UBS: Global Reserve Managers Worried About “Dollar Stability, Fed Independence” Shaking Up

UBS: Global Reserve Managers Worried About Dollar Stability and Fed Independence: Central Banks Gradually Increase Gold and Reduce Dollars to Deal with Economic Policy and Trade War Risks

On July 3, 2025, at 12:02 PM, Reuters reported that a survey by UBS Asset Management found that two-thirds of central bank reserve managers are concerned that the independence of the Federal Reserve (Fed) is being threatened, and nearly half believe that the rule of law in the United States may deteriorate to the point of significantly impacting asset allocation.

In addition, 35% of the nearly 40 central banks surveyed said they expected the US to ask its allies to replace long-term debt with alternatives such as ultra-long, zero-coupon bonds.

The poll reflects growing concerns about the dollar's status as the world's top reserve currency and largest bond market after US President Donald Trump confronted longtime ally on trade and security issues, including attacks on the Federal Reserve.

Trump's April 2 "Liberation Day" tariff hike has weighed on the dollar and US Treasury markets, as he has been pressing the Fed to cut interest rates and his advisers have offered unconventional economic approaches to reducing the US debt burden.

Max Castelli, head of government bond market strategy at UBS Asset Management, stated that these concerns clearly demonstrate that “Liberation Day” has changed reserve managers’ perspectives on the dollar.

According to the survey, 29% of central banks are likely to reduce their holdings of US assets in response to the latest developments. However, looking ahead to a year, only 1% of central banks expect to reduce their dollar holdings, after excluding those looking to increase their holdings, a slight decrease from last year.

“If you ask whether the overall power of the dollar will change significantly? The answer is not yet,” Castelli said, explaining that, naturally, reserve managers will take a long time to shift their portfolios.

Nearly 80% of respondents still believe that the dollar, which currently accounts for 58% of global foreign exchange reserves, will remain the world’s primary reserve currency.

Looking ahead, gold, which UBS classifies as a non-currency asset, is the most popular, with 52% of central banks planning to increase their holdings and 39% planning to increase their domestic gold holdings, reflecting emerging market central banks' concerns about the risk of sanctions, particularly gold stored in the United States.

Trump's policies have also sparked concerns in Germany about the German central bank's gold reserves, some of which are held at the US Federal Reserve in New York.

Over the next five years, reserve managers estimate that the euro will benefit the most from changes in the global capital market structure, followed by the Chinese yuan and crypto assets. However, looking ahead to the next year, only a net 5% of respondents plan to increase their euro holdings, while the yuan takes the top spot with 1%, followed by the Canadian dollar, British pound and Japanese yen.

“Although the outlook for Europe is very positive right now, expectations are high. If Europe fails to deliver on its economic reform targets, the European revival momentum may not last long,” Castelli warned.

Reference: reuters.com

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