The European Central Bank’s latest review of the international monetary system shows gold accounted for 27 per cent of total official foreign reserves at the end of 2025, ahead of US Treasuries at 22 per cent and the euro at 15 per cent. The shift is striking because US government debt has long been treated as the core safe asset for central banks, prized for its depth, liquidity and role in global payments.
The change does not mean the dollar has been displaced as the dominant reserve currency. Dollar-denominated assets still make up the largest share of global foreign exchange reserves, while the euro remains a distant second in currency terms. But the rise of gold above Treasuries points to a broader reassessment of what central banks want from their reserve portfolios at a time of sanctions risk, elevated public borrowing and repeated bouts of market volatility.
Gold’s advance has been driven by both central bank purchases and a sharp increase in prices. The metal rose strongly through 2024 and 2025, lifting the market value of existing official holdings. That valuation effect is central to the new ranking. Without the price surge, US Treasuries would still occupy the leading position among reserve assets.
Central banks have also been buying gold at levels well above long-term averages. Purchases eased in 2025 from the exceptional pace of the previous two years, but official-sector demand remained historically high, with buying spread across a wider group of countries. Poland, China, Turkey, Kazakhstan and Brazil were among the notable accumulators, while other reserve managers added gold as insurance against financial fragmentation and currency risk.
The trend accelerated after Russia’s invasion of Ukraine in 2022, when the freezing of Russian foreign assets sharpened concerns about the vulnerability of reserves held in foreign jurisdictions. For several central banks, gold has become attractive because it is no one else’s liability, can be stored domestically and is not directly exposed to sanctions through the banking system. That appeal has grown even though gold produces no yield, is costly to store and can be volatile.
The ECB’s assessment also highlights the limits of interpreting gold’s rise as a full retreat from the dollar system. US Treasuries remain the deepest sovereign debt market in the world and continue to anchor global collateral, liquidity management and crisis response. Reserve managers still need assets that can be sold quickly in large volumes without disrupting markets. Gold offers security and diversification, but it cannot fully replace the operational role played by US debt.
The euro has made only modest gains despite expectations that policy uncertainty in Washington and rising concern over US debt could strengthen Europe’s currency. Its international role grew slightly in 2025, helped by cross-border debt issuance and demand for euro-denominated bonds, including issuance by US companies seeking European investors. Yet the euro’s share of global reserves remains around a fifth, well below the dollar’s position.
For the euro to capture a larger share of global reserves, euro area policymakers face long-standing structural obstacles. The bloc still lacks a single safe asset comparable to US Treasuries, and capital markets remain fragmented across national lines. Deeper financial integration, a larger pool of common debt instruments and more unified supervision would make the euro more attractive to foreign central banks, but progress has been slow.
The reserve shift has wider implications for financial markets. Strong official demand has helped reinforce gold’s role as a hedge at a time when investors are also watching inflation, real interest rates and fiscal pressures in major economies. A sustained preference for gold could support prices, although the metal remains vulnerable to corrections if yields rise, geopolitical risk eases or central bank buying slows.
Follow Arabian Post
Select Arabian Post as your preferred source on Google and MSN News for trusted business news and Arab politics and updates.
