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

ECB data shows gold now tops US Treasuries in reserves as dollar holdings gradually ease.

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

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.