HSBC Reserve Management Trends: Global instability tests Central Banks’ resources

US protectionist policies have emerged as the biggest risk facing central banks today – despite HSBC’s annual survey taking place before the specific US tariff announcements of early April 2025, which jolted financial markets.

Reserve managers are adjusting to heightened uncertainty: 50% have intervened in FX markets in the last 12 months, and a significantly higher number than last year have made investment changes in response to geopolitical risk.

These are among the trends revealed in the annual HSBC Reserve Management Trends report, run in partnership with Central Banking. The research draws on contributions from 91 central banks, together managing over $7.1 trillion of global reserves.

The findings paint a picture of reserve managers’ agility in recalibrating their strategies in response to emerging trade policy interventions and a fast-moving geopolitical backdrop.

Meanwhile, attitudes and approaches to the US dollar are diverging: while de-dollarisation, it appears, is widely perceived to be gradually advancing, the number of central banks increasing their dollar investments is greater than those reducing them.

Fresh threats, continuing concerns

The potential impact on reserve portfolios of US trade tariffs and other protectionist measures is now viewed by respondents as the most significant risk they face. 44% see it as their most pressing concern.

In the medium term, reserve managers inevitably have their eye on inflation and interest rates – seen by the vast majority as the most important factor affecting their reserve management over the next five years.

Equally, wider geopolitical volatility weighs on the minds of an increasing number of reserve managers. 73% now incorporate geopolitical risk into their risk management and asset allocation decision-making, up from 67% in 2024.

Scale of FX interventions revealed

Half of central banks have intervened in FX markets in the past 12 months, the report reveals. Indeed, if Eurozone respondents are excluded, the proportion of central banks taking such action rises above 60%. Among those who have intervened were half of the central banks that have reserves of over $100 billion.

The extent of central banks’ FX interventions is rarely acknowledged, because these actions often go unannounced publicly. This makes them an under-reported tool, as well as an important one for influencing currency rates. Most of the 41 central banks that intervened both bought and sold their local currencies.

Over half of central banks (54%) plan to increase their FX and gold reserves. According to reserve managers’ responses, the most common reasons for doing so are maintaining investor confidence in the country, and using reserves as a buffer for potential FX interventions.

Gold retains its lustre

Gold prices are running at historic highs, but this is seen as a barrier by relatively few central banks. In fact, over a third of respondents expect to increase their gold allocations in the next year.

For most of those planning to do so, gold is viewed as a portfolio diversifier. Many also see it as a long-term store of value, a good performer during times of crisis and a geopolitical diversifier.

The US dollar paradox

De-dollarisation initiatives have been picking up pace, as the BRICS countries actively explore ways to reduce reliance on the US dollar.

However, most reserve managers see the dollar’s reduction as a gradual process. At the time of the survey, relatively stronger growth in the US, combined with the Fed’s perceived higher-for-longer stance, was encouraging slightly more banks to increase their dollar investments (16%) than to decrease them (9%) over the next year. However, markets are fast-moving and positions may be changing in light of more recent events.

Most institutions increasing their dollar investments said they are doing so at the expense of traditional reserve currencies. The return of investment in non-traditional currencies has also been called into question, due to associated costs.

In terms of bond markets, confidence in the UK and Germany has rebounded over the past year, but reserve managers ranked China lowest, just ahead of Japan.

AI’s potential goes largely untapped

Central banks’ commitment to artificial intelligence is not yet matching their enthusiasm for its potential. Last year, 93% agreed AI will help to optimise their portfolios in areas such as rebalancing strategies, risk-adjusted returns and tax efficiency. However, this year’s data reveals a tentative approach to implementation.

Only around one in 10 central banks are actively using AI or machine learning to optimise their reserve management operations. Of those who cited ways they are currently using the technology, staff efficiency is the most common application, although many are experimenting with using AI in reporting.

SRI embraced, crypto ignored

Socially responsible investing (SRI) remains a priority for a significant number of central banks. Most either already incorporate an element of SRI in reserves, or are considering doing so.

18% of respondents said their prioritisation of SRI has increased over the part 12 months, and fourteen central banks (36%) include sustainability as a fourth reserve management objective.

Nevertheless, allocation in reserves remains strikingly low. The challenge of integrating SRI with the institution’s mandate is seen as the most significant obstacle. And while interest in green bonds and social and sustainability bonds is also growing, according to the report, the proportion invested tends to be below 1% globally.

There is no sign of a shift in attitudes to stablecoins and cryptocurrencies. No central bank believes bitcoin should be considered a suitable asset class for reserves, and none reported investments in cryptocurrencies. Two-thirds are against a strategic bitcoin reserve fund; however, almost one in four voiced uncertainty about this.

Diversification key to future strength

Asked about their strategies for the next 12 months, half of central banks surveyed said they intend to increase their asset class diversification. Around a third expect to increase liquidity, and a similar proportion will increase duration, though all subject to a critical eye on yield curve behaviour.

Against a volatile backdrop, reserve managers are demonstrating the agility and resourcefulness they will need to stay ahead of 2025’s potential political and economic shifts.

If you would like to discuss the report and any of its findings, please get in touch with your HSBC representative.