Evolving focus in reserve management
Central banks need liquid, stable reserves, but regime shifts have weakened bonds’ risk-adjusted returns. A wider range of assets, including equities and gold, now merit a larger role.
Group Research - Econs, Taimur Baig9 Oct 2026
  • Reserve managers prioritise portfolio liquidity, stability, and crisis readiness.
  • Geopolitical risk is driving interest in non-USD assets and payment rails.
  • Lack of depth in non-US markets constrain the pace and scale of de-dollarisation.
  • Since 2020, gold and developed-market equities have outperformed bonds.
  • Portfolio choices must adapt as traditional safe assets deliver weaker returns.
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Executive Summary

Central bank reserves are instruments of monetary management, financial stability and national resilience. International reserves enable foreign-exchange intervention, provide hard currency during crises, cover imports and reassure investors. Repeated shocks and rising geoeconomic uncertainty have reinforced the case for ample buffers, while increasing scrutiny of their liquidity, composition and returns.

Sanctions, wars, trade frictions and concerns about US fiscal sustainability are encouraging gradual diversification into non-dollar currencies, alternative payment rails, and dollar assets outside US jurisdiction. But credible substitutes are limited; surveys show bonds and deposits still exceed 88% of reserve portfolios, with gold near 7%.

Asset performance nevertheless supports a reassessment of portfolio construction. Across developed- and emerging-market equities, global credit, gold, oil, real estate and US Treasuries, the leadership has shifted materially. During 2000–19, EM equities and real estate delivered the strongest excess returns, while bonds achieved the best risk-adjusted result. Since 2020, gold and DM equities have led returns and Sharpe ratios, whereas global credit and US Treasuries have produced negative excess returns. EM equities have been the most consistent across both periods.

Central banks should segment assets by purpose, retain sufficient short-duration liquidity, reassess concentration and jurisdictional exposure, and diversify carefully where buffers permit. Risk should encompass duration, convertibility, market depth, sanctions vulnerability and crisis usability—not merely volatility. Objectives may remain stable, but portfolios must evolve with changing inflation, interest rates, geopolitics and asset performance.

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Taimur Baig, Ph.D.

Chief Economist - Global
taimurbaig@dbs.com
 


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