Trends in reserve management: 2022 survey results

The survey questionnaire was sent to 140 central banks in February 2022. By mid-March, replies had been received from 82 reserve managers, responsible for a total of $7.3 trillion, or 48% of the world’s total.¹¹ This figure uses data from the IMF, with gold valued at market prices, as of July 2021. The average holding of respondents was $89 billion. Breakdowns of the respondents by geography, economic development and reserve holding can be found in the tables below.²² In this survey we follow the World Bank classification of countries by income group (see https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lendinggroups), and the. United Nations classifications for geography (see https://en.wikipedia.org/wiki/United_Nations_geoscheme).

Which in your view are the most significant risks facing reserve managers in 2022? (Please rank the following 1–6, with 1 being most significant.)

Reserve managers are most concerned about the risks of rising inflation and monetary policy normalisation in 2022. These two risks dominated the views of the reserve managers who took part in the survey. Thirty-nine respondents, just over half of those who replied, placed rising inflation first in terms of significance, while a further 25 placed it second. Two comments, from reserve managers in the Americas and Middle East, respectively, illustrated these views:

Which in your view are the most significant risks facing reserve managers in 2022? (Please rank the following 1–6, with 1 being most significant.)

And for the reserve manager from the Middle East: “Central banks will have great challenge facing rising inflation and monetary policy normalisation this year, which will have a big impact on the financial markets and reserve management.”

The 39 reserve managers are responsible for reserves worth $1.9 trillion and tended, on average, to be smaller reserve holders. The average holding of this group was $49 billion, a little over half that of the survey. Upper middle income countries figured prominently, making up 36% compared to 27% of the survey overall. Indeed, 64% of reserve managers from upper middle income countries ranked rising inflation first, compared to 44% of lower middle income countries and 43% among high income countries. For a reserve manager from an upper middle income country, inflation is the most significant risk as it leads to volatility: “Rising inflation and subsequent monetary policy tightening cause high interest rate volatility. The impact on the yields is therefore sudden and significant due to sudden swings in market expectations, making the actions to adjust gradually impossible.”

In contrast, high income countries made up half of the 22 who placed monetary policy normalisation first. This group was made up of considerably larger holders of reserves, with an average portfolio of $130 billion. Among respondents from lower middle income countries, 38% placed monetary policy normalisation first. A reserve manager in Asia is concerned about the impact on the value of the portfolio: “Monetary normalisation is the most significant risk factor due to its impact through rising yields on portfolio valuations, especially keeping in mind the expected US Fed rate hikes.”

The Covid-19 pandemic, exchange rate volatility and credit market pressure were placed first or second by only a handful of respondents. However, almost a quarter of respondents did place geopolitical tensions first or second, a view clearly impacted by Russia’s invasion of Ukraine on February 24, at which point half of the survey responses had been received. Comparing responses received before and after this date shows that geopolitical tensions rose from 8% placing it first before that date to 13% after. Concern over inflation also increased, with the proportion placing it first rising to 54% compared to 47% beforehand. Monetary policy normalisation receded in concern from 34% before February 24 to 23% after. Six of the eight reserve managers who placed geopolitical tensions first were from Europe. A reserve manager from Central and Eastern Europe (CEE) commented: “Answering in the beginning of March, where geopolitical tensions have realised already. Really hope will pass soon though.”

In light of recent increases in inflation and subsequent monetary policy tightening, what steps have you taken to protect the value of your reserves portfolio? (Please check as many as appropriate.)

Reserve managers have chiefly looked to shorten duration as they strive to insulate their portfolios against rising inflation and interest rate increases. Fifty-one reserve managers, over three-quarters of those who replied, said they had changed the duration of their portfolio with the aim of protecting its value. Among smaller holders, a change in duration was typically the only step, while larger holders tended to use duration in concert with other measures. Changes in currency exposure and assets invested in were less common, at just under one-third of respondents, and just over one in five said they had changed their credit exposure.

The 51 reserve managers who had changed duration were responsible for $2.4 trillion in reserves, an average of $46 billion. Over half of this group was made up of middle income countries, with high income countries accounting for 40%. Of these 51 reserve managers, 22 said they had changed duration alone. These tended to be smaller reserve holders, with a mean holding of $27 billion. In their comments, reserve managers chiefly noted a shortening of duration. A comment from a reserve manager in Asia: “Shortened duration relative to benchmarks,” and one from the Caribbean, were typical: “The duration of the portfolio has been shortened to mitigate the risk and exposure to the portfolio. No material change has been made to the other metrics.” A reserve manager from Europe said: “Slight change in the duration of the portfolio to account for monetary policy normalisation, although the movement is mainly discounted by the market. We have increased the use of money market instruments although we cannot fully consider this fact as a change in the range of assets invested in.”

In contrast, those that changed duration in combination with other steps tended to have larger portfolios. These 29 reserve managers were responsible for $1.8 trillion, an average holding of $61 billion. Changing assets invested in was the most popular addition: 15 of the 29 employed this with a change in duration. This group had an average of $54 billion in their portfolios. Thirteen of the 22 had changed currency exposure as well as duration: these were much larger holders, with a mean of $95 billion in holdings. A reserve manager of an upper middle income country in Africa who had changed duration and assets invested in summed up their change: “Tactically shortened duration and utilised inflation-linked securities.” A reserve manager from the Americas had taken similar steps: “We have extended our capabilities of investing in inflation-linked instruments in advanced economies during the last couple of years.”

As a group, the responses from reserve managers from high income and low income countries followed a similar pattern across the survey. Upper middle income reserve managers favoured changes in assets and credit over currency. This group also looked to duration slightly less: 73% said they had changed duration compared to 83% of high income countries and 86% of low income countries. Responses by reserve holding were similar for duration and currency. However, reserve managers responsible for less than $10 billion showed a preference for changes in assets (34%) over credit (14%), but those responsible for more than $10 billion favoured credit (31%) over assets (24%).

Changes in currency were typically accompanied by at least one other factor. Of the 21 who said they had changed currency exposure, only three selected this option alone. Similarly, only two reserve managers said they made changes in credit exposure alone.

Looked at in terms of geographic groups, currency exposure was favoured by reserve managers in Asia and Africa: 50% and 43%, respectively, said they had changed this. European reserve managers looked more to assets: 44% of the group said they had made this change. One reserve manager, from a large reserve holder in Asia, noted change in all four areas, adding “We have changed the share of each asset in the portfolio.”

Recent years have seen reserve managers diversify into new markets, assets and currencies. In your view, to what extent will rising yields affect this trend in 2022–3?

Central banks will continue to diversify reserves over the next two years even as yields, notably those in developed country markets, rise. The past two decades of low, and in some cases negative, interest rates have seen central banks invest their foreign currency reserves in an increasing array of asset classes, markets and products. Investments such as equities, once considered unthinkable for reserves, are now mainstream. Low yields on “traditional” reserve assets, such as government debt, have undoubtedly led reserve managers to look farther afield in terms of return and capital preservation. Yet, this period has also seen shifts in thinking about the purpose of reserves and, indeed, a re-evaluation of what assets are in fact “risky” for a central bank to hold.

Overwhelmingly, reserve managers are clear that diversification will remain a fixture for their profession. Seventy-four reserve managers, 96% of respondents, said diversification will either not be impacted, will increase or will slow in pace. Of these, the largest group, 30, said rising yields would slow the pace of diversification. This group was responsible for $1.7 trillion in reserves, with an average holding below that of the survey, of $55 billion. The group was divided almost evenly between high, upper middle and lower middle income countries. Central banks from the Asia–Pacific region figured prominently in this group, accounting for one-third of it, along with reserve managers from Europe. A slowdown in diversification was the dominant view in the Asia–Pacific region: 63% of respondents selected this option. Two reserve managers from Asia explained their thinking. For one, higher yields will combine with uncertainty to precipitate a “wait and see” approach: “The rising rates and the uncertainty regarding them may slow down the pace of diversification as investors may prefer to stay in cash equivalent and await a better opportunity to invest.”

In an extended comment, a large holder noted the distinction between real and nominal rates, and an increase in socially responsible investing as sustaining interest in diversification:

A reserve manager from the Americas noted their experience with so-called commodity currencies, and weighed up several competing forces to reach their conclusion that diversification will slow:

Among high income countries, the most popular view is for rising yields not to impact the trend of diversification: 42% held this view. Equal numbers of respondents thought diversification would slow or increase. Among middle income countries there was a clear view that diversification will slow, although a significant share of upper middle income country reserve managers said they think it will increase.

Twenty-six reserve managers, one-third of respondents, see diversification increasing with yields. This group had a larger mean holding of $91 billion, but this was somewhat skewed by three very large holders who accounted for almost 80% of the group’s $2.4 trillion holdings. Just over half the group was responsible for less than $10 billion. Higher yields offering more opportunity was a common refrain in comments; as a reserve manager from Africa noted: “The pace of diversification will increase because rising yields attract more reasonable returns.” This, and a focus on SRI, were factors for a reserve manager from Europe: “Reserve managers are looking for new opportunities. Especially now [there] is a big focus on sustainable investments.”

Eighteen reserve managers said they did not think rising yields would impact the trend of diversification. This group was dominated by respondents from high income countries, chiefly European, responsible for $1.6 trillion in reserves. In their comments, several respondents stressed the contribution to risk management that diversification makes: “During times of crisis, diversification helps reduce risk,” explained one reserve manager from Africa, who added: “Hence with so much uncertainty still at hand, despite rising yields, reserve managers will continue to diversify their reserves in order to remain prudent.” A central banker from Europe saw two forces cancelling each other out: “Hard to say actually, very low and rising yields are the ones probably motivating more to look around; higher yields themselves do not create incentive to look around for income.” In an extended comment, a reserve manager from the Americas thought diversification would continue but with different drivers:

Only a handful of respondents said rising yields would reverse diversification; as a central banker from an upper middle income in Europe explained: “Low interest rates have been pushing investors toward asset classes that are not typically [in a] central bank universe, and have resulted in taking excessive credit risk in order to preserve the value of the foreign reserves. Rising yields might reduce the incentive to take credit risk and allow central banks to return to the traditional asset classes.”

As with their view of portfolios globally, reserves managers see diversification in their own portfolios continuing in the face of rising yields. Over half of respondents said rising yields will not impact diversification in their portfolios. This group was dominated by reserve managers from high income countries who were responsible for $3 trillion in reserves. In their comments, reserve managers noted a detachment of their diversification from yields: “Our asset allocation is not that much linked to absolute level of interest rates,” said a large holder from Europe. A large holder in the Middle East stressed the long-term nature of their approach: “We are in long process of diversification in our reserve investments, which is less impacted by this current change in rates.” There was considerable variation across income groups, however. While two-thirds of high income respondents said there would be no effect, the corresponding percentage for upper middle income was 45% and for lower middle income it was 33%. Among lower middle income countries, almost half of respondents thought diversification would slow, while the figure for upper middle income countries was just over one-quarter. When looked at by reserve holding, smaller reserve holders were more inclined to see an increase in diversification in their portfolios as yields rise, whereas larger holders were more of the view that diversification would not be impacted.

Just under a quarter of respondents said they thought diversification will slow as yields rise. These 18 reserve managers were smaller holders with an average of $24 billion, although the group did include two large holders from Asia. For a reserve manager from Asia, the impact of changes in yields would be more tactical: “Regarding our positions, there will not be a major change in diversification, but we see a decreasing pressure to deviate from our benchmarks once the Federal Reserve stops rising its yields.” For a reserve manager from Oceania, the incentive to diversify would be reduced: “Diversification in terms of looking for return may decline in a rising yield environment as we get more out of our current investment universe.”

Sixteen reserve managers, responsible for just over $1 trillion, envisage diversification increasing in their portfolios as reserves increase. A reserve manager from Europe noted they might add new currencies or asset classes.

What percentage of your FX reserves is in “non-traditional”⁴⁴ “Non-traditional” in this context means assets other than government bonds, supranationals, government agencies and deposits in US dollar, euro, Great British pound and Japanese yen, and gold. reserve assets?

Non-traditional reserve assets are a growing and important part of a reserve manager’s armoury. Significant minorities of respondents have changed their holdings in the past year or plan to do so in 2022. Most of this change is an increase in holdings. Seventy-five respondents gave a percentage figure for their share of FX reserves. A simple arithmetic mean holding was 13.4% and the median 3.4%. Analysis on a weighted basis yielded an overall percentage share of 15% non-traditional assets for the 75 respondents who provided data. This result was significantly influenced by a large and diversified holder however. Removing this central bank reduced the share to just over 8%.

Central banks from high income countries tend to have higher percentages of non-traditional currencies. Indeed, high income countries dominated the 11–25% and 25–50% brackets, whereas those from upper middle income countries were most conservative: almost half hold less than 1%. In terms of reserve holdings, those with more than $10 billion tended to have more in the 1–10% bracket than those with less than $10 billion, which were concentrated in the less than 1% range.

Viewed regionally, reserve management in Asia tends to be the most adventurous. Only 8% of respondents from that region hold less than 1% in non-traditional reserve assets, and almost one-third were in the 11–25% bracket. Fifteen percent hold in excess of 51% in non-traditional assets. Europe was next with just over one-third of respondents holding 1–10% in non-traditional assets. Twenty-eight percent of this group did hold less than 1%, however. Reserve managers from Africa and Americas are the most conservative in this regard. Almost 70% of respondents from the Americas hold less than 1% in non-traditional assets, although 13% were in the 25–50% bracket. One-half of reserve managers from Africa hold less than 1% and one-third 1–10% in non-traditional assets.

Has this changed in the past year?

A significant minority of survey respondents has changed their holdings of non-traditional assets over the past year, notably larger holders. Twenty-eight reserve managers, just over one-third of respondents, said the share of nontraditional reserve assets in their portfolio had increased in the past year. As a group, just over half were from high income countries and they tended to be large holders, with average reserves of $117 billion. Indeed, among holders with more than $10 billion, 44% said they had increased the share compared to only 26% among those with less than $10 billion. Fewer than half (46%) of those responsible for more than $10 billion said the share had not changed. One reserve manager, a large holder from Europe, explained the most recent step they had taken: “In order to diversify source of income and enhance return over the long-term horizon, we have started to invest in equity index futures. Initial exposure has been relatively small but we are planning to expand investments on equity markets.” This was echoed by a reserve manager from CEE, who noted: “In particular, [an] increased allocation to equities and emerging market debt.” Reserve managers from upper middle income countries tended to be more cautious overall: 27% said the share had increased compared to 40% among lower middle income countries.

The five respondents who said their share had decreased were smaller holders with an average of $61 billion. One reserve manager from Europe noted that the fall was more to do with the valuation of traditional assets than a decision to reduce non-traditional holdings: “The share of gold and other liquid assets increased within our reserves, which meant a decrease in ‘non-traditional’ assets in 2021.”

The 47 reserve managers who had not changed the share of non-traditional assets tended to be much smaller holders, with a mean holding of $36 billion. Central bankers from high income countries made up just under half of this group (21, or 45%) and those from upper middle income countries (14, or 30%) were prominent. Indeed, this group of 14 accounted for almost two-thirds of the upper middle income cohort in the survey as a whole. Comments noted either a conservative approach or that non-traditional assets were added more than a year ago.

Are you considering any change in 2022–3?

Twenty four reserve managers, just under one-third of respondents, are considering increasing the share of non-traditional assets. This group was dominated by respondents from high income countries but tended to be smaller holders: 14 were responsible for less than $10 billion. The average holding was $109 billion, however, as the group also included several very large holders from Europe and Asia.

Respondents from high income countries dominated the group of 18 reserve managers who had changed their holdings of non-traditional assets and also planned to do so. This group included three very large holders, and was responsible for $144 billion on average. The 18 were mainly from central banks in Asia and Europe. All had increased the share over the past year and all but two, both smaller holders, were considering doing so in 2022.

Of the 28 that increased last year, 16 were thinking of a further increase, nine no change and two a decrease. The 16 were mostly high income countries from Europe and Asia, with only one respondent from Africa. Of the 24 considering an increase in 2022–23, eight said they had not changed the share over the previous year.

Among upper middle income countries, just over three-quarters of respondents said they were not considering any change, although 23% were. A reserve manager from the Caribbean, who, as with most from the upper middle income bracket, is not considering change was satisfied with their experience of investing in Chinese assets, as they explained: “We continue to monitor our investments in the renminbi for the past three years. It has shown positive returns, but we are not inclined to increase/decrease at this time.” Lower middle income countries accounted for the three respondents who said they were considering decreasing. Indeed, only two of the 15 from that income bracket said they were considering an increase.

A reserve manager from the Americas who was considering change this year, but had not in the past year, explained their thinking: “As part of our new strategic asset allocation, in the short term we will start to invest in non-financial corporates.” A reserve manager from Africa was looking to expand their yuan holdings: “Holdings in CNY are expected to increase in view of the initiation into CNY bonds under the externally managed portfolio, as well as to maximise its current composition limit.”

What is the current duration of your central bank’s reserves portfolio?

Central bank reserves are typically short duration at two years or less, a distribution similar to last year’s survey but with more weight at the very short end.⁵⁵ See Pringle and Carver (eds), 2021, HSBC Reserve Management Trends 2021, (London: Central Banking Publications), Chapter 1, p. 19. Note the numbers and compositions of the survey samples are different. Broadly speaking, there are positive relationships between duration and country income group and reserves size. The distribution of respondents from high income countries is centred around 2–3 years, higher than the survey sample. Upper middle income countries are mostly around the 1–2 year bracket with a sizeable share in the 6 months – 1 year bracket. The biggest share of lower middle income countries is in the 0–6 month bracket – almost half this group. As regards reserve holdings, 71% of respondents with less than $10 billion in reserves have duration of two years or less, compared with 53% of those with more than $10 billion. Just over a quarter of these larger holders has duration of three years or more.

Has this changed in the past year?

There has been considerable change in reserve portfolio duration over the past year, no doubt as reserve managers reassessed the monetary policy stance of reserve currency central banks and market reactions. Just under half of respondents (45%) have changed duration over the past year, with most of these moving to shorten. Broadly speaking, shortening of duration was inversely related to country income classification. While 31% of respondents from high income countries said they had shortened, this rose to 36% and 47% among upper middle and lower middle income countries, respectively. Central bankers with more than $10 billion were more likely to have extended duration than those with less than that amount.

The 26 reserve managers who said they had shortened duration were mostly middle income countries and smaller reserve holders, with a mean of $43 billion. In contrast, the nine who extended were much larger, with an average holding of $80 billion. This group was mostly high income and upper middle income countries. Of the 26 who said they had shortened duration over 2021, most (15) said they were not considering further changes. A European central banker from this group felt interest rate changes were already priced in: “It is our view that the market has already discounted much of the interest rates changes, so we are inclined to neutralise positions on duration.” A reserve manager from Asia was content with their shortened position: “Based on the preference for liquidity and expectations of further rate increases in main reserve currencies, we have shortened the total duration of our reserve portfolios and we expect no significant change in that during 2022 as the same conditions are considered to continue.” Just over one-third (eight) were considering shortening again and two only extending.

Of the nine who extended, two were considering shortening and two extending. Of the 43 who said they had not changed in 2021, most were not considering a change this year.

Are you considering any change in 2022?

The 12 reserve managers considering shortening duration tended to be smaller holders, although the group did include two large holders from Asia. This group included four reserve managers whose portfolio duration was longer than two years; half were from the 1–2 year bracket. An African reserve manager from this group explained their thinking, saying a “Marginal shortening of overall duration due to rebalancing, but will remain in the 1–2 year space.” The six reserve managers who said they would extend were smaller holders on average. This group included one large holder from Europe who explained their thinking: “The normalisation of rates, especially in the eurozone, is going to ‘open the gate’ and invest in longer-term bonds.”

Comments from those who are not considering a change could be divided broadly into two groups. The first said they had already made a change or that they were comfortable with their position. A reserve manager from the Americas referenced shortening in 2020: “Not significant change, we decreased it in late 2020,” while a European manager had balanced their two tranches: “We have already balanced our shorter duration liquidity portfolio and longer duration investment portfolio to our needs.” The second group noted market conditions, especially volatility. An African reserve manager was biding their time, and said they had “Adopted a ‘wait and see’ approach until market volatility reduces.” A reserve manager from Europe explained their approach: “It depends on the market conditions at the time the decision is being made, but generally under the long-term strategic asset allocation we intend to maintain modified duration of investment portfolios close to the level determined by the market structure. Such [an] approach allows [us] to enhance yield over a long-term horizon.”

To what extent do you agree that the US dollar is still the safe-haven currency? (Please check one of the following.)

The dollar remains preeminent in reserve managers’ eyes as the safe-haven currency. All respondents were in agreement, and of those just over 40% strongly agreed. There was little variation among country income classification, but those that strongly agreed were on average smaller holders. A geographic view of the responses yielded some variation. European reserve managers had the lowest percentage share for those that strongly agreed, at 26%. Americas and Asian respondents were divided almost evenly between agreeing and strongly agreeing. Two comments from reserve managers in the 47 that agreed the dollar was the safe-haven currency noted increased demand and performance in times of heightened risk. A central banker from Europe noted it was still the currency markets looked to: “The demand for USD tends to increase in market stress episodes.” For a reserve manager from the Caribbean, the currency’s performance in difficult times was key: “The price and yield movement in US Treasuries to increases in risk aversion would appear to support this view.” A reserve manager from the Middle East agreed, but noted increased competition: “In our opinion, the dollar is well positioned as a safe-haven currency but other currencies and assets are competing to be considered as safe-haven assets.”

The absence of competition was a recurring theme in comments from those who strongly agreed that the dollar was still the safe-haven currency. “There is currently no strong alternative,” said a reserve manager from the Asia–Pacific region, a view echoed by a central banker from Europe: “We still don’t see a currency that can take the primacy from the US dollar.” A reserve manager from Asia dismissed any concerns over rising yields: “While rising yields is a short-term concern, in the long term the rising yields will offer better risk-adjusted returns.” In an extended comment, a reserve manager from Europe stressed the dollar’s relative qualities:

Do you see central bank digital currencies (CBDC) having an impact on reserve management from operational and investment perspectives?

Reserve managers see CBDC having an impact on reserve management in the long run, especially in operational contexts. Fifty-six reserve managers, almost three-quarters of respondents, view CBDC as impacting reserve management from an operational perspective in the long term, and 45, 63%, see impact in the area of investments. In total, 58 reserve managers, 75% of respondents, think CBDC will have an impact on reserve management in the long term, either operationally or in an investment context. This compares to the 64% in last year’s survey who saw an impact in the long term.⁶⁶ ibid, Chapter 1, p. 32. Note the numbers and compositions of the survey samples are different.

Regionally, reserve managers from African central banks are the most positive: 92% see long-term impacts operationally and in investment. Central bankers from Asia and the Americas are next, with 79% and 78% seeing an impact in operations in the long term, and 69% and 71% in investment. European reserve managers are the most circumspect: 59% of respondents see an impact in operations in the long term and 37% in investment. Smaller reserve holders tend to be more positive: 78% saw long-term impact operationally and 74% in investment terms. The most popular response was “no” in the short term but “yes” in the long term to both options. Thirty-two reserve managers gave this answer, a group responsible for $1.75 trillion with an average holding of $55 billion. In their comments, reserve managers noted that much still remained to be seen with regard to CBDC, but were unequivocal about the possibilities. A comment from a reserve manager in Africa summed up this view: “In the long term we may expect some impact, taking into account that some central banks and international organisations, such as the IMF, have moved beyond the discussion of CBDCs.”

A reserve manager from the Caribbean underscored the need for clarity on international use: “CBDC remains an extremely young concept, one that is still being developed in many central banks. Until it becomes fully adaptable across countries, the impact that many central banks are expecting will not be felt. With this said, the potential is great from both an operational and investment standpoint.” For a reserve manager in Asia, time and high inflation would be key factors: “Central banks are generally conservative and risk-averse in nature, especially with regard to reserve management. Since CBDC are a new and an untested concept, most of the central banks will shy away from taking a plunge in investing in this new product. In the long term this may change, especially during periods of high inflation.” A European central banker explained their answer: “CBDC may impact the investment and cashflow channels, but it will be rather a long-term process.”

Do you see central bank digital currencies (CBDC) having an impact on reserve management from operational and investment perspectives?

Does your central bank incorporate an element of socially responsible investing (SRI) into reserve management?

A significant majority of central banks now either include an element of SRI in their reserve management or are considering it. Twenty-eight reserve managers, just over one-third of respondents, said they incorporate an element of SRI, while 40, half of the sample, said they are considering this. Both these numbers, and the percentages, are increases on the findings of last year’s survey: 23 (30%) said they include SRI and 34 (45%) said they were considering it.⁷⁷ ibid, Chapter 1, p. 22. Note the numbers and compositions of the survey samples are different. The 28 respondents tended to be larger reserve holders from high income countries. The average reserve holding was $115 billion and two-thirds of the group were from high income bracket countries.

The 40 considering SRI were significantly smaller on average, with a mean holding of $45 billion. Middle income countries accounted for half this group, which also included four of the five respondents from low income countries. Four reserve managers from this group commented on their stage in this process. A reserve manager from the Americas had made green investments but had yet to develop a framework for this: “The international reserves portfolio has a very small fraction (<1%) invested in green bonds. However, there is no specific framework in place yet that guides the investment process towards sustainability. Nevertheless, the central bank is a member of NGFS [Network for Greening the Financial System] and work is being done in that direction.” A reserve manager from Europe still has work to do but a goal was in place: “We are very much in the beginning of the process, so yes, we are considering SRI but have not worked out the details yet. The long-term (probably 20+ years) goal is to have a climate-neutral portfolio.” A large holder from CEE was making headway: “We have gradually increased investment in green and sustainable bonds (sovereign and corporate) but this market is still immature, classification criteria are not transparent enough and controversial in some cases.” And another reserve manager from the same region is considering SRI, but noted: “There are a lot of taxonomy and methodology issues.”

The incorporation of SRI is found most prevalently in high income countries, in Asia and Europe, and among large reserve holders. Exactly half of respondents from high income countries said they include this and 40% were considering it. Among middle income countries, the share including SRI fell to around a quarter, although 65% of upper middle income countries said they were considering it. One-third of lower income respondents were not considering it. Among low income countries, while none included SRI, 80% were considering it. In Asia and Europe, half of respondents said they included SRI, a share that dropped to 24% in the Americas and 8% in Africa. While 18% of those with less than $10 billion in reserves included SRI, this share rose to just over half among respondents with more than $10 billion in reserves.

Twenty-two of the 28 respondents who incorporate SRI provided a percentage figure for the share of their FX reserves they consider SRI. In addition, five who were considering this provided a percentage figure along with three who were not. On an unweighted basis the average percentage share of SRI holdings among these the 30 respondents who supplied data is 16%, with a median of 3%. Analysis on a weighted basis, gave a share of 9.5%.

If yes, does this include:

When incorporating SRI, most reserve managers include ESG principles or a specific climate focus. Seven respondents said they included both. Those including ESG tend on average to be larger reserve holders than those with a specific climate focus. Both groups were dominated by high income countries. Only a handful of reserve managers said they used an avoidance of potential conflicts of interest, with a reserve manager from the Americas commenting: “We exclude some industries from our corporate bond mandate and we have a small position in green bonds.”

If yes, how do you integrate these into your investment process?

The clear preference among reserve managers is to integrate SRI through investment guidelines or as part of the strategic asset allocation. Twenty-one reserve managers, three-quarters of respondents, said they followed this method, of which 15 used this alone. This group was on average large reserve holders with a mean holding of $112 billion, although the group of 13 who said they used standalone mandates was larger still, with an average of $169 billion.

Which strategies do you employ?⁸⁸ Here we follow the NGFS categories, which build on those of Eurosif and the Principles for Responsible Investment (PRI) (see https://www.ngfs.net/sites/default/files/medias/documents/ngfs-asustainable-and-responsible-investment-guide.pdf, p. 13, accessed April 5, 2022).

Reserve managers typically employ a range of strategies, with negative screening and ESG integration the favourites. Indeed, 16 of the 28 respondents, just over half, employed more than one. Negative screening and ESG integration, and negative screening and best in class, were the most popular choices.

Which in your view are the most significant obstacles to incorporating SRI into reserve management? (Please rank the following 1–6, with 1 being most significant.)

Reserve managers view the integration of their mandate and concerns over liquidity and returns as the main obstacles to incorporating SRI into reserve management. Almost 40% of respondents placed the challenge of integrating SRI with the central bank mandate first, a group responsible for just over $1 trillion in reserves with an average holding of $38 billion. Reserve managers from lower middle income countries were prominent in this group, accounting for just under one-third. A reserve manager from Asia noted simply that SRI was not part of the mandate of reserve management: “Liquidity, safety and return are the primary goals.” One large European reserve holder who ranked only this option offered a forthright explanation:

For another reserve manager from Europe, there was an implied threat to central bank independence: “Sustainable development measures remain primarily the responsibility of the government, they go beyond the mandate of a central bank and might undermine its independence. Besides, while managing foreign reserves, central banks are generally seen as neutral market participants.”

Just under a quarter of respondents selected concerns over liquidity/returns as the most significant obstacle. These 18 reserve managers tended to be large holders on average, with upper middle income country respondents accounting for nearly half the group. One of two reserve managers from low income countries explained their thinking: “In our view, the main concern is related to finding assets classes that are suited to our risk profile.” Supply of suitable products was the next most popular option, with 13% selecting this, and data and the lack of a clear definition was placed first by 9%. A reserve manager from Europe who ranked supply first, followed by concerns over liquidity, explained their thinking: “Supply is falling short of the rising demand, reporting standards yet need to be defined.”

Which in your view are the most significant obstacles to incorporating SRI into reserve management? (Please rank the following 1–6, with 1 being most significant.)

Among high income countries, data (21%) and supply (15%) were placed first by notably larger proportions. There was less support for integrating mandates, however: 32% of this group placed that option first. Among upper middle income countries, liquidity and return was level with integrating mandate: 36% of this group placed these two options first. For lower income countries, the chief concern is integrating with the mandate: 60% placed this first. In the eyes of managers from Europe, mandate and data are the two main obstacles, whereas in the other regions liquidity and returns are second in significance to mandate.

For those considering incorporating SRI into their reserve management, mandate and liquidity and returns are the chief obstacles. Three-quarters of those who answered “no, but considering” to the previous question, placed these first. This is a greater share than the survey sample. For those not considering, 80% cited integrating with mandate as the most significant obstacle. For those already incorporating SRI, mandate integration was still the most prominent obstacle (23%), but it was closely followed by a lack of clear definition and supply of products: 19% placed these first. Only 12% of this group sees liquidity/returns as the most significant obstacle.

Which of the following best represents your view of the value gold brings to reserves portfolios today? (Please rank 1–6, with 1 being closest to your view.)

Reserve managers see value in gold as a safe haven and as a portfolio diversifier. Three-quarters of respondents ranked one of these two options first. Thirty reserve managers, responsible for portfolios worth $2.5 trillion, view gold as adding most value through its properties as a “safe-haven” asset. Just over half this group was respondents from middle income countries and one-third from the high income bracket. A respondent from Europe explained the basis for their “strategic” approach to gold, and noted the benefits it also brings to the portfolio:

Which of the following best represents your view of the value gold brings to reserves portfolios today? (Please rank 1–6, with 1 being closest to your view.)

A reserve manager from Asia views gold primarily as a legacy, but noted its safe-haven and inflation-hedging properties: “It is primarily in the portfolio as a legacy asset. Additionally, gold holds value as a safe haven especially during period of geopolitical concern and as an inflation hedge.”

Just over one-third of respondents see gold as a portfolio diversifier. As a group, these respondents were on average somewhat larger reserve holders with a mean holding of $97 billion. The group featured three large holders from Asia and high income countries were more prevalent, accounting for just under half the group. A respondent from the Americas noted that this view was supported by long-term analysis and recent events: “Our strategic asset allocation process… has evidenced the importance of gold as a diversifier for the risk-adjusted performance of our international reserves. Furthermore, just as the recent geopolitical tension in Europe that generated flight-to-quality movements has evidenced, gold remains a relevant safe-haven asset.” A reserve manager from Africa placed this quality ahead of inflation hedging and liquidity: “We do have gold in our portfolio to ensure more diversification, using it as a buffer in scenarios of rising inflation (that affect fixed income assets) and allows us to have liquid assets to use in the period of crises.” A relatively small reserve holder from the Americas noted that their central bank had been reviewing its holding: “Even though it certainly has its advantages as a diversifier and safe haven, it has been recently discussed whether the bank should keep it as an option due to its volatility in the balance sheet.” A European central banker commented that gold’s performance had not been enough for the central bank to add to its small holding. “We are revisiting the question of raising it every 5–7 years but have not found enough (strong) arguments for it.”

Among high income countries gold is seen more as a diversifier and a liquid asset of last resort relative to the survey overall. This latter quality was more prominent among larger holders. For upper middle income countries, gold’s qualities as a safe haven dominated and, relative to the survey, there was more support for inflation hedging.

Do you include gold in your asset allocation decision-making process?

Just over one-third of respondents include gold in their asset allocation processes. This group included a number of larger reserve (and gold) holders and was responsible for portfolios worth $3.5 trillion. High income countries account for just over 50% of the group. A large European holder said that while the gold is not actively managed: “The investment strategy of the foreign exchange reserves is determined by taking into account the gold holdings.” A reserve manager from the Americas explained that gold was included in the process of defining the SAA, but the resulting portfolio “does not include it because of its risk/return characteristics.”

Among this group, 46% view gold as a portfolio diversifier and 31% as a safe haven. Perhaps unsurprisingly, these percentages were almost exactly reversed among the reserve managers who do not include gold in their SAA process: 28% view gold as a diversifier, 47% as a safe haven. This group tended to be smaller holders with an average holding of $46 billion. The “legacy” or “historical” nature of the gold holding was a common feature in comments, with one respondent also noting the passive nature of its management. A reserve manager from the Caribbean said they had held discussions on including gold, “but found that any meaningful allocation would violate our stated risk tolerance.” However, a reserve manager from the Middle East said they intended to start in the “short term”, while a central banker from Africa said they were considering including gold in the “near future.”

Do you use derivatives in your reserve management?

Derivatives are a key part of modern reserve management. Three-quarters of survey respondents, responsible for $4.7 trillion in reserves, said they used derivatives in their reserve management practices. These 59 reserve managers were from all income classifications and geographies, and managed portfolios ranging from less than $1 billion to more than $500 billion in value. Respondents from high income countries were more likely to use derivatives (86%), but the relationship was not linear: 55% of upper middle income countries said they use derivatives, while the figure for lower income countries and low income countries were 75% and 80%, respectively. Those with more reserves were more likely, other things being equal, to use derivatives. For those with less than $10 billion, the figure was 64%, which rose to 85% for those with more than that amount. Twenty out of the 23 reserve managers responsible for more than $50 billion, said they use derivatives.

Comments from those who use derivatives could broadly be divided into three groups: those noting that derivatives were used by external managers; those who referred to balancing or hedging use; and those that used derivatives tactically. “We use derivatives for external manager’s mandates mainly for hedging purposes,” said a reserve manager from the Americas, in a comment typical of the first group. A reserve manager from Africa said they were used “as a rebalancing instrument.” Those referring to tactical or active use were mainly from Europe. A reserve manager from CEE region described their use: “We use mainly interest rate futures and gold swaps for hedging and taking positions according to market views.”

One respondent, from Europe, said they had only started using derivatives in 2021, and another, from the Middle East, said their use was “basic” but added that they “have plans to expand using them.” The 20 reserve managers who did not use derivatives tended to be much smaller holders on average, with a mean holding of $28 billion.

If yes, which derivatives do you use? (Please check as many as appropriate.)

Reserve managers take a portfolio approach to derivatives, with most respondents using combinations. Fifty respondents (81%) use more than one derivative. The most popular are futures and swaps with 50 out of the 62 using the former and 48 the latter. The number using options was significantly lower at 10. The most common combination is FX swaps and interest rate futures: 36 respondents use these, often in combination with others. Eighteen respondents use FX and interest rate swaps, of which half also use cross-currency swaps. Fourteen respondents said they use FX swaps and cross-currency swaps. Only five respondents use interest rate swaps and FX futures. The 45 reserve managers using FX swaps are from high income countries in the main and responsible for more than $4 trillion. Respondents from high income countries were again over half of the 48 who use interest rate futures but these were more popular with reserve managers from middle income countries. “Other” derivatives mentioned included bond futures, dual currency deposits, FX forwards, gold options, inflation swaps and to-be-announced (TBA) trades.

If you use derivatives, please say for what purpose(s).

Reserve managers typically use derivatives to hedge or adjust duration on their portfolio, although yield enhancement is a motivation for a significant minority. Broadly speaking, derivatives are more widely used among high income countries, notably for trading and hedging where the percentages using were 88% and 78%, respectively. Yield enhancement was marginally more favoured, duration and overlay strategies less so. Among upper middle income countries, duration management was the most common use: 92% said they use derivatives for this purpose. At 50%, the share using derivatives for trading/positioning was lower than the survey, but over half, 58%, said they use derivatives for yield enhancement. When hedging, adjusting duration or trading/positioning, reserve managers typically look to interest rate futures and FX swaps, with interest rate swaps and FX futures playing supporting roles. In an extended comment, a reserve manager from the Americas, set out their approach:

Has your use of derivatives changed in the past year?

Derivative use is largely stable among reserve managers, although over one-third of respondents from high income countries had changed their use in the past year, most of whom had increased usage. Use of derivatives also increased among larger reserve holders: almost one in four reserve managers responsible for more than $10 billion said they had increased usage. The average holding of those who increased usage was $53 billion compared to $18 billion among those who had reduced their derivatives use.

Three reserve managers from Europe commented on the changes they had made. Said one small reserve holder who had increased use: “More relative value strategies and higher rate volatility.” Another explained why they were using derivatives less than before: “The low volatility in rates was not favourable for taking active positions with derivatives.” Lastly, a large holder was substituting away from derivatives: “Reducing use of equity futures while focusing more on equity ETFs.”

Which of the following best describes your approach to external management services?

Central bank reserve managers engage with a range of providers of external management services and are considering expanding these, notably with respect to ETFs. Multilateral fund management was the most popular with 45, 62% of the respondents, using the services of these institutions. By number, the next most popular was commercial mandates, with 39 (53% of respondents), followed by commercial and central bank deposits with 38 (58%) and 37 (57%), respectively. Pooled funds and ETFs enjoy less support at 33% and 27%, respectively, although there was notable support for ETFs with 18% indicating they were considering this. Those engaging multilaterals, such as the World Bank and the Bank for International Settlements, tend to be smaller on average with a mean holding of $51 billion, and as a group were dominated by middle income countries. A reserve manager from CEE commented: “We have been using the services from multilaterals and have good experience by adopting best practices in portfolio and risk management, knowledge sharing, as well as gaining experience in trading new instruments. Should we decide to introduce new specific asset class, we would consider an external mandate as an option for exposure and acquiring an expertise.” Three respondents specifically mentioned the Reserve Advisory & Management Partnership (RAMP) programme.

Which of the following best describes your approach to external management services?

Those using commercial asset managers were larger, with a mean holding of $80 billion, with high income countries accounting for just under 50% of this group. A large holder from the Americas commented: “We consider the external managers programme as a vital part of our reserves management for return enhancement, diversification of the investments and also for capacity building.” Those using commercial deposits were somewhat smaller at $72 billion on average; those using central bank deposits were largest on average with $85 billion.

Among high income respondents there was notable use of ETFs: just over 40% of this group uses these. Among upper middle income countries, commercial mandates were lower than the survey average at 45%, but the share of those using multilaterals, commercial and central bank deposits were all higher. Among lower middle income respondents there was strong support for multilaterals (79%) and commercial deposits (83%). Across the survey sample, the most popular combination was multilaterals and commercial deposits with 29 reserves managers responsible for $1.4 trillion using these two services. Twenty-seven said they used the two types of deposits and 26 a combination of mandates and multilateral fund management.

There is growing interest in ETFs, notably among high income countries, who make up two-thirds of those who use these and those considering the product. The 19 who said they use ETFs are responsible for $87 billion on average, with the 12 considering including three very large holders, giving an average of $141 billion. Just under half of these already hold asset manager mandates or make use of multilateral services. “We are currently studying the possible use of ETFs to invest in specific asset classes,” said a reserve manager from Europe, with one adding they were looking at ETFs in particular for ESG investing.

Which best describes your attitude to the following asset classes? (Please check one box per asset class.)

Reserve managers continue to show increasing appetite for diversification, with interest in green bonds, social and sustainability bonds, and equities apparent. One European reserve manager commented: “We are in the final phase of a strategic asset allocation review that may bring about changes to our current framework, including investing in new asset classes.” Just over one-half of respondents invest in green bonds, and over one-third are considering investing either now or in the next five to ten years. This is a significant increase on even last year’s survey, which reported 32 reserve managers (43%) investing in this asset class.⁹⁹ See Pringle and Carver (eds), 2021, HSBC Reserve Management Trends 2021, (London: Central Banking Publications), Chapter 1, p. 33. Note the numbers and compositions of the survey samples are different. Just over half also invest in emerging market bonds, and while not many are considering investing now, 18% are looking at that asset class for the future. Fifty-one percent invest in corporate bonds and there is considerable interest in this asset class. Just under one-fifth were considering gold, with these 15 reserve managers holding a range of views on the value gold brings to a portfolio, with “safe haven” the most popular first choice. Just under one-third are considering inflation-linked bonds.

Equities continue to attract reserve management support: just under one-third of respondents said they invest, with 26% considering this asset class. This sample shows a burgeoning interest in social and sustainability bonds. While 28% said they invest now, a further 36% are considering investing. There is negligible investing or interest in digital currencies/assets at present, but just over 25% said they would consider this asset class in the next five to ten years.

Analysis of responses reveals the depth of support for green bonds among high income country respondents (76%) compared to upper middle (45%) and low middle (25%) income brackets. There is a similar pattern for social and sustainability bonds, with strong support among upper middle income reserve managers: 27% and 41%, respectively, are considering investing in green bonds and social and sustainability bonds. Over half of respondents from high income countries invest in equities, with the percentages for middle income brackets significantly lower.

Which of the following best describes your attitude to exchange-traded funds (ETFs)?

ETFs are developing as an important component of reserve management. This is particularly the case for central banks from high income countries looking for equity exposure. However, several reserve managers from the upper middle income bracket also said they are considering moving to ETFs. The group of 19 reserve managers investing in ETFs is responsible for $1.7 trillion in reserves and was dominated by high income countries. Indeed, high income countries accounted for just under three-quarters of the group. In their comments, reserve managers were full of praise for ETFs, noting ease of use, savings in costs and opportunities in new markets. A comment from a reserve manager from Asia summed up these views: “For portfolio diversification, and tactical exposure to over- or under-weighting certain regions, countries, sectors on the basis of short-term views. It also provides accessibility and cost-efficiency in terms of taxation, as compared to direct equity investing.” For a reserve manager from the Middle East, ETFs additionally meant they did not have to select stocks: “Ease and cost-effective and no security selection,” while for a central banker from Asia liquidity was key: “Adjusting portfolio with a low transaction cost and high liquidity.” A European reserve manager only wished there were more: “ETFs are fine for an investor without needed infrastructure (skills, trading platforms, back office, etc)…it would be nice to have ETFs on as many as possible asset classes.”

Just under one-fifth of respondents are considering investing in ETFs. This group was evenly divided between high and middle income countries and, with the exception of one very large reserve holder, generally smaller holders. A European reserve manager saw ETFs as a more efficient way to access equities further afield, as they explained: “ETFs are being considered as a less costly alternative to futures to get exposure to specific emerging market equities that, for regulatory reasons, cannot be invested directly.” Equities were the main driver again for another reserve manager from Europe, who noted the main hurdles as they saw them: “As we plan to expand exposure towards equity markets we may consider investments in ETFs. Besides, ETFs may offer access to complex, non-traditional asset classes. The major concerns are connected with legal risk, transparency issues, costs and taxes as well as accounting rules.” A small reserve holder from Europe noted where they were looking to begin: “We think that it could be a good diversifier and good starting point to enter into credits.” The 17 reserve managers who said they would consider them in the next five to ten years were smaller holders again, on average. The mean holding was $34 billion and the group was dominated by middle income countries.

If investing in ETFs, please say which underlying asset classes they give exposure to.

Equities is the main focus of central bank ETF investing, with almost all of the 19 respondents looking for exposure to this underlying asset class. Exposure to credit was in tandem with exposure to equities. Indeed, only two respondents, both from the Americas, used ETFs for credit only, with one noting the benefits ETFs offer: “It represents an efficient mechanism in terms of costs to acquire the exposition we seek for certain fixed income assets where our interest is limited to a passive investment strategy.”

Which view best describes your attitude to the following currencies? (Please check one box per currency.)

Reserve managers continue to extend the envelope of currency diversification, with over half of the survey investing in the Australian and Canadian dollars and the Chinese renminbi. Compared with last year’s survey, the numbers investing in Australian and Canadian dollars increased marginally, but the increase for renminbi is significant – 41 in 2022 compared to 33 in 2021. Indeed, the onshore renminbi is poised to win more converts, with 14% of respondents saying they are considering investing now. Interestingly, the number of respondents investing in the offshore renminbi is lower than the 2021 figure of 22.¹⁰¹⁰ ibid, Chapter 1, p. 41. Note the numbers and compositions of the survey samples are different. 11. ibid, Chapter 1, p. 46. Note the numbers and compositions of the survey samples are different.

Of these non-traditional reserve currencies, the Australian dollar has the most support: 43 reserve managers, 57% of respondents, invest in the currency. These 43 are responsible for reserves worth $3.6 trillion. Support is notable among high income countries: 62% of respondents from this group have exposure. Just over 50% invest in the renminbi (onshore), with high income countries again showing an above-survey average. These 41 reserve managers are responsible for $3.4 trillion in reserves. The onshore renminbi is notable also for support among upper and lower middle income respondents: 18% and 20%, respectively, from these two groups are considering investing now. The offshore renminbi is favoured more by lower middle and upper middle income country respondents, compared to the respondents from high income countries. Just over one-fifth of lower middle income respondents are considering investing in this currency. Forty-five reserve managers have exposure to either the onshore or offshore renminbi, giving a share of the survey one percentage point higher than the Australian dollar at 58%.

Just under one-third of respondents invest in the New Zealand dollar and Norwegian krone. The 23 investing in the New Zealand dollar were divided almost evenly between central banks from Americas, Asia and Europe, and tended to be larger holders on average, with a mean holding of $110 billion. Those investing in the krone were similar in terms of reserves size but weighted slightly more towards European and high income countries. Interestingly, lower middle income respondents, as a group, were more diversified than the survey in the New Zealand dollar, Singapore dollar, Swedish krona and the Thai baht. These were predominantly central banks from Asia.

Viewed regionally, reserve managers from African central banks are notable for investing in the renminbi (both on- and offshore), and real at above sample percentages, as well as the South African rand. Reserve managers from the Americas favour Scandinavian currencies as well as the Singapore dollar and Korean won. The won is popular among reserve managers from Asia: one-third of the sample invest in this currency, compared to 19% in the survey. Just over 70% of reserve managers invest in the Australian dollar and nearly half in the New Zealand dollar, both considerably higher than the survey. There was considerable support for the Singapore dollar too. The percentages for reserve managers from Europe were close to the survey sample, although the Canadian dollar enjoys above-average support.

Thirty-six respondents provided a percentage figure for their renminbi holdings. A simple arithmetic mean was 3.4% with a median of 2%. Weighted by FX holdings, the average was 2.7%.

Which of the following best describes your attitude to investments and products in the onshore renminbi market?

Government bonds are the mainstay of central bank investment in the onshore renminbi. Over half of the respondents to the survey invest in this market. Just over a quarter invest in policy bank bonds and a further 19% are considering this asset class. A handful of reserve managers engage in credit bonds and repo markets. The 42 reserve managers investing in government bonds are responsible for $3.6 trillion and, in terms of country income bracket, broadly followed the survey sample. Twenty-nine of these gave figures for the renminbi share of their reserves, giving an (unweighted) average holding of 3.78%. Those with larger holdings are more likely to be invested: 70% of those with more than $10 billion invest in government bonds, compared with 44% of those with less than that amount. A reserve manager from the Americas, whose renminbi share of reserves is between 5% and 10%, is pleased with the results: “We have been investing in Chinese assets for a long time. We haven’t had any difficulties and the level of liquidity is satisfactory.” A reserve manager from Africa was too, in particular last year: “So far, the experience has been positive, especially in 2021, where the CNY portfolio performance has helped us boost overall returns, as the traditional G7 fixed income did not perform well.” A reserve manager from Europe said the market was “making progress as well as the investors are gaining more skills.” This group featured reserve managers from all regions, with Europe (18) and Asia and Middle East (10) most prominent. Indeed, both the reserve managers using repo were from Europe. There were eight respondents from central banks in Africa, the highest share in terms of the number (13) who took part in the survey. Less than one-third of respondents from the Americas invest in this asset class.

The 18 investing in policy banks bonds tended to be smaller holders on average with a total of $1.2 trillion under management. In this group reserve managers from Africa and Europe were most prominent, combining to make two-thirds. A European reserve manager who had only recently taken the plunge explained their thinking: “In 2021, policy bank bonds were introduced as an eligible asset class in the RMB portfolio. This decision was substantiated by that policy bank bonds offer higher yield with higher liquidity as onshore Chinese government bonds and they also have the implicit guarantee of the PRC.” Perhaps unsurprisingly, this group had a higher average (unweighted) renminbi holding.

The 13 reserve managers considering policy bank bonds were somewhat smaller reserve holders with an average of $55 billion in holdings. European central banks made up just over half this group, and one commented on their plans for this year: “Our intention is to access the onshore Chinese bond market in 2022.”

Among those for whom investing in China was some way off, a reserve manager from the Americas was clear in their stance: “Not interested because of restrictions to the RMB market,” while a reserve manager from Africa had yet to be convinced; as they explained: “Exploring the idea but concerns exist on the transparency of the market.”

The IMF added the renminbi to the SDR in October 2016 with an 11% share. What percentage of global reserves do you think will be invested in the renminbi by 2022, 2025 and 2030 globally and in your own portfolio?

Reserve managers see the renminbi approaching a share of global reserves level with the currency’s allocation in the SDR by the end of this decade. The average view of 62 respondents for the share of reserves for 2030 was 11.65%, a slight increase on the result from last year’s survey of 11.5%.¹¹¹¹ ** As regards their own reserves, reserve managers are more cautious: the average holding for 2030 was 6.8%. This also is a very slight increase on the finding in last year’s survey of 6.62%.

Views vary considerably by region, however. Reserve managers from Africa tend to be the most optimistic. On average, they think the renminbi’s share of international reserves will rise to almost 15% by the end of this decade, and just over 13% when it comes to their own. One reserve manager from this region, who saw the share of global reserves at 25%, explained their thinking: “China is opening up its markets to the international community and usage of the RMB currency has also been on the rise.” Another manager, who saw the share of their own reserves rising to 20%, commented: “Due to our internal currency allocation criteria (country exposure to China), this year we expect to increase the exposure to renminbi and expect also to implement this approach in the coming years in order also to enhance the returns.” A small reserve holder, who saw their shares rising to 14% in 2025 and 19% in 2030, offered the following roadmap: “Composition in CNY will increase by end of 2022, given initiation in CNY bonds under external management. Expected to increase thereafter to the ideal composition level and thereafter the maximum composition level allowable to CNY as per SAA.”

Reserve managers from Asia are the next most optimistic, on average seeing the renminbi account for almost 13% of global reserves and 12% of their own. A central banker from a high income country in this region, who saw both the global and their own share at 10%, explained their thinking: “It depends on the liquidity of the currency, the diversification benefit, operational difficulty and the availability of its assets.” Another reserve manager, this time from the lower middle income bracket, saw the renminbi’s share rising to more than 30% by 2030, but was cooler on global prospects. For them the global share would only be 7% by the end of this decade as the “share may rise gradually and take time before it converges to the 11% share in SDR.”

Reserve managers from Europe and the Middle East are next, with central bankers from both regions seeing the global share hit the 11% mark by 2030. A reserve manager from southern Europe, who saw China’s currency account for 14% of global reserves but a more modest 5% of their own by 2030, offered a balanced assessment: “Although the popularity of the renminbi has been increasing and the number of overseas investors is rising, the foreign holdings is relatively small as well as the share of the renminbi in international payments.”

Smaller reserve holders tended to be more optimistic about the renminbi’s global share in 2030 than those with larger reserves, but that view was reversed when it came to their own portfolios. Large reserve holders see the renminbi accounting for almost 7.5% of their reserves compared to 6.5% for those responsible for less than $10 billion. Perhaps unsurprisingly, those already committed to the renminbi as a reserve currency tend to be more bullish. Reserve managers with less than 2% allocation to the renminbi see this rising to 4% by 2030 on average. Where the share is greater than 2%, the average allocation anticipated was 10.6%, close to the SDR’s 11% share.