Reserve managers should stop trying to forecast markets and focus instead on preserving confidence, protecting capital and keeping their options open, Asian Infrastructure Investment Bank (AIIB) Treasurer Domenico Nardelli told delegates at the Reserve Management Conference 2026 in Colombo yesterday.
Nardelli was special guest speaker at the inaugural session of the conference, themed ‘Building Buffers: Strategies for Reserve Management Amidst Heightened Uncertainties’ and organised by the Central Bank of Sri Lanka. The event runs from 10 to 12 September, 2026.
Speaking after Central Bank of Sri Lanka Governor Dr. Nandalal Weerasinghe, Nardelli said AIIB, though a treasury rather than a central bank, faces many of the same pressures reserve managers do. He structured his address around four themes: volatility, liquidity, the dollar’s role alongside gold, and artificial intelligence.
Volatility hidden beneath a calm surface
The VIX index, the standard gauge of US equity volatility, shows no structural rise once crisis periods such as the COVID-19 pandemic and the ‘Liberation Day’ tariff shock are excluded, Nardelli said. Fixed income tells a different story. The five-year US Treasury note yield sold off almost a full percentage point over six months, and the 30-year Treasury swung by several basis points within two days in mid-August, a move Nardelli illustrated with a chart drawn from a recent Financial Times report.
He added that investor concentration in technology and artificial intelligence stocks has produced sharp equity gains followed by sharp corrections, given how capital-intensive those sectors are. His conclusion: even the safe assets at the core of official portfolios are now more exposed to sudden swings.
Case for bigger, costlier buffers
Nardelli split liquidity into two ideas: how easily an asset trades at a tight price, and how large a buffer an institution should hold. Shorter-dated government Bonds remain more liquid than longer corporate debt, he said, and liquidity in government Bonds and equities remains reasonable overall, though it has thinned in longer tenors. He noted that the mid-August Treasury swings occurred while the US Treasury Secretary was himself arguing that market liquidity was poor.
AAA-rated multilateral development banks such as AIIB hold large liquidity buffers partly because rating agencies monitor them closely on cash-flow and market-shock resilience, Nardelli said. Central banks and corporate treasuries work to similar, looser parametres but tend to under-size their buffers, constrained by the financing cost of holding cash they may not need.
His view: the current climate calls for holding more liquidity than institutions have been used to, because a liquidity policy is always one shock away from being tested, and shocks now arrive fast. He cited accelerated outflows, cyber incidents and geopolitical conflict as recurring triggers.
To make the point, Nardelli described two Florentine banking houses that lent heavily to an English king in the 1300s to finance a war with France, expecting a short campaign and prompt repayment.
The war instead became known as the Hundred Years’ War, and when the king defaulted, both houses collapsed in quick succession, contributing to a prolonged downturn around Florence. He drew a direct line to the 2023 collapse of Silicon Valley Bank: in both cases, an unexpected event left the institution without enough cash to reassure clients.
No liquidity buffer would have stopped either collapse outright, Nardelli acknowledged, since neither a sovereign default nor a bank run can be fully insured against. But larger reserves make institutions stronger and buy time to act once a crisis hits.
He argued the cost of holding extra liquidity is better understood as insurance than as a drag on profits, and said his own AIIB portfolio runs more conservatively than internal or rating agency benchmarks require.
Dollar’s dominance intact, but diversification accelerating
Nardelli addressed growing commentary, including recent coverage in the Financial Times and The Economist, questioning whether US Treasuries still deserve their status as the world’s risk-free benchmark. He listed genuine concerns: the loss of the United States’ top AAA credit rating, rapid growth in US government debt alongside rising debt levels in Europe, higher debt-servicing costs from elevated rates, and the possibility that traditional large buyers of Treasuries may now repatriate holdings as their own rates rise.
Even so, he pushed back on talk of the dollar’s decline. The dollar remained the leading reserve currency, US Treasury markets remained among the deepest and most liquid in the world, and the global financial system stayed anchored in dollar liquidity. Its share of global official foreign exchange reserves stood at 57% in the first quarter of 2026, according to the IMF, out of roughly $ 13 trillion in total official reserves worldwide.
Investors are not abandoning dollar assets, Nardelli said, but pushing for more diversification by asset type and jurisdiction, driven by geopolitical conflict, tariff risk and climate exposure to specific locations. That diversification carries its own cost: tailoring products and systems to individual jurisdictions raises operational complexity and maintenance costs, a trade-off he said reserve managers need to weigh against diversification’s resilience and return benefits.
Cautious view on gold
Gold rallied sharply after the COVID-19 pandemic following a flat decade between 2010 and 2020, and has surged further over the past two years past $ 4,500 per ounce, Nardelli said. Its appeal is straightforward: no credit risk, reasonable liquidity, and protection against inflation, offsetting its traditional drawback of paying no interest. Geopolitical uncertainty is now reinforcing that appeal, he said, and he does not rule out fresh highs.
AIIB nonetheless holds no gold. Nardelli recalled a 2024 meeting with a Middle Eastern central bank invested in AIIB that held 50% of its own assets in gold, a proportion that struck him as high at the time but has since paid off on gold’s long-term chart.
Zooming into shorter-term price action changes the picture: gold fell almost 30% in the first half of 2026 and is only now recovering towards $ 5,000. For a treasury manager whose gains and losses feed straight into an institution’s bottom line, he said, that scale of swing is hard to sit comfortably with.
As an alternative, Nardelli pointed to bonds issued by multilateral development banks, mostly in US dollars, which offer credit diversification rather than currency diversification. Spreads on AIIB and other MDB dollar bonds against comparable Treasuries have tightened steadily over the past two to three years, alongside larger-than-usual order books across recent offerings, both signs of rising demand.
AI already saving hours, tokenisation raising new questions
Tokenisation of assets and blockchain-based payment systems will likely do more to diversify global investment than any shift out of the dollar into alternative currencies, Nardelli said, by making it cheaper and faster to move money across markets, easing access to leverage, and opening cross-border markets to more investors.
That progress leaves an open question for supervisors: how to regulate a market growing more fragmented, with platforms often incorporated in different jurisdictions from the investors who use them.
On artificial intelligence, Nardelli expects efficiency gains in portfolio management to match those seen elsewhere.
AIIB has built in-house language models trained on its treasury data, letting him ask detailed questions, such as the bank’s exposure to French banks within its roughly $ 30 billion portfolio, or the impact of shifting $ 1 billion into three-year Belgian and Norwegian government bonds, and get answers within seconds. The same query took his team several hours’ only months earlier.
He expects further gains from AI tools that turn research and market intelligence directly into investment decisions, arguing that reserve managers today face information overload and need better ways to filter critical signals from noise. Human judgement will remain irreplaceable, he said, but AI will increasingly assist in decision-making.
Nardelli closed with three points for the room: liquidity remains a central line of defence, diversification by asset type and jurisdiction will keep expanding, and technology will make reserve management steadily more efficient.