The Pound's share of Global Foreign Exchange Reserves is at the highest since 2000

The Pound is now the third most held foreign currency (5.1%), after the dollar (57.74%) and euro (20.06%) according to the IMF. Here is the table:

source

Here it is in visual form:

source

More money ($61 billion) flowed into pound-based assets in Q1 2025 than into euro-based assets ($59 billion). Despite Rachel Reeves and her woes. Why?

Well if you are a central bank or sovereign fund that doesn't want to add to your dollar-based assets, you'll scour the world for another safe place to store your money. If you want to hold currency instead of gold or bitcoin, there are only five developed countries in the world who have never defaulted on their debt: Britain, Switzerland, Canada, Australia and New Zealand. Of these, the gilt market is the deepest and most liquid.

Though the euro is only 25 years old, they've already had a default in 2011, when private holders of Greek issued euro-denominated debt took a 53.5% cut of the face value (principal) of the bond, corresponding to an approximately €107 billion reduction in Greece’s debt stock. The same thing happened to Cypriot issued euro-denominated debt in 2013. This soured investors on the euro and the euro's share of global foreign exchange reserves has remained flat ever since.

The pound got pushed behind the yen in the 1980's, but investors look like they've finally given up on the yen. Not only have the Japanese not reduced their gargantuan debt, they now have inflation of 3%, so the yen is no longer a hedge against inflation.

In more excitable corners of twitter and youtube, you'll find people talking about the demise of Britain. Rachel Reeves has made a complete and utter horlicks of the public finances. But she's not going to go to the IMF, let alone default and refuse to pay back existing debt. She's going to raise taxes. A lot.

This is miserable for Brits, but from the point of view of investors it's great. It means gilts continue to be super safe, plus they offer highish yields. It's all relative - Britain is now the cleanest dirty shirt in the basket because as bad as things are, everywhere else is worse.