From 14% to 28%, how gold challenges the dominance of the US dollar

Morgan Stanley’s latest research indicates that gold is becoming the most substantial challenger to the US dollar. In the global reserve currency system, the proportion of gold held by central banks’ assets has increased from approximately 14% to 25%-28%, and this upward trend “shows no signs of slowing down.” Meanwhile, the international influence of the dollar is declining across multiple dimensions—from the share of foreign exchange reserves held by central banks to its usage in corporate and emerging market sovereign issuances. This major shift in central bank asset allocation reflects a deeper trend: in an increasingly multipolar world, countries are seeking to hedge against the risks of a single currency.

Multiple Dimensions of the Dollar’s Decline

Morgan Stanley’s research clearly outlines the erosion of dollar hegemony. Although the dollar still accounts for the largest share of global reserves, signs of decline are evident:

The key significance of these data points is that currently, no single alternative currency can truly threaten the dollar’s position—currencies like the euro and renminbi lack sufficient credibility and liquidity. But once gold is considered, the situation changes entirely. As a supranational store of value, gold is quietly becoming the preferred tool for central banks to hedge against dollar risk.

The Actual Drivers Behind Central Bank Gold Purchases

The rising share of gold is no coincidence. According to related information, several investment banks have raised their target prices for gold, and central bank gold purchases continue to strengthen. Several key factors underpin this trend:

• Geopolitical Uncertainty: Tariff threats from the Trump administration have triggered global risk aversion, making gold, the ultimate safe-haven asset, highly favored.
• Inflation Expectations Surpassing Expectations: Although US core CPI remains below forecasts, long-term inflation expectations are being revised upward, highlighting gold’s value as an inflation hedge.
• Policy Factors Accelerating De-dollarization: Morgan Stanley notes that policy-driven de-dollarization is currently in a “neutral to slightly accelerated” phase.
• Global Liquidity Tightening: Turbulence in bond markets caused by Japan’s tax cuts reflects vulnerabilities in the global financial environment, prompting central banks to prefer holding hard assets like gold.

Divergence Between Gold and Bitcoin: Signals from Institutional Choices

Interestingly, while Bitcoin recently declined by about 25%, gold surged. According to related information, the divergence between Bitcoin and gold reflects significant shifts in market sentiment.

This divergence should not be overlooked:

• Gold is More Trusted by Central Banks and Institutions: Central bank gold holdings continue to rise, whereas Bitcoin’s share in central bank assets is nearly zero.
• Safe-Haven Sentiment Drives Gold, Not Crypto Assets: Facing geopolitical risks and inflation pressures, institutions prefer gold, a store of value validated over thousands of years.
• Cryptocurrencies Still Seen as High-Risk: Warnings from US bank CEOs about risks in the crypto market reflect cautious attitudes from traditional financial institutions toward digital assets.
• Stablecoins and On-Chain Assets Are Rising: Despite Bitcoin’s cooling, signs like Morgan Stanley’s filing for a Bitcoin and Solana ETF and World Liberty’s USD1 lending platform indicate growing institutional interest in crypto infrastructure.

Short-Term Volatility and Long-Term Trends

A key judgment in Morgan Stanley’s analysis framework is that risk premiums and hedging behaviors will continue to exert pressure on the dollar while supporting gold demand. This means that in the short term, every geopolitical shock or inflation data fluctuation could further push up gold prices.

But more importantly, the long-term trend. Morgan Stanley points out that the challenge to the dollar by gold “shows no end”—this is not a short-term phenomenon but a structural, ongoing process. As long as the dollar’s role in the global system continues to weaken, gold’s alternative function will keep strengthening.

Summary

The rise of gold’s share from 14% to 28% marks a quiet revolution in global central bank asset allocation. This is not a direct challenge to the dollar— which remains the world’s reserve currency—but a more nuanced risk hedging strategy: acknowledging the dollar’s continued dominance while increasing gold holdings to hedge against single-currency risk. Morgan Stanley’s research reveals a reality: in a multipolar world, central banks are already voting with their feet, and gold is becoming the most potent counterbalance to dollar hegemony. In the short term, policies like those of Trump and inflation data will likely continue to push gold prices higher, but in the long run, the evolution of this trend will depend on how the dollar’s role in the global financial system develops.