Betting on the dollar as the world turns to gold
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AS global financial markets grow increasingly fragmented and unpredictable, central banks — marked by escalating geopolitical tensions, economic uncertainty, and structural volatility — are being forced to rethink their investment strategies to navigate a rapidly evolving global financial landscape
The OMFIF Global Public Investor (GPI) 2025 report offers a comprehensive insight into how institutions such as the SA Reserve Bank (Sarb) are adapting to these shifting dynamics, with particular emphasis on currency diversification, asset allocation, and risk management.
OMFIF (the Official Monetary and Financial Institutions Forum) is an independent think tank specialising in central banking, economic policy, and public investment. It serves as a neutral platform for engagement between the public and private sectors worldwide, producing research and hosting events to enhance understanding of the global economy.
South Africa finds itself in a unique position within this context. As one of the most developed economies in Africa, the Sarb plays a pivotal role in regional monetary coordination and serves as a bellwether for emerging market reserve strategies.
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According to the GPI 2025 report, the Sarb ranks 38th globally, holding $66.2 billion (about R1.2 trillion) in international reserves — a 6% annual increase that underscores its growing importance in the global reserve architecture.
The report highlights a broader trend among sub-Saharan African central banks, where 93% intend to grow their international reserves over the next one to two years. This ambition is particularly evident in countries such as Ghana, Nigeria, and Kenya, which have seen double-digit increases in their reserve holdings. South Africa, however, stands out not only for its relatively large reserves but also for its stability and institutional maturity.
'Reserve management cannot be isolated from monetary policy or financial stability,' the report noted. 'Our investment decisions must support, rather than complicate, broader policy objectives – especially during periods of stress.'
This cautious approach is emblematic of the Sarb's philosophy under the current leadership. Zafar Parker, Head of Financial Markets at the Sarb, elaborated: 'South Africa has historically had significant gold holdings due to its status as a major gold producer. Although there have not been substantial additions to gold reserves recently, the rise in gold prices has increased gold's share of total reserves.
'At the end of 2019, gold comprised about 11% of total gross reserves; it now accounts for nearly 20%. The recent fluctuations in gold prices have demonstrated its value as a haven and its role in a diversified portfolio of reserve assets. However, there has been no decision to reduce other exposures and increase gold holdings.'
Gold remains the most demanded asset class for central banks globally, especially among emerging markets seeking to hedge against geopolitical risks and financial sanctions. Over 30% of central banks expect to increase their gold holdings over the next 12–24 months, while more than 40% anticipate doing so over the next five to 10 years.
Yet South Africa, despite being one of the world's largest historical producers of gold, has taken a measured stance. While rising gold prices have naturally boosted the metal's share in the country's overall reserves, the Sarb has not pursued active accumulation, according to the report.
'Amid rising economic uncertainty and geopolitical tensions, the importance of gold as a portfolio diversifier has grown,' said Tuvshingerel Tumenbayar, the acting director, and Azjargal Amarsaikhan, senior economist at the Bank of Mongolia. 'We regard gold as a strategic asset that supports risk mitigation and strengthens financial security in rapidly evolving global conditions.'
The report found that South Africa's reluctance to increase gold holdings reflected a broader tension between tradition and modernity in reserve management. While gold offered insulation from fiat currency volatility, the Sarb appeared to prioritise liquidity and yield through traditional instruments such as US Treasuries.
'Geopolitical risks to central bank reserves are currently considered possible, though their likelihood remains low,' Parker explained. 'We assess them because of the significant impact they could have if they were to occur. Given this risk has recently evolved from 'unthinkable' to 'unlikely but conceivable', we have not yet developed models for assessing geopolitical exposures; modelling the impact of geopolitical risk on reserve assets is very complex. Consequently, we address the issue qualitatively on a case-by-case basis.'
He further said: 'We also have existing credit risk and country risk limits that can be adjusted in response to increased geopolitical risks in specific regions.'
The GPI 2025 report underscored a notable shift in global reserve behaviour: while many central banks were exploring alternative currencies and asset classes, the US dollar remained the dominant reserve currency. South Africa is no exception.
'As a safe-haven asset, US Treasuries will continue to dominate financial markets,' the report quoted a central bank from sub-Saharan Africa as saying. Parker echoed this sentiment, emphasising the enduring relevance of the greenback: 'While geopolitical risks influence reserve management, South Africa sees the dollar retaining its importance despite ongoing volatility.'
Sarb maintained a strong exposure to US Treasury bonds, reflecting confidence in the depth, liquidity, and resilience of the US's debt market, according to the report. This conservative posture aligned with broader trends observed across emerging markets, where capital preservation remained the top priority.
'Capital preservation is the main investment priority for 61% of survey respondents,' the report stated. 'Reserve managers are becoming wearier of volatility and the possible need to intervene — the share of respondents that prioritise liquidity rose to 29% from 20% in 2023.'
Parker expanded on Sarb's approach: 'Our currency choices are mainly influenced by trade activity and foreign debt issuance. In recent years, we have been somewhat overweight in the dollar, relative to the weights implied by these metrics. This was due to the ultra-low or even negative interest rates available on safe assets from other major economies, which undermined the core reserve-management objective of capital preservation.
'Now that interest rates seem to be stabilising comfortably above zero, across most major jurisdictions, a more balanced currency allocation may be achievable again. The dollar is nonetheless likely to retain an important role, alongside other currencies that are important for our trade and borrowing.'
Geopolitical risk emerged as a defining theme in the GPI 2025 report. Among reserve managers, 31% selected geopolitics as the primary economic factor driving their investment decisions over the next 12–24 months, up from just 4% last year. Tariffs, trade wars, and regional conflicts have prompted a re-evaluation of traditional reserve compositions.
'Diversification remains important, but it is no longer sufficient,' observed one official quoted in the report. 'We must embed optionality into our governance frameworks — ensuring that our policies and processes allow rapid adaptation to shifting conditions.'
For South Africa, this means maintaining a delicate balance between diversifying away from the dollar and preserving access to deep, liquid markets. While interest in the euro and renminbi (RMB) is growing globally, with sub-Saharan Africa showing particular enthusiasm, Sarb remains cautious.
'Until significant progress is made across all core reserve asset dimensions, cryptoassets will remain outside the realm of central bank reserve management,' warned World Bank experts, Erik Feyen, Marco Ruiz, and Daniela Klingebiel.
South Africa is also taking a wait-and-see approach to digital innovation in reserve management, focusing instead on enhancing traditional tools and infrastructure. 'We continue to explore the feasibility of incorporating public equities into our strategic asset allocation,' Parker revealed. 'However, our focus remains on maintaining a high degree of liquidity and capital preservation, especially in light of macroeconomic headwinds.'
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