Central banks are increasingly re-evaluating their reserve management strategies as macroeconomic pessimism and geopolitical risks dominate the global landscape. The 31st UBS Annual Reserve Manager Survey, conducted between May and June 2025 with responses from nearly 40 central banks, reveals a marked shift in sentiment towards greater caution, diversification and asset realignment.
Expectations of a soft economic landing have weakened. Only 39% now view it as the most likely outcome, down from 66% last year. An equal proportion now foresee stagflation, a situation of low growth coupled with persistent inflation, as a probable base case. Some 40% of respondents expect US headline inflation to remain in the 3–4% range over the next year, while 83% see US policy rates remaining in that same range. Longer-term inflation is also expected to persist, with 63% of central banks indicating that they believe higher inflation is now a structural feature of the global economy.
Geopolitical risks have surpassed economic volatility as the primary concern. Three-quarters of respondents cited trade war escalation as the top threat, followed by 51% who flagged heightened military conflict risks. Economic risks, including business cycles and inflation, ranked third. Reserve managers are also increasingly concerned about asset price volatility, rising US rates and the weaponisation of FX reserves — now cited by 49% of respondents, up from 32% in 2024 and just 14% in 2023.
The changing political landscape in the US is also shaping reserve strategy. Most reserve managers expressed scepticism about the effectiveness of a potential second Trump administration’s economic policies. Only 14% believe the “MAGA” agenda that is focused on tariffs, deregulation and tax cuts could deliver long-term economic growth. Meanwhile, 65% flagged concerns about a possible erosion in the independence of the US Federal Reserve, while 47% were wary of declining rule of law and data quality. Nearly half believe US debt restructuring is a plausible scenario in coming years, and 68% think some form of US dollar weakening is likely.
In terms of asset allocation, diversification efforts have plateaued, with 59% of central banks reporting strategic asset allocation changes over the past year, down from 65% in 2024. Yet there is strong demand for gold. More than half of respondents plan to increase gold holdings over the next year. Geopolitical hedging, not returns, is the primary reason. A record 67% believe gold will be the best-performing asset over the next five years, up sharply from 21% last year.
Green bonds have also gained traction. Seventy-two per cent of institutions now invest in them, making them the most-added asset class in the past year. Almost half plan to further increase green bond exposure in the coming 12 months. Meanwhile, passive equity allocations are losing favour—only 12% plan to increase exposure, down from 26% last year.
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Currency diversification continues, but slowly. While 79% still expect the US dollar to remain the global reserve currency, confidence is waning. Of those that changed their currency allocations over the past year, 54% reduced their USD holdings, while only 23% increased them. The euro was the clear beneficiary, with 69% increasing euro allocations and only 23% reducing them. The renminbi is also gaining, with its average long-term allocation target rising to 5.9%, up from 5.0% last year. However, actual investment in RMB fell to 61%, down from 70% in 2024 and 72% in 2023.
Cryptocurrencies are gaining some traction among reserve managers. When asked which assets are likely to benefit from geopolitical and macroeconomic shifts, 44% cited crypto assets—placing them just behind the euro (74%) and RMB (59%) in expectations of future gains. Nevertheless, actual institutional exposure to crypto remains marginal, with only one institution reporting interest in Bitcoin.
There are signs that institutions are reassessing the use of external managers. While 91% currently employ them, 23% said they have recently shifted some passively managed assets back to active strategies. The use of mandates remains dominant for implementing passive strategies, favoured by 63% of respondents.
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On risk management, 45% of institutions say their policies do not allow for any negative returns. Among those that tolerate drawdowns, 23% allow up to 10%. Value at Risk (VaR) and tracking error are the most commonly used risk metrics, at 68% and 65% respectively. A total of 42% of participants report their portfolios are now more diversified than a year ago.
Environmental, social and governance (ESG) considerations are also gaining ground. Thirty-one per cent of respondents said they have recently changed or are considering changes to their benchmarks to incorporate ESG factors. Forty-three per cent are considering sustainability as a fourth reserve management objective, alongside liquidity, capital protection and returns.
Overall, sentiment remains cautious. Reserve managers do not anticipate a breakdown in the US–China economic relationship, with 91% expecting continued trade flows, albeit with tariffs and sector-specific restrictions. Only 6% expect a complete collapse in trade ties. Similarly, most expect a moderate resolution to global trade disputes, with no consensus believing in a new era of broad-based global prosperity.
The outlook for the US dollar and US debt remains stable but fragile. While 79% believe the USD will maintain its status as the global reserve currency, 77% expect demand to stagnate, keeping the currency range-bound. Meanwhile, 76% believe US debt will remain in demand, though yields are expected to rise.
