Persistent inflation and uncontrolled rise in long-term yields have displaced worries over the trade war as the top risk impacting the global economy, according to UBS Asset Management, citing its annual survey of reserve managers, with 82% of them citing this worry, up from 51% responding to the same survey lasst year.
Trade war escalation, which was seen as the top risk by reserve managers in the previous year with 74% indicating so, declined noticeably to 18%.
However, at a time of geopolitical, economic and structural challenges, more respondents perceive further escalation of wars as a global risk, with 75% of the survey respondents indicating so, up from 51% last year.
The survey, in its 32nd annual edition, drew insights from around 30 leading central banks.
The survey by UBS was held in conjunction with the annual Reserve Management Seminar (RMS) held in Wolfsberg, Switzerland this week.
This event is one of the industry's longest-running and most successful gatherings for sovereign institutions, which was attended by representatives from more than 50 institutions.
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"Geopolitics remains a critical driver of uncertainty, but the focus has broadened. It is no longer just about conflicts – it is about how geopolitical tensions translate into inflation, yields and financial fragmentation," says Massimiliano Castelli, head of strategy and advice, global sovereign markets at UBS Asset Management.
"What we hear from reserve managers is not panic, but strategic concern. They are increasingly factoring geopolitical developments into long-term asset allocation decisions, not just short-term risk management," he adds.
The survey respondents expressed their views on the dynamics of currencies as well.
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While 93% of the respondents believe that the US dollar will not lose its status as a safe haven currency over the next years, up from 79% last year, however, 61% believe that the demand for both US debt and US dollar will stagnate with yields gradually rising.
In addition, 63% expect a weakening of the US dollar, either via agreements or unilaterally, while 33% see US debt restructuring as a possible scenario over the coming year.
The RMB and the euro stand out as the main beneficiaries of ongoing diversification trends, with 63% (59% in 2025) of the respondents saying the RMB is most likely to benefit from macroeconomic and geopolitical shifts over the next five years, and 56% for the EUR (74% in 2025). Gold remains the clear winner with 81%.
Looking at the year ahead, 42% of the respondents see the RMB as a stand out when it comes to currencies that central banks are planning to add on a net basis, followed by commodity currencies like the Canadian Dollar.
Nearly half, or 44% of the respondents think that the ongoing US-China relations accelerated the internationalisation trend of the RMB, a noticeable increase from 30% in the previous year.
Nearly two-thirds, or 63% of respondents answered that they are invested, or consider investing in RMB, an increase from 61% in the previous year. One institution indicated that it introduced the RMB as a new currency in their reserves.
The respondents are not the most upbeat on developments in the US with Donald Trump not yet into the halfway mark of his second stint in office.
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They see "persistent pressure" on the institutional and political foundations underpinning US dominance in global asset allocation.
More than half, or 56%, believe that Kevin Warsh's appointment as the new Fed chairman has "somewhat weakened" the independence of this institution.
Nearly half, or 44%, expect the Fed to become more dovish.
