Central banks are searching for more independence from the dollar, but breaking free is harder than it looks. The freeze of Russia’s reserves exposed the political dependencies of assets held in foreign custody, and yet the dollar still accounted for 57% of allocated foreign-exchange reserves in the first quarter of 2026. The more visible shift in the past year has been towards gold. Even so, diversifying what you own is not the same as controlling how it is priced, held, and settled. The fact that these dependencies are changing only slowly should be a warning to every reserve manager.
London and New York Still Set the Reference Price
In times of crisis, capital moves into safe assets; for decades, dollar-denominated assets and gold stood at the front of that queue. US Treasuries in particular have long been regarded as the ultimate safe asset, owing to their depth, their liquidity, and the convenience yield, part of what is often called the exorbitant privilege. In the years since the freezing of Russian reserves, gold has become an increasingly important reserve diversifier, and the reason is structural. Allocated physical gold held in a central bank’s own jurisdiction carries no issuer credit risk and reduces exposure to foreign custody sanctions. Claims on gold held elsewhere cannot offer the same protection. At market prices, gold accounted for 20% of total official reserves at the end of 2024, overtaking the euro at 16%. In 2025, central banks bought 863 tonnes of gold, almost double the 2010–21 average of 473 tonnes, and in the World Gold Council’s 2026 survey, 89% of respondents expected global central-bank gold reserves to rise over the next twelve months.
At the same time, the LBMA Gold Price AM reached an all-time high of $5,501.70 an ounce in late January 2026. Yet, notwithstanding the rapid ascent of gold purchases, gold’s global reference price is still formed largely through the London spot benchmark and New York futures. London supplies the principal global spot reference, while COMEX remains a major venue for price discovery. Shanghai, in particular, can trade at a premium to London: gold import controls, local supply and demand, and the yuan-dollar exchange rate all affect the comparison between the two benchmarks. In crises, London and New York remain the main reference markets, while regional spreads can widen.
The US-Israeli strikes against Iran on 28 February 2026 made gold both a haven and a source of liquidity. In March, the LBMA Gold Price fell about 12%, while the Shanghai benchmark fell around 11%. Even though both benchmarks fell, the difference between them widened: on 20 March, Sprott, using Bloomberg data, calculated that Shanghai traded at a 4.4% premium to London, around three standard deviations above its ten year average. Chinese gold exchange-traded funds attracted a record RMB59bn in the first quarter. Chinese demand created a local premium, but did not displace the international benchmark. The fall was driven mainly by liquidity needs and risk reduction: investors sold gold to raise cash, exited COMEX long positions, and pulled money from Western gold ETFs, led by North America. The usual channels still operated in the background. As markets priced in fewer and later Federal Reserve (Fed) rate cuts, this shift worked against gold in two ways: on the one hand, higher expected rates can make yield-bearing dollar assets more attractive than non-yielding gold; on the other, a stronger dollar can make gold more expensive for buyers using other currencies. But liquidity driven selling outweighed those macroeconomic pressures in March. Even the escape hatch still moved, in the short run, on the Federal Reserve’s terms.
Custody Is a Chokepoint
If pricing is the first layer of dependency, custody is the second. Holding a bond means holding a claim inside a foreign system, and that system can prevent the owner from accessing it overnight. Since 2022, Russian central-bank assets worth around €210bn have been immobilised within the EU, most of them at Euroclear, which reported €195bn in sanctioned Russian assets at the end of 2025. Of the €5bn in interest that accrued there in 2025, €3.3bn was provisioned for the EU windfall contribution supporting Ukraine. In October, Belgian legal and financial objections prevented agreement on the reparations-loan model that the EU had wanted to back with the immobilised assets. The EU instead agreed, in December, to a €90bn loan raised on capital markets, while work on that model continued. This hesitation shows how much weight now rests on that custody infrastructure and why custody has become part of central-bank reserve strategy.
Settlement Still Runs on the Dollar
Even where central banks diversify modestly, value moves on rails that are once again largely dollar-based, and those reserves stay dependent on infrastructure they do not control. The dollar was on one side of approximately 90% of all foreign-exchange trades in April 2025 and remains the world’s most-traded currency. The largest private-sector dollar-clearing and settlement network is CHIPS in New York, which settles above $2trn each business day. An alternative is China’s Cross-Border Interbank Payment System (CIPS) for the yuan, but it shifts jurisdictional exposure rather than eliminating it. The renminbi’s wider international use remains constrained by capital controls and incomplete convertibility, even though foreign official reserve holdings are generally exempt from those controls. Dollar markets offer deeper cross-border liquidity, more developed hedging markets, and a larger pool of safe collateral. Because the dollar remains the world’s dominant vehicle currency and appears in all ten most-traded currency pairs, many third-country foreign-exchange conversions still pass through dollar markets. You can change the reserve. You cannot yet change the rail.
The next phase of reserve diversification will therefore depend on whether reserves held at depositories outside the dollar system grow, and whether the infrastructure of price-setting, custody, and payments becomes less dependent on the dominant currencies and the jurisdictions that run them. Until then, reserve managers can change the asset faster than the system itself.
