Executive summary

This year’s trade war between the world’s two largest economies and vying superpowers may in the end serve to usher in a more multipolar world order. That is the story that is beginning to emerge in central banks’ foreign exchange reserves, although the landscape is still very much in flux. Onshore renminbi investments have fallen from 56% of respondents last year to 43% in 2025. This year’s data also revealed something of a schism between central banks intending to invest up to 15% of their reserves in renminbi by 2035 and those with no intention to invest. For years, HSBC Reserve Management Trends has also asked reserve managers about their allocation and attitude towards non-traditional reserve currencies. At the same time, comments by reserve managers suggest that practical limits due to US dollar market depth and liquidity, rather than will, are a bigger constraint for some central banks against diversifying away from the dollar. Nevertheless, reserve managers around the world largely remain in consensus that de-dollarisation is occurring, and many expect diversification to increase in 2025. With the Federal Reserve’s hiking cycle ending last year and the risks of a US recession increasing since, other currencies may stand to benefit for these reasons, too. However, amid a whipsawing news cycle, for now, the dollar may alchemise into gold – the safe-haven asset whose price continues to reach all-time highs. As well as gold, the 21st edition of HSBC Reserve Management Trends also includes timely in-depth chapters on fiscal divergence and foreign direct investment (FDI), and takes a glimpse into the future into the role of artificial intelligence in reserve management.

2025 survey findings

The first chapter presents the views of 91 reserve managers, and found that US protectionist policies are the most significant risk of 2025. A reserve manager from a central bank in the Americas said: “US protectionist policies and volatile inflation pose major risks by impacting trade flows and reserve asset returns, while geopolitical tensions add uncertainty to asset security and liquidity management.” Following the escalation in trade tensions between the US and China, central banks around the world are prepared to intervene to maintain stability in FX and wider financial markets. A reserve manager at a central bank in the Asia-Pacific region pointed to the challenges of balancing portfolios and adequately protecting the value and liquidity of reserves amid “an increasingly uncertain global landscape”. Of the 46 reserve managers that responded to the question about why their central banks were aiming to increase their reserves in 2025, 28 (60.9%) said it was to maintain investor confidence in the country. Another 27 (58.7%) said they needed reserves to act as a buffer for a possible intervention in the FX markets. Even before the significant spikes in FX volatility of recent weeks, 42 (50%) of the 84 central banks that responded to the question said they had intervened in FX markets over the previous 12 months. Inflation and interest rates were far and away the most important factors that respondents said would affect their reserve management over the remainder of the decade.

Fiscal divergence and its implications for reserve managers

In Chapter 2, Martin Soler, Luther Bryan Carter, Dominic Bryant and Maulshree Saroliya explore global government debt dynamics. Since the global financial crisis, a confluence of cyclical and structural factors has led to rising public-debt levels throughout the world. The Russian invasion of Ukraine and resulting increase in defence expenditures, increasing pressures for social and healthcare spending, the cost of the climate transition, and challenging demographic trends have all reversed the post-pandemic declines in public-debt ratios and undermined attempts at fiscal consolidation. The authors aim to shed light on growing fiscal risks, regional differences in debt trends and assess the importance of different drivers in advanced and emerging economies, highlighting policy implications. The chapter then explores specific drivers of public debt in China and the US – by far the two largest contributors to the rising global public-debt trend – and then examines the rest of the world; in particular, a group of countries whose debt dynamics have been more robust, and whether these debt dynamics are likely to last in the future. They also explore whether there is a correlation between debt dynamics and sovereign bond performance. The chapter ends with conclusions on these diverging trends for both policy-makers and investors in government debt.

Foreign direct investment inflows and FDI screening policies

In Chapter 3, Aditya Gaiha and Indrani Manna of the Reserve Bank of India analyse the effect of policy on FDI. Since 2020, inward FDI flows into both developed and emerging market economies have been decelerating. In the aftermath of the pandemic, several economies made FDI assessment regulations more stringent. On March 25, 2020, the European Union released guidelines requesting member states to undertake rigorous screening of all foreign investments that could affect critical European assets and technology. In 2022, a US presidential executive order directed to consider the impact of FDI transactions on critical supply chains, the technology leadership of the US in specific industries, and the risks to US citizens’ sensitive information. While some countries demanded additional filings, some rerouted applications through the government approval process, lengthening the duration of FDI approval and implementation. Using difference-in-differences regressions for a set of 39 countries, the authors find that the slowdown in FDI inflows worldwide may be attributed to policy uncertainty due to more stringent screening to discourage the opportunistic takeover of national assets by foreign corporates.

Geopolitics, gold and bitcoin

In Chapter 4, Central Banking sat down with Juliusz Jabłecki, the director of the financial risk management department at the National Bank of Poland, on March 14, 2025. Last year, Poland was reportedly the world’s leading central bank in terms of gold accumulation, with reserves reaching around 450 tonnes, nearing that of the European Central Bank. By the end of 2024, the NBP valued Poland’s gold reserves at $37.6 billion, accounting for nearly 16.7% of total reserves, close to its 20% target. The increase from 12.3% in 2023 has been driven in part by the price of gold. The price of gold is at historic highs, in part driven by central bank purchases. What does this historically high price and cyclical relationship regarding the proportion of gold in the NBP’s reserves mean for the Polish central bank’s gold-purchasing programme and diversification? As well as speaking about the NBP’s strategy with respect to gold and gold lending, Jabłecki – in a stark example of geopolitical risks to reserve management – discussed the NBP’s experiences following the breakout of war in neighbouring Ukraine. Other topics in this in-depth interview include FX interventions, diversification and bitcoin in reserves, as well as insights into how the NBP uses independent risk-taking by reserve managers to improve investment efficiency.

Is the central bank gold rush over?

In Chapter 5, Levente Koroes asks whether, after central banks’ purchases of more than 3,000 tonnes of gold over the past three years, the gold rush is over. The adage that gold is a good hedge against volatility has demonstrated some value in recent years, as can be seen by contrasting a measure of geopolitical instability and the price of bullion. Geopolitics – including the weaponisation of the US dollar – appeared to have played a role in central banks’ increases in their gold holdings. Now, finding the right time to increase gold holdings may be difficult because of its price volatility, while some reserve managers are currently limiting increases in gold holdings due to any future potential mark-to-market losses. However, unlike during the decline of sterling’s status as the global reserve currency, there is no clear alternative coming to take the dollar’s place. The euro is plagued by interstate issuance and a relatively small footprint, while the renminbi is not freely convertible. While some have speculated that digital currencies could replace gold – with Fed chair Jerome Powell calling bitcoin “digital gold” – the price volatility experienced by crypto assets is much greater than that of bullion. Gold comes with its drawbacks, but its analogue nature is also an upside: gold is physical – and throughout history, it has always held value. Ultimately, the central bank gold rush may be far from over: there is simply no alternative to gold, Koroes concludes.

Market sentiment analysis in reserve management

In Chapter 6, Isabel Vasconcelos and Marisa Soares of the Bank of Portugal discuss how their department is using AI and machine learning (ML) in reserve management. The global financial landscape is undergoing a profound transformation, driven by rapid digitalisation. Advanced technologies such as AI and ML become ever more powerful with each iteration. For central banks, these developments present both challenges and opportunities. This chapter explores the potential opportunities of AI in enhancing reserve management strategies at the Portuguese central bank. The market sentiment analysis (MSA) project integrates AI and natural language processing (NLP) techniques for text processing and extraction of entities and topics from high volumes of data updated in real time. For market sentiment classification, customised ML coding was developed, using NLP and algorithmic classification. For the purposes of the MSA project, sentiment comprises three categories: positive; negative; and neutral. Sentences were classified with a positive sentiment whenever they signalled an increase in an asset valuation or higher economic growth, and were labelled with negative sentiment if they signalled a decrease. Neutral statements were attributed to sentences that were purely informational or that contained both positive and negative elements. Sentences with outcomes that matched measures of market consensus were also classified as neutral. Six market segments were considered – bonds, macroeconomic, geopolitical, foreign exchange, commodities and stocks – as key areas for the segmentation of sentiment analysis, ensuring a “comprehensive and structured” approach to market interpretation.

On behalf of Central Banking Publications, I would like to sincerely thank all who contributed to this year’s book, both as authors and survey respondents. As ever, the editors welcome comments on this year’s book and suggestions for future editions. We would like to express our thanks to Bernard Altschuler and his colleagues at HSBC for their continued support of this title.

Joasia E. Popowicz
London, April 2025