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As 2025 unfolds, reserve managers around the world face a confluence of geopolitical, economic, and structural challenges that are reshaping the investment landscape. From shifting trade alliances to growing questions around the dollar’s dominance, the international order is under reassessment. At the same time, emerging trends in artificial intelligence, sovereign debt management, and sustainability are opening new fronts for strategic reallocation and long-term positioning.

At this year’s Reserve Management Seminar, we bring together leading voices from policy and finance to reflect on six defining questions that will shape the global reserve strategy in the years ahead.

Markets initially cheered the re-election of Donald Trump on expectations of renewed tax cuts and deregulation. But the administration’s aggressive tariff agenda and strategic ambitions to reorder global trade have since dampened optimism.

While parts of the US economy – particularly MAGA-aligned sectors like domestic manufacturing – could benefit, the broader implications for global trade are deeply uncertain. Tariffs risk stoking inflation and deterring business investment, just as the Federal Reserve’s ability to ease rates is constrained by ongoing price pressures. In this environment, confidence in the US as the world’s growth engine is being tested.

Emerging markets face a double bind: rising US rates and tariff exposure. Yet, should geopolitical tensions ease and the US dollar begin to soften, opportunities could emerge for high-conviction, selectively positioned EM strategies.

For Europe, Trump’s second term has catalyzed movement on long-discussed structural reforms. Increased defense and infrastructure spending is laying the groundwork for stronger fiscal integration, while the Savings and Investment Union could finally unlock deeper capital markets.

Importantly, the long shadow of negative rates has lifted. European bonds and equities are benefiting from more attractive valuations, falling fragmentation risk, and renewed interest from global allocators seeking diversification. A peace agreement for Ukraine would further boost sentiment, particularly via lower energy prices.

Yet, Europe’s export model remains vulnerable to global protectionism. To unlock sustained outperformance, political momentum for integration and investment must continue – especially in strategic sectors like digital infrastructure and defense.

The US dollar has long stood as the anchor of the international financial system – but cracks in that foundation are becoming more visible. Tariff escalation, currency policy shifts, and concerns about the weaponization of financial infrastructure are raising questions about the dollar’s long-term appeal as a reserve asset.

The greenback remains dominant, but its share of global reserves has declined from over 70% to below 60% in recent decades. While no single alternative has emerged, central banks are increasingly allocating to a broader mix of reserve assets. The euro, aided by the end of negative rates and more cohesive bond issuance, is seeing modest gains. Gold is also reasserting its role as a neutral, trustless store of value – especially for emerging market central banks wary of future sanctions or freezes.

Gold has re-emerged as a strategic asset for central banks, particularly in emerging markets. Its appeal lies not in yield, but in its neutrality: gold cannot be frozen or seized when stored domestically, making it a reliable hedge against financial system risk and fiat currency debasement.

This trend is not new – it was discussed at the ÃÛ¶¹ÊÓƵ Reserve Management Seminar before Covid, as reserve managers began reassessing the role of gold in a changing geopolitical environment. The start of the Russia-Ukraine war in 2022 and the subsequent sanctions on Russian reserves accelerated this shift, highlighting the vulnerabilities of dollar-centric reserve strategies.

Central banks in politically non-aligned or geopolitically exposed countries have taken note, gradually increasing their allocation to gold. While gold may sell off briefly in times of stress, it has proven its role as a store of value during crises. In a world where confidence in traditional safe havens like US Treasuries is being questioned, gold offers a rare constant: stability without counterparty risk.

The era of ultra-low interest rates has ended, leaving sovereign issuers confronting steep refinancing costs. In the US alone, interest payments have nearly tripled, putting pressure on an already overstretched fiscal framework. Japan, too, continues to operate beyond traditional debt-to-GDP thresholds.

For reserve managers, this shift has implications both in terms of credit quality and currency exposure. In recent years, surveys of central banks indicate a pivot toward euro-denominated public debt-driven by diversification needs, improved market stability, and stronger ECB engagement on the internationalization of the euro.

While countries with monetary sovereignty retain tools to manage debt burdens, longer-term risks – ranging from inflation to a potential erosion of reserve currency privileges – are rising.

The digital transformation of finance is accelerating. AI is no longer just about productivity gains – it’s shaping investment strategies, back-office efficiencies, and long-term sector valuations. The emergence of AI agents could mark the next evolution in global economic transformation, with far-reaching implications for labor markets, asset prices, and alpha generation.

Central bank digital currencies (CBDCs), particularly in wholesale markets, continue to develop. China leads the fields with the digital yuan, while the US remains cautious. That divergence could influence global capital flows and the architecture of cross-border payment systems.

Finally, ESG remains a powerful force in capital markets, particularly in Europe. But geopolitical fragmentation and shifting US priorities may hamper global consensus. Emerging markets, in particular, face the challenge of balancing development needs with climate commitments – a trade-off that will require international collaboration and targeted investment flows.

The global financial system is entering a more multipolar, fragmented era. For reserve managers, this presents both risk and opportunity. Strategic diversification – across asset classes, currencies, and geographies – has become a critical imperative.

As the global order evolves, the ability to stay agile, informed, and forward-looking will define success. Whether it’s assessing reserve currency risks, rethinking exposure to sovereign debt, or capturing value in emerging technologies and sustainable investments, the decisions made in 2025 will shape outcomes for years to come.