Central Banks Ditch Treasuries for Gold Amid Rising Counterparty Risk

Central banks worldwide are quietly shifting their reserve portfolios away from US Treasuries and towards gold, driven by growing concerns over counterparty risk. This seismic shift is a deliberate reappraisal of what a reserve asset needs to do in today's geopolitically charged environment.

The post-Bretton Woods era established the dollar as the world's default reserve currency, with US Treasuries becoming the go-to instrument for central banks. However, this arrangement was always premised on a core assumption: that the US would not weaponize the dollar infrastructure against sovereign actors.

That assumption was shattered in 2022 when Western nations froze $300 billion in Russian assets following the Ukraine invasion. Reserve managers worldwide absorbed a critical lesson: holdings denominated in another sovereign's currency carry a form of political risk that cannot be ignored.

The World Gold Council has reported a marked increase in central bank preference for domestically vaulted gold over foreign-held Treasuries. Emerging market economies, including China, India, Poland, and Turkey, have been driving this reallocation with sustained multi-year accumulation strategies.