Central banks favor the euro in the short term and the yuan long term as they push to de-dollarize reserves

• Central banks around the world are more interested in the euro, a new survey found.
• A net 14% of plan to boost their euro holdings in the next two years, the highest level of demand among currencies.

While China is aggressively pushing the yuan to erode the dollar's dominance, global central banks are actually clamoring for the euro as a reserve asset in the next few years.

That's according to a survey by the Official Monetary and Financial Institutions Forum, which found that a net 14% of central banks plan to increase their euro holdings in the next two years, marking the highest level of demand among currencies.

That marks a big change compared to 2021 and 2022, when there was no net gain in demand for the euro.

"It seems that rising interest rates in Europe are making fixed income assets there more attractive," the OMFIF report said.

Meanwhile, a net 10% expect to increase yuan holdings in the next two years, and a net 6% plan to boost their dollar reserves.

But the outlook looks different over the longer term.

Led by Latin American and European central banks, a net 6% of central banks plan to reduce their dollar holdings over the next 10 years.

OMFIF predicted that dollar reserves will decline from 58% worldwide to 54% in the decade, though it will remain the dominant reserve currency.

Also in the next 10 years, a net 9% of central banks indicated plans to increase euro reserve assets, suggesting that the currency may play a key role in future diversification, OMFIF noted.

And more than 30% of central banks on a net basis expect to boost exposure to the yuan in that time span, with OMFIF estimating that its share of global reserves will expand from 3% to 6% by 2033.

"Close to 40% of central banks plan to increase their holdings of renminbi over the next 10 years – higher demand than for any other currency," the report said. "Respondents stated diversification and China's growing role in the global economy as the main motivation to invest in the renminbi. The rise of the renminbi in reserves is probable, but it will be gradual."