Chinese companies and individuals have also been sanctioned by the US. In 2020, Carrie Lam, Hong Kong’s chief executive at the time, said she was forced to keep “piles of cash” at home as US sanctions over Hong Kong’s then-new security laws completely cut off her access to banks.

It’s not just China and Russia that were perturbed by the freezing of Russia’s reserves. The BRICS+ grouping of China, Russia, developing economies and some Middle Eastern economies have all been unsettled and are trying to develop strategies to reduce their US-dollar-generated vulnerabilities.

The reason for the dollar’s bounceback and the renminbi’s reduced appeal relates to macroeconomics as much as it does to geopolitics.

That might explain why, even as they plan to lift their allocations to the greenback over the next two years, their central banks expect to reduce the dollar’s share of their reserves over the next decade and increase their allocations to the renminbi. It’s the first time the survey has produced results showing a decline in the renminbi allocation.

The central banks surveyed expect a “very gradual” decline in the dollar’s share of their reserves over the next 10 years, from about 58 per cent to an average of 55 per cent, while lifting the renminbi’s share from 2.3 per cent to a still modest 5.5 per cent.

To put that in context, about 20 per cent of central bank reserves are allocated to euros and about 11 per cent to gold. It is going to take many decades - if the long-term trends were to resume - for the dominance of the dollar to be eroded, let alone be superseded by the renminbi.

Loading

The banks’ allocation to gold, incidentally, has been surging. Gold represented 9 per cent of their reserves a year ago and, despite it trading at record prices, a net 15 per cent of the reserves managers expect to increase their allocation to gold over the next two years. That, according to the survey, would mean buying a further $US600 billion worth of gold.

The dollar’s bounceback and the renminbi’s reduced appeal are due to macroeconomics as much as they are to geopolitics.

The US dollar has been strong over the past year, thanks to the strong (albeit now fading) growth in the world’s largest economy and, with US inflation levels still relatively high (albeit declining), the level of US interest rates. In contrast, China’s growth has been, by its standards, weak and bumpy; its interest rates have been falling, and its currency has been depreciating.

Two-year US Treasury bonds yield 4.77 per cent and 10-year bonds 4.34 per cent. China’s 2-year bond rate is 1.75 per cent and its 10-year bonds yield 2.3 per cent. It’s not surprising that central banks are chasing the higher returns.

Loading

Geopolitics – the increased tensions and trade restrictions between the US and China and, more recently, the European Union and China – may also be playing a role. The survey showed that, after inflation, geopolitics was the second-most important factor in their investment decision-making over the next two years.

Inflation is obviously the major concern for central bankers in the post-pandemic environment, where inflation rates in the major economies surged to levels not experienced for decades.

A year ago, more than half the reserves managers surveyed expected inflation to remain above 4 per cent. The latest survey shows that central banks expect the rates in the major economies to be within 2 to 4 per cent. Most of them target the lower to middle level of that range, so the survey shows the central banks believe they have almost, but not quite, regained control of inflation.