A dramatic realignment is unfolding in the world of global finance, and U.S. government debt is at the epicenter. While headlines focus on China offloading its U.S. Treasury holdings at a record pace, a deeper look at the data reveals a more nuanced and complex power play, with key U.S. allies making a contrary, and very expensive, bet
China’s Great Sell-Off: A Strategic Retreat
Recent data from the U.S. Treasury’s International Capital (TIC) system paints a stark picture. China’s holdings of U.S. government debt have plummeted to approximately $731 billion, the lowest level recorded since 2008. This isn’t a sudden move but the acceleration of a long-term strategy. For over a decade, Beijing has been steadily reducing its exposure. For perspective, this is a dramatic drop from its peak of nearly $1.3 trillion in 2013.
This “de-dollarization” is a calculated effort to insulate China’s economy from U.S. monetary policy and geopolitical leverage. As proof of its push for alternatives, China has been a vocal proponent of expanding the BRICS bloc and has been conducting more trade in its own currency. According to SWIFT, the Chinese Yuan now accounts for over 5% of global payments, a significant rise from less than 2% just a few years ago, signaling a tangible, albeit slow, shift away from dollar dependence. China is also the world’s largest official buyer of gold, adding 185 tons to its reserves over the past year in a clear move to diversify away from the dollar.
The Contrarian Bet: Japan and the UK Double Down
While China sells, two of America’s staunchest allies are buying—aggressively.
Japan, the largest foreign creditor to the U.S., emphasized text has increased its holdings to over $1.1 trillion. For Japan, U.S. debt is a stable, high-yield investment compared to its own near-zero interest rate environment. The yield on a 10-year U.S. Treasury note, for instance, offers a significant premium over a Japanese Government Bond, making it an essential component of Japan’s massive foreign reserve strategy.
The United Kingdom has made an even more striking move, ramping up its investment to nearly $900 billion. This makes the UK the third-largest foreign holder of U.S. debt. This surge underscores the confidence of London’s financial markets in the stability and liquidity of U.S. assets, especially in a volatile global economy.
This divergence creates a fascinating dynamic: a geopolitical rival is divesting while key strategic partners are reinforcing their financial ties to the United States.
The Dollar’s Enduring Reign.
So, is the “almighty dollar” truly falling? The data suggests that reports of its demise are greatly exaggerated. Despite the
de-olarization narrative, the U.S. dollar’s dominance is numerically verifiable:
Global Reserves: According to the International Monetary Fund’s (IMF) latest COFER data, the U.S. dollar still comprises nearly 58% of all global central bank foreign exchange reserves. The Chinese yuan, by comparison, accounts for just under 3%.
International Trade: Over 80% of global trade finance is conducted in U.S. dollars.
Global Payments: The U.S. dollar is used in approximately 90% of all foreign exchange transactions worldwide.
The reality is that no other currency offers the same depth, liquidity, and perceived safety as the U.S. dollar and its associated debt market. The actions of China, Japan, and the UK are not merely financial transactions; they are calculated moves in a global economic chess game. While China’s retreat is significant, the enthusiastic buying from allies like Japan and the UK proves that for now, the U.S. dollar remains firmly on its throne. The challengers are growing, but the king’s reign is far from over.