Core Focus: The expansion into non-traditional asset classes, the resurgence of gold as a strategic reserve asset, and the evolving definition of safe assets in a world of geopolitical shocks and fiscal strain.

In-Depth Notes:
The asset allocation landscape for reserve managers is evolving in response to geopolitical uncertainty and evolving market risks. Central bank reserves have moved beyond their traditional role as passive buffers against crises. They have become dynamic, strategically managed portfolios with the capacity to influence markets, liquidity and financial stability far beyond the institutions that hold them.

The Spectrum of Non-Traditional Assets:
Traditional asset classes include developed market government bonds, bank deposits, money market instruments, supranational securities and gold. Non-traditional asset classes include investment-grade corporate bonds, developed market equities, emerging market bonds, covered bonds, mortgage-backed and asset-backed securities, inflation-indexed bonds, and central bank digital currencies. This evolution is not a minor adjustment but a structural transformation that could prove to be one of the most consequential financial developments of our time.

The “Better Beta” Strategy:
Research has proposed improving the efficiency of reserve portfolios by adding a diversified “investment tranche” to the traditional liquidity tranche. In one illustrative proposal, a portfolio that would have held only 80% in “Liquidity” assets and redirected 20% into an “Investment” tranche—split between investment grade corporate bonds and U.S. agency mortgage-backed securities (MBS)—could have achieved as much as 20 percentage points of extra cumulative return. These assets have shorter duration than the typical portfolio of government bonds, making them relatively attractive in a period of rising rates.

The Resurgence of Gold:
The most visible manifestation of diversification is a surge in gold’s share of reserves. Research indicates that the main de-dollarization trend in FX reserves has shown up less in other currencies and more in growing demand for gold. Emerging market central banks—particularly China, Russia, and Türkiye—have been among the largest buyers over the last decade, viewing bullion as protection against inflation, sanctions, and currency volatility.

Gold has now surpassed U.S. Treasuries as the single largest reserve asset held by central banks worldwide, with gold representing around 27 percent of official reserves compared with about 22 percent for U.S. Treasuries. Surveys of reserve managers show that close to half of central banks plan to further increase gold allocations.

Safe Assets Under Pressure:
The changing definition of safe assets reflects a world shaped by geopolitical shocks, financial volatility and fiscal strain in advanced economies. Developed market government bonds and investment-grade credit can no longer be regarded as unquestioned safe havens, and correlations across traditional reserve assets have become increasingly unstable. This has forced reserve managers to reconsider their strategic asset allocations and to seek diversification across a broader set of assets.