Central bank diversification strategies – rebalancing from the dollar and the euro

Published 13th March 2013

Categories: Central banks/official inst.

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A report by the World Gold Council, “Central bank diversification strategies – rebalancing from the dollar and the euro”, examines the growing trend of central banks’ actively looking to diversify their reserve portfolios. While the dollar is still the primary global currency, its long-term dominance is less certain. In response, central banks are reducing allocations to US dollars and euros while increasing purchases of traditional assets such as gold and Japanese yen and new alternatives including Chinese renminbi.

 

The report covers the following topics: 

  • Diversification of Traditional assets 
    • Signs of diversification are already apparent 
    • Traditional vs Alternative reserve assets 
  • The role of Alternative reserve assets
  • Portfolio optimisation including Alternative reserve assets 
    • Methodology, data, and assumptions 
    • BlueSky: applying no restrictions to the analysis 
  • Drawbacks to Alternative reserve assets 
    • Market size and availability 
      • Adjusting optimisation analysis for market size 
      • “Market” scenario results: Accounting for market size 
    • Alternative assets positively correlated with
other risk assets 
    • Challenges with investing in the renminbi 
    • Limited market access for foreigners 
      • Qualified Foreign Institutional Investors (QFII) 
      • Hong Kong deposits 15 China liberalisation scenario 15 
  • A renewed relevance for gold