What the IMF COFER data shows in Q4 2025
The International Monetary Fund’s Currency Composition of Official Foreign Exchange Reserves (COFER) data for the fourth quarter of 2025 shows the US dollar’s share of allocated global foreign exchange reserves at about 56.8%. That is the lowest reading since 1994, and it continues a long decline from roughly 71% in 2001.
Two points matter for understanding the headline. First, COFER measures the currency mix of “allocated” reserves that countries report in detail. Second, gold is not counted as a foreign currency inside COFER, so a central bank can reduce its currency exposure while still building reserve strength through gold.
So, this is not a one-quarter shock. It is a slow-moving shift that has been building for years. The dollar is still the single biggest reserve currency by a wide margin, but its share is shrinking as more central banks spread their risk across several assets.
Why central banks are buying so much gold
Gold has become the key diversification tool because it sits outside any one country’s politics and credit risk. Unlike a bond, gold does not depend on the issuer’s promise to pay. It also cannot be “printed” in a crisis the way currencies can be expanded through monetary policy.
In the past decade, many reserve managers have treated gold as insurance: a hedge against inflation surprises, a hedge against financial sanctions risk, and a hedge against sudden swings in confidence. That mindset is visible in official-sector purchases. Central banks have bought more than 1,000 tonnes of gold per year for three years in a row, which is an unusually strong and persistent run.
There is also a practical angle. Gold is highly liquid in global markets, it can be stored domestically, and it tends to perform well when geopolitical stress rises. For countries that want to reduce reliance on any single currency bloc, gold feels like a “neutral” asset.
Is the world moving away from the dollar?
The trend looks like diversification, not replacement. No single currency has the depth, liquidity, and legal infrastructure that supports the dollar’s role in trade, payments, and reserve management. US Treasury markets remain the largest pool of safe and liquid government securities, which is a big reason the dollar still dominates.
Still, the alternatives are gaining incremental ground. The euro holds roughly 20–21% of allocated reserves, and smaller increases have been seen in the Japanese yen, British pound, and the Chinese yuan. Some reserve managers also use commodity-linked currencies like the Canadian and Australian dollars, plus the Swiss franc, for additional balance.
A widely discussed turning point came in 2022, when around $300 billion of Russian central bank reserves were frozen after Russia’s invasion of Ukraine. Many analysts argue that this episode increased the perceived “political risk” of holding reserves in certain jurisdictions. Even if a country has no immediate sanctions risk, it may still prefer a more resilient mix that is harder to disrupt.
What this means for Pakistan’s reserves and policy
For Pakistan, the main lesson is risk management. Pakistan’s reserves are used to pay for imports, manage external shocks, and support confidence during periods of market stress. That requires liquidity first, but it also benefits from diversification.
A sensible approach is to think in layers. The first layer is short-term liquidity for essential imports and debt servicing, typically in currencies that match Pakistan’s payment needs. The second layer is stability assets—high-quality, liquid securities that can be sold quickly in stress. The third layer is diversification assets like gold, which can protect value over longer periods and reduce concentration risk.
Pakistan already holds some gold in its reserve mix, but the debate is about the size and pacing of any increase. More gold can help hedge against currency volatility, but it also comes with trade-offs: gold does not pay interest, it can be volatile over shorter windows, and large purchases need careful timing to avoid buying at peaks.
The key policy message is discipline. Diversification works best when it is rule-based, transparent, and aligned with import and debt profiles. If Pakistan increases gold holdings, it should do so gradually, with clear thresholds, and without weakening day-to-day liquidity management.
What to watch in 2026
Several indicators will show whether the “slow transition” continues. First, watch COFER updates through 2026 to see if the dollar share keeps drifting lower or stabilises. Second, follow central-bank gold purchase data for signs of fatigue or acceleration.
Third, monitor interest-rate cycles. If US rates fall faster than expected, the return advantage of holding dollars may narrow, which can encourage more diversification. If US rates stay higher for longer, the income from dollar assets could slow the shift.
Finally, keep an eye on geopolitical risks and financial fragmentation. When global tensions rise, countries often prefer a wider mix of assets and storage locations. That can support both gold demand and a broader basket of reserve currencies.
Bottom line: the dollar remains the anchor of the reserve system, but the world is building more shock absorbers around it. Gold is one of those shock absorbers, and that is why it keeps showing up in the data.
