing importance of emerging markets, Increased recognition of how over-reliance on a single currency exposes countries to financial and geopolitical risks, Rise of China as a trading powerhouse, and Diversification of forex reserves This steady but persistent weakening of the currency – in terms of its standing and central bank holdings of dollar-denominated assets – has been occurring for years, clarified Luca Paolini, chief strategist at Pictet Asset Management. 'Sanctions, asset freezes and US threats to suspend global economies from the Swift payment systems have made (US dollar) reserves much less safe than in the past,' he explained. Countries facing extensive US sanctions are prompted to conduct trade in non-US currencies. Naturally, the hiking of US tariffs in recent times has further eroded the status of the US dollar, and reinforces a greater need for de-dollarisation. What assets and currencies are on the rise now, and why The draw of foreign currencies, however, is more of a push factor away from the US dollar than a pull factor of other assets, in Chang's view, due to heightened geopolitical tensions and uncertainties with US President Donald Trump in power. 'It is ultimately about building a more balanced and resilient portfolio of currencies and assets to weather an increasingly complex global landscape,' he said. For gold, data released by World Gold Council (WGC) on Jun 17 reflected that among the 73 central banks polled, some 95 per cent of them indicated that they expect to continue increasing their gold holdings in the next one-year period. This is a record high since the data was first tracked in 2019, and a 17 per cent increase from last year's survey results. 'Central banks are concerned about interest rates, inflation and instability – all reasons to turn to gold to mitigate risk,' said Fan Shaokai, global head of central banks and head of Asia-Pacific (ex-China) at WGC. China's keen interest in gold China is an important player in the gold market. As at March, its official gold reserves reached 2,292 tonnes, accounting for 6.5 per cent of its total reserves. 'That rise reflects continuous buying, and this build-up isn't just symbolic, in my opinion,' said Chang. 'It's strategic.' The country's growing gold reserves support its broader goal of strengthening the renminbi's credibility and international standing. It also offers China a refuge from US dollar-centric risks such as sanctions, and supports the broader de-dollarisation push. 'By bolstering gold holdings, China signals to global markets that it is prepared for a more multipolar monetary system,' Chang added. Pros and cons of gold As a reserve asset, gold has some disadvantages. 'It is not a widely accepted means of payment – especially not in bullion form – and carries storage and refining costs. This is in addition to how it does not pay interest or offer other income streams,' Stephen Dover, chief market strategist and head of the Franklin Templeton Institute, said. 'Gold tends to lose its real purchasing power in the long run, meaning gold prices do not keep pace with inflation over a longer period of time.' Dover explained that gold can be thought of as a form of 'portfolio insurance', with the 'premiums' reflected in opportunity costs of not investing in interest-bearing instruments and by offering negative real returns. That said, gold ETFs, compared to physical gold, are seen as cost-effective with lower storage and insurance costs, and come with minimal tracking error, which means they closely mirror the actual price of gold.
Business Standard
25-06-2025
- Business
- Business Standard
Central bankers look for diversification from the greenback into gold, the euro and renminbi: OMFIF report
There are growing questions over the dollars dominance in portfolios and public investors are seeking safe-haven assets, according to survey results published by the Official Monetary and Financial Institutions Forum (OMFIF) on Tuesday. This years GPI report, based on a survey of 75 central banks, shows the appetite for diversification continues for very different reasons. The foundations of the global economic order, underpinned by globalisation and the dollar, are shaking. Conducted from March to May this year, the survey revealed that 96% of reserve managers view US tariffs as a major geopolitical concern. This is not a temporary consideration: over 80% of reserve managers have geopolitics in their top three factors shaping longer-term investment decisions, ahead of inflation, real interest rates and technological change, the survey noted. Reserve managers expect to move away from dollars and towards other currencies especially the euro and renminbi although this shift will be gradual, the survey noted. The dollar was the only currency that saw demand fall this year, while a net 16% of survey respondents intend to add to their euro holdings over the next two years, up from 7% last year. However, this preference is not across the board, with respondents from emerging markets more likely to add to their renminbi holdings. Meanwhile, 32% of central banks plan to increase their exposure to gold in the next 12 to 24 months, with over 20% forecasting the price to surpass $3,500 per ounce. Gold is shining brightest as a diversifier, the survey noted as a dedicated in-focus section reveals the precious metal is the most demanded asset class for central banks. According to the survey, diversification is the number one reason why central banks are buying gold, the second reason is as a hedge against geopolitical risks and the third factor driving demand is to hedge against inflation. However, the dollars reserve currency status is not yet under threat. Over 80% of central banks stated the dollar still provides safety and liquidity, and the vast majority expects it to constitute over 50% of global reserves over the next decade, according to the OMFIF survey.
