Aurelia Butler

The dollar will maintain its position as the world’s dominant reserve currency over the next decade, confounding growing calls from some countries for the adoption of alternatives, according to a closely watched annual survey of central banks.Research by the Official Monetary and Financial Institutions Forum (OMFIF), a UK central banking think-tank, found that reserve banks managing close to a combined $5tn of assets expect the dollar to continue to decline as a proportion of global reserves at a “gradual” pace. However, it will still account for 54 per cent of the total in 10 years’ time, compared with 58 per cent currently, the survey found. Reserve currencies are foreign assets held in large quantities by central banks for international payments and to support local currencies. Among those trying to challenge the dollar’s hegemony is Brazil’s president Luiz Inácio Lula da Silva, who called for emerging markets to review their reliance on the greenback at a summit in Paris last week. South Africa’s president Cyril Ramaphosa said “the issue of currency” would be “on the agenda” for the upcoming meeting of Brics countries in August, which also includes Russia, India and China.The dominance of the dollar has gradually declined in recent decades as the role of the US in global trade has waned, while the freezing of over $300bn worth of Russian central bank assets last year sparked fresh calls among some of the world’s largest emerging economies to shift away from the US currency. At the turn of the century the dollar accounted for more than 70 per cent of global reserves, according to IMF data. “The sense of de-dollarisation is in line with the historic trend over the last ten years,” said Nikhil Sanghani, managing director at OMFIF. “Reserve managers are telling us there’s unlikely to be a major trend from that path.” The OMFIF survey found that 16 per cent of reserve banks planned to increase US dollar exposure in the next couple of years, compared with 10 per cent that planned to reduce it. However, over the next 10 years, a net 6 per cent of reserve banks said they expected to reduce their dollar holdings. China, the world’s largest reserve asset holder, has been pushing for greater adoption of its currency by other countries. But Sanghani said the sanctions on Russia had brought the issue of geopolitics into “sharper focus” and some reserve managers “will be looking at US tensions with China and be reluctant to invest in China right now”.The study found just 13 per cent of respondents said they expected to increase holdings in China’s currency, down from more than 30 per cent last year. However, on a 10-year horizon, two-fifths of central banks expected to add to their renminbi holdings, forecasting that its share of global reserves would grow from about 3 per cent to 6 per cent by 2033. “Reserve managers are saying that in 10 years we want to move in that direction but now is not the time to do it,” Sanghani said.OMFIF’s study found that the euro was likely to be the biggest beneficiary of the trend away from the dollar and cooling sentiment on China. The euro currently accounts for about 23 per cent of global reserves, but a net 14 per cent of central banks said they planned to increase their euro holdings over the next two years. That was ahead of demand for any other currency, and marked a big increase from last year when no banks had considered boosting euro reserves. 

Meanwhile, the survey also found that not one of the 75 central banks expected inflation to return to 2 per cent in the next 12 to 24 months. “Reserve managers have little confidence that their colleagues on monetary policy committees will get inflation under control,” the report said.Just over half of the central banks expected inflation to remain stuck between 2 per cent and 4 per cent, while 48 per cent thought inflation would be between 4 per cent and 6 per cent. Additional reporting by George Steer More

Christine Lagarde has called for “persistent” high interest rates by the European Central Bank to avoid prices staying above its target as a result of tight labour markets and a big increase in eurozone wages.The ECB president told its annual conference in Sintra, Portugal, that the eurozone had been hit by “overlapping inflationary shocks since the end of the pandemic”. By raising its benchmark interest rate from minus 0.5 per cent last year to 3.5 per cent this month, she said the ECB had “made significant progress” in addressing high inflation but it “cannot declare victory yet”.Lagarde said the initial phase of inflation, in which the cost of supply shocks in energy and other commodity markets was passed on to consumers by companies, was fading. But a second phase driven by rising labour costs had emerged, with eurozone wages forecast to climb 14 per cent by 2025.“We will face several years of rising nominal wages, with unit labour cost pressures exacerbated by subdued productivity growth,” she added.Uncertainty over how these factors would influence prices was likely to prevent the ECB from knowing when borrowing costs would peak, though it has said a further quarter-point rise is “very likely” in July. “Under these conditions, it is unlikely that in the near future the central bank will be able to state with full confidence that peak rates have been reached,” Lagarde said.“My intention is not to signal any future decisions, but rather to frame the issues that monetary policy will face in the period ahead.”More companies are hoarding labour because of increased shortages of skilled workers, which Lagarde said was reducing productivity, as wages rise faster than output, putting upward pressure on inflation. Eurozone unemployment fell to a record low of 6.5 per cent in April. Eurozone annual inflation is expected to drop to 5.6 per cent in June when fresh price data is released on Friday — still well above the ECB’s 2 per cent target but down from a peak of 10.6 per cent in October as energy and food prices continue to slow.But the ECB has said it will keep raising rates until underlying price pressures are clearly dropping: core inflation — excluding energy and food — is expected to rise from 5.3 per cent last month to 5.5 per cent this month.The ECB expects companies’ profit margins to fall because of rising labour costs. But if they avoid a quarter of these margin losses it would keep inflation at almost 3 per cent in 2025, Lagarde estimated. “While we do not currently see a wage-price spiral or a de-anchoring of expectations, the longer inflation remains above target, the greater such risks become.” Because the ECB has never lifted interest rates as much or as swiftly as it has in the past year, Lagarde said there was uncertainty about when these higher borrowing costs would feed through to consistently lower price pressures. Lagarde said the ECB would need to commit to keeping rates high for as long as necessary to ensure inflation falls. “This will ensure that hiking rates does not elicit expectations of a too-rapid policy reversal and will allow the full impact of our past actions to materialise.” Goldman Sachs analysts said in a note to clients that Lagarde’s “fairly hawkish” comments suggested there could still be some “distance until the ECB reaches its peak rate”, adding: “Rather than viewing weaker growth as exacerbating the policy trade-off, the ECB sees it as the means by which inflation will come down.” More

China’s premier warned “some in the west” of “hyping up . . . reducing dependencies and de-risking”, arguing such positions were a “false proposition” in a speech delivered in front of an international audience in China.Li Qiang, China’s second most powerful person behind President Xi Jinping, was giving the keynote address at a World Economic Forum event in the northern Chinese port city of Tianjin.“Governments should not over-reach themselves, still less stretch the concept of risk or turn it into an ideological tool,” he warned.The speech was a clear response to western governments’ attempts to limit co-operation with China as tensions rise between Beijing and Washington.The audience included New Zealand prime minister Chris Hipkins and World Trade Organization director-general Ngozi Okonjo-Iweala. It is the first time the so-called Summer Davos event has been held in person since the pandemic. Even though there were few top American business leaders at the event there have been some high-profile visits by US chief executives to China recently as the country opens up from the harsh lockdowns that shut down the economy.Apple’s Tim Cook, Tesla chief Elon Musk and JPMorgan Chase chief executive Jamie Dimon have all recently visited China. Here’s what else I’m keeping tabs on today:Economic data: The S&P Case-Shiller index of US house prices, durable goods orders and consumer confidence data are all released today.Results: Pharmacy chain Walgreens Boots Alliance reports earnings. Investor Day: Delta Air Lines holds an event for investors and is expected to detail its medium and long-term business strategy.Five more top stories1. Russia’s defence ministry said today that the Wagner paramilitary group was preparing to hand over its weapons to the regular army, in a further sign of Vladimir Putin reasserting control after the failed insurrection over the weekend. Russia’s main security service, the FSB, said it had closed its investigation into the rebellion in a further step towards solving the stand-off. Read more on the latest fallout from the failed rebellion.2. KPMG is cutting 5 per cent of its US workforce in the second round of job cuts this year as it struggles with the slowdown in demand for its consulting services. While the cuts in February only affected the advisory business the reductions announced to staff yesterday are expected to hit all areas of the business. Read more on the email sent to all KPMG staff.3. HSBC is to move its global headquarters from the Canary Wharf business district in east London to smaller premises near St Pauls in the City of London as it copes with the rise of homeworking. Read more about the latest blow to Canary Wharf’s reputation.More commercial property news: New York City’s largest office landlord has agreed to sell a stake in Manhattan’s 245 Park Avenue building to Japan’s Mori Trust, in one of the largest office transactions since US interest rates started to rise.4. Central banks must accept the “uncomfortable truth” that they may have to tolerate a longer period of inflation above their 2 per cent target in order to avert a financial crisis, the deputy head of the IMF has told the Financial Times. Read the full interview with Gita Gopinath.5. The top banking regulator under President Donald Trump has teamed up with a former risk officer at recently failed Silicon Valley Bank to launch a bank. Read more about Randy Quarles’s plans for Currency Reserve, a bank that does not plan to make loans or take deposits. The Big Read

Shemara Wikramanayake, chief executive of Macquarie, which has become known for its investments in public infrastructure, such as UK water companies © FT Montage/Bloomberg

From filling British taps with water to transporting gas across the southern US, Macquarie has become quietly ubiquitous in global infrastructure, stepping in as governments privatise assets. Now, with chief executive Shemara Wikramanayake focused on climate change, renewable energy and digital infrastructure investments, few expect the Australian company’s influence to diminish.We’re also reading and listening to . . . Interview: The chief executive of Hong Kong’s stock exchange has told the FT that he believes more international companies will be attracted to list in the territory because of China’s army of retail investors. Corporate jets: US corporate spending on jet travel jumped for the second year in a row, according to new data, highlighting how companies continue to spend on flying perks they insisted were needed during the Covid-19 pandemic. Money Clinic podcast 🎧: Worried about your overstretched wallets? Don’t panic yet. Experts offer strategies and solutions on how to navigate the challenging times ahead.Number of the day

Vitol and Gunvor, two of the world’s largest independent energy traders, remain significant buyers of refined oil from Russia more than a year after both companies pledged to drastically reduce their business with Moscow. Many other European oil traders, including BP and Shell, have ceased dealing with Russian oil entirely. Read more on the FT’s investigation into the trading of energy from Russia.Take a break from the news

Gordon Pool, Tel Aviv © Shutterstock/Stock Studio Aerials

FT readers picked their favourite swimming spots around the world, from Tel Aviv to Texas via Sydney and San Francisco. Share you own selections for the best place to take an open-air dip in the city in the comments at the bottom of the story. Additional contributions by Grace Ramos and Benjamin Wilhelm More

China’s premier Li Qiang has criticised a western push to limit trade and business ties with the country and promoted international economic co-operation in a speech that described de-risking as a “false proposition”.“Governments should not over-reach themselves, still less stretch the concept of risk or turn it into an ideological tool,” Li said in the keynote address on Tuesday at a World Economic Forum event in which he criticised “the politicisation of economic issues”.Li warned that “some in the west” were “hyping up . . . reducing dependencies and de-risking” and said such efforts were “false propositions”, arguing that businesses were in the best position to assess risk.His speech, delivered in front of an international audience that has become a rarity in China since the start of the pandemic, provided an unusually clear response from Beijing’s highest levels to an array of western policies intended to limit corporate and economic exposure to China as geopolitical ties fray.Relations between the US and China, which were already at their worst level in decades, deteriorated sharply this year after Washington shot down a suspected Chinese spy balloon in February. Russia’s invasion of Ukraine has also increased international attention to the possibility of a conflict over Taiwan.The US and China have recently made attempts to stabilise their relationship with a series of meetings between senior officials, including a visit to Beijing this month by secretary of state Antony Blinken. But that effort was quickly undercut by US president Joe Biden referring to China’s leader Xi Jinping as a “dictator”. The World Economic Forum’s Annual Meeting of the New Champions, known as the “Summer Davos”, is taking place in the northern Chinese port city of Tianjin this week for the first time in four years.It is being attended by New Zealand prime minister Chris Hipkins and World Trade Organization director-general Ngozi Okonjo-Iweala but by few top American business leaders. Other international conferences held in China since the country’s reopening have been characterised by a similarly cautious tone amid the political tensions.Chinese policymakers and provincial governments have been encouraging foreign investment this year as they face a challenging economic backdrop following three years of pandemic isolation under the country’s zero-Covid regime. A number of high-profile foreign business leaders, including Apple’s Tim Cook, Tesla chief Elon Musk and JPMorgan Chase chief executive Jamie Dimon, have made recent trips to China. At a roundtable with business leaders later on Tuesday, Li Qiang said Beijing would support the development of foreign companies and would not “abuse the use of security reviews”. Business confidence has been shaken by a recent string of raids on foreign consultancies in China.“I want to take this opportunity to affirm China’s commitment to opening up,” Li said.The premier, who visited France and Germany last week, also focused heavily on the need for co-operation and communication, noting in his speech China’s “deep integration” in the world economy and saying that the country had developed by “embracing globalisation”.

China’s economic data has disappointed this year, thanks to slowing trade and a weak property sector, while domestic consumption has failed to pick up steam after Covid-19 restrictions were abruptly abandoned late last year.Policymakers this month cut benchmark interest rates in an attempt to stimulate growth, but economists anticipate a range of further support measures over coming months.Li said on Tuesday that the economy was on course to meet its official growth target this year, which at 5 per cent was the lowest in decades.Before his promotion to China’s second-most powerful position in November, Li was the Chinese Communist party’s top official in Shanghai and oversaw one of the country’s most drastic lockdowns last year. More