A growing number of central banks are expressing concern over the rising “weaponization” of currencies, as revealed in the latest UBS Reserve Management Trends 2025 survey. In response, global reserve managers are accelerating their diversification away from traditional reserve assets like the U.S. dollar and euro, turning increasingly to gold, commodities, and non-aligned currencies such as the Chinese yuan and Swiss franc.

This trend signals a fundamental shift in the international monetary landscape — one that could have profound long-term effects on foreign exchange (forex) markets, central bank policies, and geopolitical dynamics.

What Is FX Weaponization?

FX weaponization refers to the strategic use of national currencies, particularly reserve currencies like the U.S. dollar or euro, as tools of political pressure or economic sanctions. This trend has gained visibility in recent years, particularly following:

• The freezing of Russian reserves by Western countries in 2022

• Increased use of SWIFT bans and trade restrictions

• Currency sanctions tied to geopolitical disputes

Such moves have alarmed many central banks, particularly in the Global South and East Asia, where governments fear similar punitive actions.

Key Findings from the UBS Central Bank Survey

The 2025 UBS report — based on responses from 40+ central banks managing over $5 trillion in reserves — reveals some critical takeaways:

• 85% of respondents view currency weaponization as a growing threat to global financial stability

• 68% plan to increase gold holdings over the next 24 months

• More than 50% are reducing USD exposure in favor of the yuan, Swiss franc, and gold

• Alternative assets like sovereign bonds from neutral countries, and even tokenized gold, are gaining traction

This marks a clear continuation of de-dollarization — a trend that has gathered momentum since the late 2010s.

Why It Matters for Forex Markets

The global foreign exchange landscape is deeply influenced by central bank reserve behavior. If diversification away from the U.S. dollar accelerates:

• USD volatility could increase, especially during geopolitical tensions

• Yuan and gold may see inflows, potentially strengthening their role as safe-haven assets

• Global liquidity patterns might shift, impacting emerging market currencies and funding costs

Forex traders, portfolio managers, and macro investors are closely watching how these evolving reserve strategies affect currency pair dynamics and capital flows.

Implications for Reserve Strategy

Many central banks are now prioritizing resilience and political neutrality over liquidity and yield in their reserve management approach. This means:

• A greater emphasis on gold, which is non-political and universally accepted

• Diversifying into non-Western sovereign bonds, including those issued by ASEAN, GCC, and BRICS nations

• Investing in alternative reserve assets, such as tokenized commodities and digital sovereign bonds

These moves may impact interest rate spreads, currency correlations, and the structure of global capital markets over the coming decade.

Conclusion

As the specter of FX weaponization grows, central banks around the world are adapting their reserve strategies to reduce reliance on politically exposed currencies. This emerging paradigm marks a significant shift in global finance — one where gold, the yuan, and new neutral assets may play a more central role.

ForexFlash will continue monitoring how these evolving central bank trends influence currency markets, global liquidity, and monetary policy in 2025 and beyond.