Analyzing the Structural Decline of China’s US Treasury Holdings
Western media institutions lack the conceptual framework necessary to grasp the unprecedented speed with which the global financial architecture is evolving in our time. They tend to treat the dollar’s preeminence as a natural law rather than as a circumstance brought about by historical forces, creating a cognitive blind spot that leads them to interpret what is in fact a structural transformation as a mere cyclical blip. However, the most recent Treasury Department figures powerfully refute this narrative, showing China’s holdings of U.S. Treasuries are down to $682.6 billion in November 2025, with the decline continuing without pause into early 2026. The figure represents a seventeen-year low, with a staggering 48 percent decrease from its peak of 1.32 trillion dollars in 2013. What we are witnessing is the intentional dismantling of the recycled dollar regime that defined the past four decades. For many years there had been an unspoken understanding that China would provide labor and material goods while the United States would provide digital accounting entries in the form of debt. Beijing has now clearly concluded that paper promises from a rival power represent as sound a long-term strategy as sawdust for building a house.
Applying a materialist lens, we can conclude that the contradictions within this relationship have reached their limit. China is no longer interested in exchanging tangible physical assets for the low-yield government bonds of a declining power, whose financial instruments the U.S. Treasury Department can freeze at will. China, instead, decided to convert those financial claims into hard assets across the Global South. Using its trade surplus to purchase lithium mines in Africa or ports in Southeast Asia extracts capital from the U.S. financial system and transforms it into tangible assets. Chinese bet is, simply, that in the coming decades real industrial muscle and control over raw materials will count far more than ownership of the debt of a nation whose financial trajectory is heading toward default. Holding real-world assets is far safer than being the principal financier for a rival that is actively seeking to contain your rise.
The international role of the yuan has now become tangible in the most concrete sense, with Zambia officially becoming the first African nation to accept the yuan as payment for mining taxes and royalties. It is a significant step that allows the copper-rich nation to settle its debts to China at a lower cost, bypassing the usual dollar intermediation of trade. Far from being just a modest bilateral convenience, the decision marks a structural shift because it decouples Zambia from the vicissitudes of exchange-rate fluctuations and Western banking hegemony. Abandoning the use of a reserve currency to finance its primary exports takes away one of the most powerful levers of political influence any country can exert over another. The transition also shows what it really means to be a reserve currency in practice rather than on paper. If you’re accepting Renminbi into your central bank, it’s because those units have purchasing power in tractors or loans from Beijing. Applying this principle to Zambia’s Chinese debt as a whole could save about a quarter of a billion dollars annually in avoided currency conversion fees.
In fact, China's central bank has already signed forty currency swap agreements with foreign counterparts, creating a massive liquidity pool that operates independently of SWIFT. Recent arrangements include a five-year, 200-billion-yuan swap line with the Bank of Canada extended in January 2026, and a 350-billion-yuan swap line with the European Central Bank extending through 2028. These agreements suggest that even G7 members believe it is wise to maintain these backstops for Renminbi liquidity. The swap lines permit nations to create liquidity in times of need without having to accumulate massive stockpiles of U.S. Treasuries, a structural shift that explains why the use of the Renminbi in trade is growing faster than most Western analysts expected. By late 2024, cross-border Renminbi settlement reached a record high, representing nearly 47 percent of total settlements. For a sanctioned nation, or one with high domestic interest rates, the use of the Renminbi has become a strategy for economic survival.
The most significant development of 2026 is the practical application of the Unit for commerce. Launched tentatively by BRICS+ in late 2025, the idea of the Unit is to provide a medium of exchange for large transactions in energy and hard goods. It is not a cryptocurrency, but rather a benchmark token backed by a basket of 40 percent gold bullion and 60 percent BRICS national currencies. Its daily valuation uses a weighted geometric mean that gives equal emphasis to the Yuan, the Rupee, the Real, the Ruble, and the Rand alongside the gold anchor. For major oil producers such as Saudi Arabia and the UAE, this represents a new option where they can price and sell oil without having to route their revenues through a U.S. bank. The Unit poses a massive structural problem for the U.S. economy since the principal global demand for U.S. dollars derives from the need to purchase energy. If the world’s largest oil producers begin accepting the Unit, the world demand for dollars diminishes proportionately. We can see this effect already in early 2026 markets with the U.S. dollar index having fallen nearly eight percent on assessments that its presumed global necessity is evaporating.
This external evaporation of demand leaves Washington with a serious internal problem. It has lost its most reliable customer, the one unmoved by price swings, at a time when Washington is borrowing more than it ever has before. The biggest customer has thrown in the towel, and the remaining private investors are going to want a much bigger premium to accept the same risk. It is a catastrophic bind for the Federal Reserve. They either have to let interest rates climb to whatever level is necessary to attract new private buyers, effectively crushing the domestic housing market and slowing growth to a crawl, or they have to step in and buy the debt themselves. If the Fed becomes the buyer of last resort, they are effectively printing money to fund the government’s daily operations. It is the very definition of fiscal dominance, and the precise scenario that triggers long-term currency devaluation. Without the petrodollar to sop up all the excess currency, the U.S. will find itself in a position where it has to actually compete for value rather than just printing its way out of debt.
We also have to consider the 'scissors effect,' the point at which the slow decline of the petrodollar intersects with a tidal wave of domestic fiscal pressure. For decades, there was a guaranteed global market for U.S. debt because every nation needed dollars to buy oil. Should that change with business being transacted through the Unit, then artificial demand for dollars would start drying up. The most immediately painful consequence for ordinary people will be import-driven inflation. December 2025 Producer Price Index (PPI) figures showed input costs for finished goods stayed flat, but the key driver of volatility was the wholesale trade sector for machinery and equipment, up 4.5%. It is the leading indicator for tariff and currency pass-throughs. You might save at the pump since the world is awash in oil, but you’ll be stung at the dealership, the electronics store, and the tailor. Those pressures on the domestic price level are compounded by the fact that the largest previous buyer of U.S. debt is not merely sitting on its hands but is also making active investments in the commodity traditionally serving as a hedge against failing paper currency systems.
Chinese data from 2026 show that gold has been accumulating for years. By February of that year, the People’s Bank of China had purchased the precious metal for fifteen consecutive months, and now holds more than 74 million troy ounces. The official valuation of these reserves approaches 370 billion dollars, but the significant figure is in the tonnage. Analysts now suggest that China’s actual gold reserves could be double the official figure, bringing these holdings close to parity with its remaining stockpile of U.S. Treasuries. China is quietly changing from a lender into a competitor for safe-haven assets. Throughout 2025, Chinese retail investors followed the lead of their central bank, driving the domestic gold market to record highs. J.P. Morgan’s forecast for 2026 is for another 755 tonnes of central bank gold purchases, keeping global demand exceptionally strong in the face of U.S. efforts to sell more debt to finance its deficit.
India and Brazil are following the Chinese example, busily exchanging their dollar reserves for hard gold. India’s total foreign exchange reserves have reached an all-time high of 723 billion dollars, due chiefly to the growth in gold holdings. Brazil has moved even more decisively, doubling the value of its gold reserves in only one fiscal year. In effect, these countries are diversifying into a substantial base of hard money, providing them with an alternative liquid asset if the dollar-based system becomes too unstable.
The U.S. economy in 2026 confronts a stagflationary trap. With a seven-percent budget deficit and the looming end of petrodollar recycling, the Fed is forced to maintain high interest rates. While Big Tech and AI infrastructure remain the bulwark of U.S. economic power, with staggering new investments in data centers growing at an annual rate of 33 percent, even these colossi are feeling the pinch. The hardware costs remain high because of the dollar's weakness against the manufacturing hubs. The United States has finally entered a new phase in which it must, like everyone else, balance its budget. Such a transition will necessarily be highly unstable, representing a danger to anyone who keeps more than a diversified minimum in U.S. dollar-denominated assets.
The idea that China must remain tethered to the dollar because of its trade surplus is a case of exceptionalism by omission. It fails to take account of the tectonic shifts under way in the global trading system. The world is moving from dollar dependency to functional liquidity, any means of payment that gets the job done. This is the key to understanding why China’s reserve position is at a seventeen-year low. It is not just old debt is being liquidated. A new system is being built in which the dollar is irrelevant for much of the world’s growth. The Unit and bilateral swap arrangements enable China to balance its trade surpluses and deficits without having to use dollars at all. If China sells more to Brazil than it buys, the difference can be left in a BRICS account collateralized by gold, or used directly for financing Brazilian infrastructure projects. Instead of the surplus being covered by the debt of a rival nation, it is turned hard assets and real value. The logic here is to control the means of production rather than the means of consumption.
In the end, the transition of trade outside of SWIFT and the emergence of gold-backed settlement instruments signal the end of the unipolar era. The U.S. is in the process of shedding its financial superpower status that subsidized the American way of life since 1945. As China and the BRICS bloc build their own settlement systems, the artificial demand for the dollar is evaporating. We are moving from a world in which America could export its inflation to one in which that inflation must be recycled at home. The transition to a multipolar world means the U.S. can no longer rely on the generosity of its geopolitical rivals to fund its lavish domestic lifestyle. We are witnessing a complete restructuring of the global financial architecture in real time, and the 2026 data shows that the rest of the world is no longer waiting for permission to decouple from the Western system.