Monetary Hedging in a Fragmented World: Treasuries, Gold and the New Reserve Strategy

Central bank reserve management has always been a function of liquidity, confidence and insurance. A central bank holds reserves to defend its currency in moments of speculative pressure, to signal macroeconomic credibility to external capital markets and to buffer the domestic economy against external shocks. These three functions have not changed. What has changed, with material speed since 2022, is the risk environment within which they are performed. Sanctions regimes have expanded in scope and have been deployed at the scale of sovereign balance sheets rather than individual entities. A single geopolitical decision can immobilise nearly half a nation’s foreign exchange reserves overnight, as the freezing of approximately $300 billion of Russia’s roughly $630 billion in reserves demonstrated in February 2022. That event, which immobilised approximately 48 per cent of Russian central bank assets according to CBR and G7 data, restructured the calculus of reserve management globally. It did not displace the dollar. It inserted a tail risk that had previously been considered theoretical into the standard operating assumptions of central banks that had no direct quarrel with Western powers, including India.

India is not Russia. Its relationship with the United States and European Union, while subject to periodic friction over trade, human rights and strategic positioning, does not approach the conditions under which sanctions of this character would be deployed. But reserve managers do not only price the probability of an event. They price the consequence if the event occurs multiplied by the probability of its occurrence. A 1 per cent probability of losing 48 per cent of your reserves is not a negligible risk. It is a risk with a concrete expected value. Gold, which carries no sovereign counterparty and cannot be frozen by foreign decree, addresses that expected value directly. The RBI’s accumulation of 178.1 tonnes of gold over five years, including 45.4 tonnes in 2024 alone, is correctly read as a response to a tail risk that was repriced in February 2022, not as a statement about India’s view of the dollar’s long-term role in the international monetary system.

At $721.42 billion as of 13 February 2026, India’s reserves represent the fourth-largest foreign exchange buffer in the world, below China, Japan and Switzerland. The composition as reported in the RBI’s Weekly Statistical Supplement breaks down as foreign currency assets of $631.10 billion, gold valued at $74.22 billion, Special Drawing Rights of $12.10 billion and an IMF reserve position of $4.00 billion. The foreign currency assets, which include holdings of US dollars, euros and other reserve currencies predominantly in the form of US Treasury securities and agency bonds, constitute 87.4 per cent of the total reserve stock. Gold at $74.22 billion constitutes 10.3 per cent by value. The remaining 2.3 per cent is held in SDRs and the IMF position, both of which function as institutional liquidity instruments rather than active portfolio allocations.

The adequacy metrics are robust by any conventional standard. Import cover of 11.2 months, confirmed by the RBI Monetary Policy Report for 2025, substantially exceeds the three-month minimum considered adequate by international convention and the nine-to-twelve-month range that characterises reserve-rich emerging economies. Short-term external debt expressed as a percentage of total reserves stands at 19.4 per cent according to RBI External Debt Statistics for 2025, meaning India’s reserves exceed its near-term external debt obligations by more than five times. India’s total external debt stands at $682 billion. The reserves-to-GDP ratio is approximately 18.5 per cent. The current account deficit is 1.1 per cent of GDP for FY2024-25. On every standard external vulnerability metric, India’s reserve position is a source of macroeconomic strength rather than concern.

The popular narrative of India slowly disengaging from US dollar assets requires a direct empirical corrective. India’s US Treasury holdings rose from $212 billion in December 2023 to $238.4 billion in December 2025, an increase of $26.4 billion over two years, according to US Treasury International Capital data. India ranks 11th among all foreign holders of US Treasuries. Japan, the largest holder at $1.15 trillion, and China, whose holdings have fallen from approximately $1.2 trillion at their 2015 peak to $772 billion by 2025 in a genuinely documented trend of gradual disengagement, provide useful comparison points. India is moving in the opposite direction from China on this metric. Total foreign holdings of US Treasuries stand at $8.50 trillion against a total marketable US Treasury market of $28.4 trillion. Foreign investors hold approximately 30 per cent of the total market. India’s $238.4 billion represents a 2.8 per cent share of total foreign holdings, modest relative to Japan and China but growing.

The reason the US Treasury market retains its anchor position in global reserve portfolios, including India’s, is structural and unlikely to change within any foreseeable policy horizon. US Treasuries are the deepest, most liquid sovereign fixed-income market in the world, with $28.4 trillion in outstanding marketable debt providing the scale necessary for large central banks to build, hold and liquidate positions without moving the market. The US dollar accounts for 47.5 per cent of global SWIFT payment messages by value according to SWIFT RMB Tracker data for 2025, and 88 per cent of all foreign exchange market trades by turnover according to the BIS Triennial Survey for 2022, reflecting the dollar’s settlement currency role that operates independently of reserve allocation decisions. Approximately 80 per cent of global oil trade remains invoiced in US dollars according to BIS and EIA estimates. These network effects do not dissolve in response to geopolitical tension. They persist because the alternatives lack the scale, liquidity and institutional depth to substitute.

India held 854.7 tonnes of gold as of February 2026, against 676.6 tonnes in early 2021, an increase of 178.1 tonnes over five years. The RBI added 16.2 tonnes in 2023 and 45.4 tonnes in 2024 according to World Gold Council and RBI Central Bank Gold Reserves data, with the acceleration in 2024 representing one of the RBI’s largest annual acquisition years on record. Gold now constitutes 10.3 per cent of India’s total reserves by value, rising from approximately 8.1 per cent in mid-2024 through the combination of new purchases and gold’s price appreciation from approximately $1,800 per troy ounce in February 2021 to approximately $2,750 in February 2026, a 52 per cent increase over five years.

India is not among the top five global central bank gold holders, which comprise the United States at 8,133 tonnes, Germany at 3,351 tonnes, Italy at 2,452 tonnes, France at 2,437 tonnes and Russia at 2,333 tonnes according to World Gold Council Quarterly Gold Holdings data for 2024. The absolute scale of India’s holdings is modest relative to the major Western central banks whose gold reserves largely predate the Bretton Woods dissolution and have remained largely unchanged for decades. What is analytically significant is the pace and direction of India’s accumulation relative to its own recent history, and the context in which that accumulation is occurring. Global central banks collectively purchased 1,082 tonnes in 2022, 1,037 tonnes in 2023 and 1,030 tonnes in 2024, according to WGC Gold Demand Trends, representing three consecutive years of net purchases above one thousand tonnes that are historically unprecedented in the post-Bretton Woods era. India’s accumulation is part of a broader global recalibration, not an isolated policy experiment.

The freezing of approximately $300 billion of Russian central bank assets in the weeks following Russia’s invasion of Ukraine in February 2022 constitutes the most significant restructuring event in reserve management thinking since the collapse of the Bretton Woods system in 1971. The figure represents approximately 48 per cent of Russia’s pre-invasion reserve stock of roughly $630 billion according to CBR and G7 data. The assets affected included holdings in European central bank accounts, euroclear-custodied bonds, US Treasury securities held through foreign custodians and other instruments that had previously been treated as legally inviolable sovereign property. The G7 subsequently committed the interest generated from frozen assets, estimated at approximately €3 to 5 billion annually, toward a $50 billion loan facility for Ukraine, confirmed in the G7 Apulia Summit Communiqué of 2024.

The policy significance of this precedent extends well beyond Russia. The unprecedented deployment of reserve immobilisation as a geopolitical instrument demonstrated that the neutrality of reserve assets held in foreign jurisdiction is conditional on the political relationship between the holding country and the jurisdiction of custody. Assets held in US custodians, European clearing systems or any institution subject to Western regulatory authority are potentially subject to this form of legal freezing in sufficiently severe political confrontations. For reserve managers in countries that have contested relationships with Western powers, or that simply wish to ensure that no foreseeable political scenario leaves them exposed to this mechanism, the logical response is to increase the share of reserves held in assets that cannot be frozen by foreign decree. Physical gold held domestically is the cleanest expression of this logic. It carries no sovereign counterparty, no custodian risk and no legal exposure to foreign jurisdictions.

The US dollar’s share of global identified foreign exchange reserves, as measured by the IMF’s Currency Composition of Official Foreign Exchange Reserves database, stood at 58.2 per cent in the third quarter of 2025. A decade earlier, in the third quarter of 2015, it stood at 65.8 per cent. The 7.6 percentage point decline over ten years represents a genuine and sustained erosion, driven primarily by the diversification of reserve allocations toward the euro, yen, Canadian dollar, Australian dollar and, to a very limited extent, the renminbi. The euro holds 19.7 per cent of global reserves. The Chinese renminbi, despite representing the world’s second-largest economy and accounting for a substantial share of global trade, holds only 2.1 per cent of global reserves.

The renminbi’s constrained reserve share, despite China’s economic scale, is the clearest demonstration that reserve currency status is not determined by GDP alone. Capital account convertibility, legal enforceability, settlement infrastructure and institutional credibility are equally or more important. China maintains capital controls that limit the free movement of renminbi assets across borders, which means foreign central banks cannot hold renminbi in the quantities required for reserve management purposes without facing restrictions on liquidating those positions under stress. The CNY holds a 12.28 per cent weight in the IMF’s Special Drawing Rights basket since the 2022 basket review, a formal acknowledgement of its international role that is nonetheless not reflected in its 2.1 per cent COFER share. SDR weighting reflects trade flows and international use. Reserve portfolio allocation reflects liquidity and safety under stress. The two measures point in different directions precisely because the conditions for an accessible reserve asset are more demanding than the conditions for a large trade currency.

De-dollarisation is one of the most analytically contested concepts in contemporary international finance. The term covers at least three distinct phenomena that move at very different speeds and have very different implications: the marginal decline in the dollar’s COFER reserve share, the development of bilateral trade settlement arrangements in non-dollar currencies and the aspirational discussion of alternative reserve systems anchored in BRICS or other multilateral frameworks. Conflating these three phenomena produces the misleading impression of a coherent and accelerating process of dollar displacement. The data supports a more measured reading.

The COFER decline from 65.8 per cent in 2015 to 58.2 per cent in 2025 is real but spread across multiple minor reserve currencies rather than concentrated in any single competitor. The renminbi’s 2.1 per cent COFER share, despite a decade of active Chinese promotion of RMB internationalisation, confirms that the structural constraints on CNY reserve accumulation are binding rather than cosmetic. BRICS economies collectively account for 36.7 per cent of global GDP at purchasing power parity according to IMF World Economic Outlook 2024 data, a significant share that reflects their combined economic weight. The Kazan Declaration of the 2024 BRICS Summit confirmed that the bloc is researching a unit of account, referred to as BRICS Pay or Bridge, rather than developing a physical common currency. This is a consequential distinction: a unit of account for trade settlement among members is a practical coordination mechanism; a reserve currency requires depth, liquidity, legal enforceability and political credibility of a fundamentally different order.

India’s bilateral trade with Russia provides the most concrete operational example of non-dollar settlement in the current system. Approximately 60 per cent of India-Russia oil transactions are now settled in non-dollar currencies, primarily Indian rupees and Russian roubles, according to Ministry of Commerce and RBI data for 2024. This represents a practical adaptation to the sanctions environment rather than a systemic shift. The challenge is that rupee-rouble settlements generate balances on both sides that are not easily redeployed into third-party transactions because neither currency has global convertibility or deep external bond markets. The practical consequence is that Russia has accumulated large rupee balances that can only be used for purchases of Indian goods or investments in Indian assets. This is a workable bilateral arrangement for specific commodity flows. It is not a template for the global reserve system.

India operates a managed float regime for the rupee. The Reserve Bank of India does not target a specific exchange rate but intervenes in the foreign exchange market to smooth excessive volatility and prevent disorderly depreciation. RBI net purchases in FY2024-25 amounted to $28 billion according to RBI Annual Report data, representing net accumulation of reserves rather than defence against depreciation pressure, a signal that capital inflows exceeded outflows sufficiently to allow the RBI to build reserves while also moderating currency appreciation.

The rupee has depreciated approximately 14.5 per cent against the US dollar over five years, a cumulative decline that reflects the differential between India’s relatively higher domestic inflation and the dollar’s appreciation through the US Federal Reserve’s 2022 to 2024 tightening cycle. This depreciation is not a balance-of-payments stress signal. It is the expected arithmetic of a managed float in a period of divergent monetary policy between a large emerging economy and the dominant reserve currency issuer. India’s sovereign credit rating of Baa3 from Moody’s and BBB-minus from both S&P and Fitch, all with stable or positive outlooks, reflects a market assessment that India’s external position is stable. The oil import bill of $165 billion in FY2024-25, which constitutes the single largest structural drain on the current account, is the primary channel through which global oil price volatility transmits to Indian macroeconomic conditions. At 11.2 months of import cover, the reserves buffer is adequate to absorb substantial oil price shocks without triggering currency instability.

India’s external vulnerability metrics as of 2025 present a picture of genuine resilience relative to the country’s historical profile and relative to most peer emerging economies. Total external debt of $682 billion against reserves of $721.42 billion means that India’s reserves nominally exceed total external debt, an unusual position for a large emerging economy. Short-term external debt by residual maturity represents 19.4 per cent of total reserves, meaning India holds more than five times its near-term external obligations in liquid assets. The current account deficit of 1.1 per cent of GDP is structurally manageable, representing a modest and sustainable external financing requirement rather than the 4 to 5 per cent deficits that have historically preceded balance-of-payments crises in emerging economies.

The primary structural vulnerability in India’s external position is oil. At $165 billion per year, the oil import bill represents the largest single driver of current account variability. When global oil prices rise sharply, the import bill expands, the current account deficit widens, the rupee comes under depreciation pressure and the RBI must either use reserves to defend the currency or allow a larger depreciation that feeds through to domestic inflation. The reserves buffer of 11.2 months of import cover provides substantial insulation against this mechanism, but the underlying structural dependency on imported energy remains the most significant single source of external vulnerability. The energy transition articles earlier in the India 2.0 series documented India’s 500 gigawatt non-fossil capacity programme and the renewables build-out that is gradually reducing this dependency. Progress on energy self-sufficiency is, in macroeconomic terms, simultaneously progress on reserve adequacy: every percentage point reduction in oil import dependency reduces the structural drain on the current account and the scale of reserves required to buffer it.

The BRICS framework is frequently cited in discussions of de-dollarisation as the institutional vehicle through which an alternative reserve architecture might emerge. The economic weight is real: 36.7 per cent of global GDP at purchasing power parity, with expanded membership following the 2024 admissions bringing additional commodity-producing and trade-significant economies into the grouping. But economic weight alone does not create a reserve currency. The Kazan Declaration confirmed that the BRICS monetary initiative is focused on a unit of account for cross-border payments among members rather than a common currency. The distinction matters for reserve management purposes because a unit of account, which provides a pricing reference for bilateral transactions, is not a store of value or a liquidity instrument. Central banks cannot hold BRICS Pay units as reserve assets in the way they hold US Treasuries or gold.

The structural constraints on any near-term BRICS monetary alternative are multiple. Brazil, Russia, India, China and South Africa have deeply divergent inflation profiles, monetary policy frameworks, exchange rate regimes and capital account openness. A common monetary standard requires either convergence across these dimensions or an institutional mechanism robust enough to accommodate divergence, neither of which is achievable within the planning horizons of current BRICS coordination. The renminbi’s 2.1 per cent COFER share despite China’s economic scale demonstrates precisely the gap between economic weight and monetary credibility that a BRICS alternative would need to close. The practical near-term impact of the BRICS monetary initiative is more likely to be incremental, focusing on bilateral payment infrastructure that reduces transaction costs for intra-BRICS trade without displacing the dollar from its settlement role in third-party transactions.

India’s reserve strategy, read through the data rather than the narrative that surrounds it, is a case study in parallel risk management rather than ideological repositioning. The RBI has simultaneously increased gold holdings and increased US Treasury holdings. It has accumulated more reserves in absolute terms while also diversifying the composition of those reserves toward assets that carry no sovereign counterparty risk. It has engaged in non-dollar bilateral settlement with Russia where the operational logic is compelling, while maintaining and expanding its engagement with dollar-denominated financial markets for every other purpose. This is not inconsistency. It is a portfolio approach to a genuinely complex risk environment.

The macroeconomic architecture that reserves underwrite is substantial in scope. A $165 billion annual oil import bill requires a reserve buffer large enough to absorb oil price shocks that would otherwise destabilise the currency and feed inflation through to domestic prices. A $682 billion external debt stock requires reserves that can prevent a loss of confidence from becoming a self-fulfilling liquidity crisis. A capital account that is partially but not fully open requires a reserve cushion that allows monetary policy to be conducted with reference to domestic conditions rather than solely to the defence of a currency peg. The 11.2 months of import cover, the 19.4 per cent short-term debt ratio and the stable sovereign credit ratings from all three major agencies confirm that the current reserve level achieves these macroeconomic functions comfortably.

The question of whether India should hold more or less gold, more or fewer Treasuries or whether a BRICS monetary alternative will eventually materialise as a viable reserve asset class is ultimately a question about the future of the international monetary system, which is a question that no reserve manager can answer with confidence. What India’s reserve strategy reveals is a sophisticated institutional response to that uncertainty: build the buffer large enough to absorb the known risks, diversify the composition toward assets that hedge the tail risks that cannot be precisely quantified and maintain the liquidity depth required to perform the core functions of currency defence and shock absorption that reserves exist to provide. That is not hedging against the dollar. It is hedging within a dollar-centric system that remains structurally durable, while ensuring that the portion of the balance sheet that depends on sovereign counterparty goodwill is not the only protection against a world in which geopolitical goodwill cannot always be assumed.