(Kitco News) – The Trump administration’s economic and trade policies have emerged as the number-one threat to the stability of central banks around the world, according to a new report from HSBC.
The annual HSBC Reserve Management Trends report, conducted in partnership with Central Banking, showed that the United States is now seen as the biggest downside risk to central banks worldwide.
“US protectionist policies have emerged as the biggest risk facing central banks today – despite HSBC’s annual survey taking place before the specific US tariff announcements of early April 2025, which jolted financial markets,” the report noted. “Reserve managers are adjusting to heightened uncertainty: 50% have intervened in FX markets in the last 12 months, and a significantly higher number than last year have made investment changes in response to geopolitical risk.”
The report includes contributions from 91 central banks representing over $7.1 trillion of global reserves. “The findings paint a picture of reserve managers’ agility in recalibrating their strategies in response to emerging trade policy interventions and a fast-moving geopolitical backdrop,” they said.
The report also showed diverging attitudes and approaches to the U.S. dollar: “while de-dollarisation, it appears, is widely perceived to be gradually advancing, the number of central banks increasing their dollar investments is greater than those reducing them,” they said.
U.S. trade tariffs and other protectionist measures are now viewed by central banks as the most significant risk, with 44% calling it their most pressing concern.
“In the medium term, reserve managers inevitably have their eye on inflation and interest rates – seen by the vast majority as the most important factor affecting their reserve management over the next five years,” the report said. “Equally, wider geopolitical volatility weighs on the minds of an increasing number of reserve managers. 73% now incorporate geopolitical risk into their risk management and asset allocation decision-making, up from 67% in 2024.”
The HSBC research also shed light on the scale and frequency of foreign exchange interventions. “Half of central banks have intervened in FX markets in the past 12 months,” the report showed. “Indeed, if Eurozone respondents are excluded, the proportion of central banks taking such action rises above 60%. Among those who have intervened were half of the central banks that have reserves of over $100 billion.”
HSBC said that “the extent of central banks’ FX interventions is rarely acknowledged, because these actions often go unannounced publicly. This makes them an under-reported tool, as well as an important one for influencing currency rates.” Most of the 41 central banks that intervened in the past 12 months both bought and sold their local currencies.
Tellingly, 54% of participating central banks said they plan to increase their FX and gold reserves.
“According to reserve managers’ responses, the most common reasons for doing so are maintaining investor confidence in the country, and using reserves as a buffer for potential FX interventions,” the report said.
And while gold prices are continuing to set new all-time highs on a near-weekly basis, relatively few central banks see high bullion prices as a barrier, with 37% of respondents saying they plan to increase their gold allocations in the next year. “For most of those planning to do so, gold is viewed as a portfolio diversifier,” the report said. “Many also see it as a long-term store of value, a good performer during times of crisis, and a geopolitical diversifier.”
The attitudes of central banks toward the U.S. dollar, however, were more divided.
“De-dollarisation initiatives have been picking up pace, as the BRICS countries actively explore ways to reduce reliance on the US dollar,” the report noted. “However, most reserve managers see the dollar’s reduction as a gradual process. At the time of the survey, relatively stronger growth in the US, combined with the Fed’s perceived higher-for-longer stance, was encouraging slightly more banks to increase their dollar investments (16%) than to decrease them (9%) over the next year. However, markets are fast-moving and positions may be changing in light of more recent events.”
Most of the central banks that said they were increasing their dollar investments said they were doing so at the expense of traditional reserve currencies, while the return on investment in non-traditional currencies has also been called into question due to the associated costs.
“In terms of bond markets, confidence in the UK and Germany has rebounded over the past year, but reserve managers ranked China lowest, just ahead of Japan,” the report said.
And there was no evidence in this year’s report that central banks are warming up to stablecoins and cryptocurrencies. “No central bank believes bitcoin should be considered a suitable asset class for reserves, and none reported investments in cryptocurrencies,” HSBC said. “Two-thirds are against a strategic bitcoin reserve fund; however, almost one in four voiced uncertainty about this.”
But a large proportion of participating central banks said they see diversification of reserve assets as key to their future strength.
“Asked about their strategies for the next 12 months, half of central banks surveyed said they intend to increase their asset class diversification,” the report noted. “Around a third expect to increase liquidity, and a similar proportion will increase duration, though all subject to a critical eye on yield curve behaviour.”
“Against a volatile backdrop, reserve managers are demonstrating the agility and resourcefulness they will need to stay ahead of 2025’s potential political and economic shifts,” they concluded.
