Central Banks Fret More Over FX ‘Weaponization,’ UBS Survey Says

A recent UBS survey of nearly 40 central banks reveals a sharp escalation in concern regarding the 'weaponization' of foreign exchange reserves, with 49% of managers now viewing it as an investment risk, up from 32% last year and 14% in 2023. This growing geopolitical apprehension is prompting central banks to increasingly favor boosting their gold holdings as a strategic response to evolving reserve management challenges.

Analysis

A recent UBS Group AG survey of nearly 40 central banks reveals a sharp and accelerating concern over the geopolitical weaponization of foreign exchange reserves. The proportion of reserve managers viewing this as a key investment risk has surged to 49% in 2025, a significant increase from 32% in the prior year and just 14% in 2023. This trend indicates a structural shift in sovereign risk perception, compelling central banks to alter their reserve management strategies. Consequently, there is a growing consensus among these institutions to increase their holdings of gold, viewing the metal as a crucial hedge against such emerging geopolitical threats and a diversification tool away from traditional currency reserves.

Key Decisions for Investors

• Given the clear trend of central banks boosting gold holdings as a hedge, investors should consider maintaining or increasing strategic long positions in gold and gold-related assets.
• The growing concern over FX weaponization suggests potential for increased volatility and structural shifts in currency markets, warranting closer monitoring of major currency pairs and potential hedging of concentrated FX exposure.
• This sentiment shift among central banks underscores a rising geopolitical risk premium that should be factored into broader asset allocation, potentially favoring safe-haven assets and diversification away from geopolitically sensitive instruments.