Ditching the Dollar for the Euro! Why the World’s Third-Largest Foreign Exchange Reserve Central Bank Chose to Reduce Holdings

　　According to statistics released by the Swiss National Bank (SNB) this week, as of the end of June 2025, Switzerland’s total foreign exchange reserves exceeded $1 trillion, with the US dollar accounting for 37%, down 2 percentage points from the first quarter, while the euro accounted for 39%, up 2 percentage points quarter-on-quarter.

　　As the world’s third-largest foreign exchange reserve central bank, any changes in its asset composition are closely watched by the market. As of the time of writing, the US dollar index has fallen 11% from its high this year and once hit a three-year low, largely due to expectations that US President Trump’s radical and disruptive trade policies will trigger diversification of central bank reserves.

　　Currently, Switzerland is grappling with a 39% tariff imposed by the US, the highest among all developed economies. Despite the economic uncertainty this has created, the Swiss National Bank remains reluctant to cut interest rates. This is partly because, with interest rates already at zero, further reductions could complicate the Swiss financial system’s environment. Martin pointed out that the threshold for moving interest rates into negative territory must be higher than the threshold for easing when rates are positive.

　　Notably, although interest rates have been cut to zero, this has not stopped the Swiss franc’s strong performance. As a key safe-haven asset, the franc has appreciated by over 12% against the US dollar this year, posing new challenges beyond tariffs for Swiss exports. However, Martin believes the Swiss economy can withstand the impact.

　　The European Central Bank’s money market report released in June this year also indicates that the US dollar’s dominance is under pressure. The report noted that in 2024 alone, the US dollar’s share of global foreign exchange reserves fell by 2 percentage points. While the euro’s share saw a slight increase, the Japanese yen and the Canadian dollar were the biggest winners. By the end of 2024, the US dollar still accounted for 46% of global foreign exchange reserves, but this represents a 10-percentage-point decline over the past decade.

　　This year, US fiscal credibility is being tested. In May, Moody’s announced a downgrade of the US sovereign credit rating, sparking panic in global markets. Analysis suggests that the Trump administration’s "Big and Beautiful" bill will increase the federal budget deficit by $2.42 trillion over the next decade.