Global central banks are worried: Fed independence and the US rule of law crisis may reshape the global financial landscape
2025-07-03 14:57:21
In recent years, the global financial market has been changing rapidly. As the core of the global economy and finance, the policy trends of the United States have attracted much attention. However, the reserve manager survey released by UBS Asset Management on Thursday (July 3) revealed a disturbing trend: central banks around the world have expressed unprecedented concerns about the independence of the Federal Reserve and the stability of the rule of law in the United States. Such concerns may not only shake the foundation of the US dollar as the world's reserve currency, but also promote the status of assets such as gold, the euro and the renminbi in global reserves.
As one of the most important central banks in the world, the independence of the Federal Reserve's monetary policy has always been a key pillar in maintaining the dollar as the world's reserve currency. However, a survey by UBS Asset Management showed that as many as two-thirds of reserve managers expressed concerns about the independence of the Federal Reserve. They believe that political interference may weaken the Federal Reserve's autonomy in formulating monetary policy, thereby shaking the confidence of global financial markets in the dollar.
This concern is not unfounded. Since US President Trump took office, his public criticism and pressure on the Federal Reserve have been common. For example, Trump has repeatedly asked the Federal Reserve to lower interest rates to stimulate economic growth, and even put forward some unconventional debt management suggestions. These actions have caused central banks around the world to re-examine the reliability of the US dollar as a safe-haven asset. Max Castelli, head of global sovereign market strategy and consulting at UBS, admitted that Trump's policies, especially his move to impose tariffs on "Liberation Day", have significantly changed the views of reserve managers on the US dollar. This policy uncertainty not only puts pressure on the US dollar exchange rate, but also reduces the attractiveness of US Treasury bonds.
The survey also showed that about 35% of the central banks surveyed believed that the United States might ask its allies to convert medium- and long-term debts into other financial instruments such as ultra-long-term zero-coupon bonds. This scenario reflects the concerns of global central banks about the US debt management strategy and further exacerbates doubts about the long-term stability of the US dollar. Despite this, Castelli pointed out that the dominance of the US dollar will remain difficult to shake in the short term. Nearly 80% of respondents expect the US dollar to continue to maintain its status as a global reserve currency. The US dollar currently accounts for 58% of global foreign exchange reserves. However, 29% of the central banks surveyed said that in view of recent developments, they plan to reduce their investment in US assets in the future. Although this proportion is lower than last year, it still shows that the attractiveness of US dollar assets is gradually weakening.
In addition to the independence of the Federal Reserve, the survey also revealed global central banks' concerns about the rule of law in the United States. Nearly half of the respondents believed that the rule of law in the United States may deteriorate to a level that would have a significant impact on their asset allocation. As the world's largest bond market and issuer of reserve currencies, the stability of the rule of law in the United States has always been an important factor in attracting global capital. However, the Trump administration's conflicts with long-term allies on trade and security issues, as well as domestic policy uncertainty, have caused central banks around the world to begin to reassess the United States' status as a destination for safe-haven assets.
This concern has a direct impact on the asset allocation strategies of global central banks. The survey shows that 25% of central banks plan to cut their exposure to the US dollar next year. Although this proportion is slightly lower than last year, it still shows that the attractiveness of the US dollar is declining. At the same time, the euro, renminbi and gold are seen as the biggest beneficiaries of global reserve position adjustments. Especially in the next five years, reserve managers generally believe that the euro will benefit the most from global position changes, followed by the renminbi and emerging crypto assets, while the US dollar's ranking has slipped from the top of last year's list to ninth place. This ranking change reflects the gradual weakening of global central banks' confidence in the US economic and political environment.
Among non-monetary assets, gold is undoubtedly the biggest highlight of this survey. 52% of the central banks surveyed said they plan to increase their gold holdings in the coming year, and 39% of the central banks explicitly stated that they will increase the share of domestic gold reserves. Behind this trend is mainly the concern of emerging market central banks about the risk of sanctions. In recent years, the United States has frequently used financial sanctions as a diplomatic tool, causing many countries to worry that their gold reserves stored in the United States may face the risk of being frozen or confiscated.
Take Germany as an example. Part of its gold reserves are stored in the Federal Reserve Bank of New York, and Trump's policies have raised new questions about the safety of Germany's gold reserves. Similar situations have also occurred in other emerging market countries, prompting these countries to accelerate the repatriation of gold to enhance financial autonomy and the ability to resist external risks. Castelli pointed out that this "gold repatriation" trend not only reflects the rise of geopolitical risks, but also highlights the unique value of gold as a safe-haven asset.
Against the backdrop of the declining attractiveness of the U.S. dollar, the status of the euro and the renminbi is steadily improving. The survey shows that in the next year, a net 6% of the central banks surveyed plan to increase their euro holdings, while the renminbi ranks first with a net proportion of 25%. In addition, the Canadian dollar, the British pound and the Japanese yen are also favored by some central banks. This diversification trend reflects that the global central banks are reducing their reliance on a single reserve currency, and the global financial system may be moving towards a new, more diversified stage.
Castelli is optimistic about the euro's prospects, but he also warned that without structural reforms, Europe's financial market revival may be short-lived. In contrast, the internationalization of the renminbi has been steadily advancing in recent years, especially with the support of the "Belt and Road" initiative and the renminbi cross-border payment system, and its attractiveness as a reserve currency is increasing. However, the internationalization of the renminbi still faces challenges such as capital account opening and exchange rate fluctuations, and it is difficult to completely replace the status of the US dollar in the short term.
The UBS survey paints a picture of global finance full of uncertainty. The potential crisis of the independence of the Federal Reserve and the rule of law in the United States is pushing central banks around the world to re-examine their asset allocation strategies. Although the dominance of the US dollar is difficult to shake in the short term, the rise of gold, the euro and the renminbi shows that the trend of diversification of the global reserve currency system is accelerating. In the face of geopolitical risks and economic uncertainties, the appeal of gold as a safe-haven asset is returning, and the concerns of emerging market central banks about the risk of sanctions have further driven the gold repatriation boom.
The independence of the Federal Reserve is under question, and the dollar hegemony faces challenges
As one of the most important central banks in the world, the independence of the Federal Reserve's monetary policy has always been a key pillar in maintaining the dollar as the world's reserve currency. However, a survey by UBS Asset Management showed that as many as two-thirds of reserve managers expressed concerns about the independence of the Federal Reserve. They believe that political interference may weaken the Federal Reserve's autonomy in formulating monetary policy, thereby shaking the confidence of global financial markets in the dollar.
This concern is not unfounded. Since US President Trump took office, his public criticism and pressure on the Federal Reserve have been common. For example, Trump has repeatedly asked the Federal Reserve to lower interest rates to stimulate economic growth, and even put forward some unconventional debt management suggestions. These actions have caused central banks around the world to re-examine the reliability of the US dollar as a safe-haven asset. Max Castelli, head of global sovereign market strategy and consulting at UBS, admitted that Trump's policies, especially his move to impose tariffs on "Liberation Day", have significantly changed the views of reserve managers on the US dollar. This policy uncertainty not only puts pressure on the US dollar exchange rate, but also reduces the attractiveness of US Treasury bonds.
The survey also showed that about 35% of the central banks surveyed believed that the United States might ask its allies to convert medium- and long-term debts into other financial instruments such as ultra-long-term zero-coupon bonds. This scenario reflects the concerns of global central banks about the US debt management strategy and further exacerbates doubts about the long-term stability of the US dollar. Despite this, Castelli pointed out that the dominance of the US dollar will remain difficult to shake in the short term. Nearly 80% of respondents expect the US dollar to continue to maintain its status as a global reserve currency. The US dollar currently accounts for 58% of global foreign exchange reserves. However, 29% of the central banks surveyed said that in view of recent developments, they plan to reduce their investment in US assets in the future. Although this proportion is lower than last year, it still shows that the attractiveness of US dollar assets is gradually weakening.
Concerns about the stability of the rule of law in the United States may lead to changes in global asset allocation
In addition to the independence of the Federal Reserve, the survey also revealed global central banks' concerns about the rule of law in the United States. Nearly half of the respondents believed that the rule of law in the United States may deteriorate to a level that would have a significant impact on their asset allocation. As the world's largest bond market and issuer of reserve currencies, the stability of the rule of law in the United States has always been an important factor in attracting global capital. However, the Trump administration's conflicts with long-term allies on trade and security issues, as well as domestic policy uncertainty, have caused central banks around the world to begin to reassess the United States' status as a destination for safe-haven assets.
This concern has a direct impact on the asset allocation strategies of global central banks. The survey shows that 25% of central banks plan to cut their exposure to the US dollar next year. Although this proportion is slightly lower than last year, it still shows that the attractiveness of the US dollar is declining. At the same time, the euro, renminbi and gold are seen as the biggest beneficiaries of global reserve position adjustments. Especially in the next five years, reserve managers generally believe that the euro will benefit the most from global position changes, followed by the renminbi and emerging crypto assets, while the US dollar's ranking has slipped from the top of last year's list to ninth place. This ranking change reflects the gradual weakening of global central banks' confidence in the US economic and political environment.
Gold fever revives, sanctions risk boosts repatriation demand
Among non-monetary assets, gold is undoubtedly the biggest highlight of this survey. 52% of the central banks surveyed said they plan to increase their gold holdings in the coming year, and 39% of the central banks explicitly stated that they will increase the share of domestic gold reserves. Behind this trend is mainly the concern of emerging market central banks about the risk of sanctions. In recent years, the United States has frequently used financial sanctions as a diplomatic tool, causing many countries to worry that their gold reserves stored in the United States may face the risk of being frozen or confiscated.
Take Germany as an example. Part of its gold reserves are stored in the Federal Reserve Bank of New York, and Trump's policies have raised new questions about the safety of Germany's gold reserves. Similar situations have also occurred in other emerging market countries, prompting these countries to accelerate the repatriation of gold to enhance financial autonomy and the ability to resist external risks. Castelli pointed out that this "gold repatriation" trend not only reflects the rise of geopolitical risks, but also highlights the unique value of gold as a safe-haven asset.
The rise of the euro and the renminbi accelerates the diversification of global reserves
Against the backdrop of the declining attractiveness of the U.S. dollar, the status of the euro and the renminbi is steadily improving. The survey shows that in the next year, a net 6% of the central banks surveyed plan to increase their euro holdings, while the renminbi ranks first with a net proportion of 25%. In addition, the Canadian dollar, the British pound and the Japanese yen are also favored by some central banks. This diversification trend reflects that the global central banks are reducing their reliance on a single reserve currency, and the global financial system may be moving towards a new, more diversified stage.
Castelli is optimistic about the euro's prospects, but he also warned that without structural reforms, Europe's financial market revival may be short-lived. In contrast, the internationalization of the renminbi has been steadily advancing in recent years, especially with the support of the "Belt and Road" initiative and the renminbi cross-border payment system, and its attractiveness as a reserve currency is increasing. However, the internationalization of the renminbi still faces challenges such as capital account opening and exchange rate fluctuations, and it is difficult to completely replace the status of the US dollar in the short term.
Conclusion: The crossroads of the global financial landscape
The UBS survey paints a picture of global finance full of uncertainty. The potential crisis of the independence of the Federal Reserve and the rule of law in the United States is pushing central banks around the world to re-examine their asset allocation strategies. Although the dominance of the US dollar is difficult to shake in the short term, the rise of gold, the euro and the renminbi shows that the trend of diversification of the global reserve currency system is accelerating. In the face of geopolitical risks and economic uncertainties, the appeal of gold as a safe-haven asset is returning, and the concerns of emerging market central banks about the risk of sanctions have further driven the gold repatriation boom.
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