Central banks may start favoring currencies from China, Japan and Australia as the dollar fall out of favor.
NEW YORK (CNNMoney)
While the dollar remains the world's main reserve currency, central banks in emerging markets have been diversifying their holdings amid growing uncertainty about the greenback's future, according to the World Gold Council's most recent report.
In fact, according to the International Monetary Fund, the U.S. dollar's share of total central bank reserves has decreased to 54% from 62% over the past 12 years.
Currently, central banks hold about 65% of their reserves in dollars and euros, the second-largest reserve currency, according to the WGC. The remaining 35% comprise a mix of assets, including the Japanese yen, British pound and gold.
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Japanese government bonds and gold are both "practical and sound solutions for central banks," said Ashish Bhatia, manager for government affairs at the World Gold Council. But he said there is no clear evidence that central banks have increased their exposure to Japanese assets, "whereas they have been buying gold."
That should come as little surprise.
Along with the dollar and the euro, gold is one of the traditional reserve assets that central banks hold, according to the WGC.
But the council said monetary policy makers should be looking at other alternatives, including those priced in Canadian, Australian and Chinese currencies.
Unlike the United States and most euro area economies, both Canada and Australia still have AAA credit ratings.
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The Chinese renminbi is another asset that central banks could add to their portfolios, said the WGC. Following years of robust growth, China supplanted Japan as the world's second largest economy in 2011.
"China's rise in the global economy has forced central banks to seriously consider renminbi denominated assets," said the council in its report.
However, the Chinese market remains difficult to access and there is "significant uncertainty" regarding Beijing's foreign exchange policies, noted the WGC.
In addition, the Canadian and Australian markets are comparatively small, said Bhatia.
The market for Australian assets, for example, is worth about $500 billion, he said. That compares with more than $2 trillion in assets held by central bank overall.
"The central banks could buy the entire market in a few days," said Bhatia. 
First Published: March 14, 2013: 10:02 AM ET
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