At 1:00 a.m., the night sky in Beijing is quiet and deep, suddenly cut by a transatlantic phone call from the U.S. Treasury Department. The call was not unusual, it came from the U.S. Treasury Secretary Yellen, and the content of the call, so that China’s action to reduce its holdings of U.S. debt for nine consecutive months instantly became the focus of global financial markets. Data show that for the whole of 2024, China reduced its holdings of U.S. debt by as much as $57.3 billion, dropping its position to $759 billion in one fell swoop, a figure that hit a new low since 2009. This is not just a change in a string of numbers, but a subtle adjustment in the global financial landscape. Behind this late-night phone call, is the dollar’s hegemony shaking the undercurrent in the surge, but also the United States and China in the financial field game of the thrilling turn. In Beijing’s Financial Street, a brightly lit night, the U.S. Treasury Department’s latest data is being repeatedly deduced and analyzed by financial experts. Japan, as the largest holder of U.S. debt, to 1,09 trillion U.S. dollars in the top position. However, it is worth noting that Japan is also quietly adjusting its U.S. debt holding strategy, part of the U.S. debt into gold reserves, in order to seek a more robust asset allocation.
At 1:00 a.m., the night sky in Beijing was quiet and deep, suddenly cut by a transatlantic phone call from the U.S. Treasury Department. This call is not unusual, it comes from the U.S. Treasury Secretary Yellen, and the content of the call, so that China’s action to reduce its holdings of U.S. debt for nine consecutive months instantly became the focus of global financial markets.
Data show that for the whole of 2024, China reduced its holdings of U.S. debt by as much as $57.3 billion, dropping its position to $759 billion in one fell swoop, a figure that hit a new low since 2009. This is not just a change in a string of numbers, but a subtle adjustment in the global financial landscape. Behind this late-night phone call, is the dollar’s hegemony shaking the undercurrent in the surge, but also the United States and China in the financial field of the game’s thrilling turn.
In Beijing’s Financial Street, a brightly lit night, the U.S. Treasury Department’s latest data is being repeatedly deduced and analyzed by financial experts. Japan, as the largest holder of U.S. debt, to 1,09 trillion U.S. dollars in the top position. However, it is worth noting that Japan is also quietly adjusting its U.S. debt holding strategy, part of the U.S. debt into gold reserves, in order to seek a more robust asset allocation.
Britain, on the other hand, was forced to sell $44.1 billion of U.S. debt because of the energy crisis. The impact of the energy crisis so that the British economy is under enormous pressure, selling U.S. debt has become a means of easing the pressure on its funds. China, on the other hand, is about 800 million U.S. dollars a month the rhythm of accurate reduction of U.S. debt, not only to maintain the stability of the market, but also for the diversification of foreign exchange reserves layout has laid a solid foundation.
This wave of reductions does not exist in isolation, it is accompanied by a sustained decline in the dollar index and a year-on-year increase in gold reserves. 2024, the dollar index has fallen by a cumulative 8 7 , while gold reserves have increased by 23 year-on-year. Global central banks are voting with their feet and reshaping the monetary landscape in real terms. Instead of relying solely on the US dollar as their reserve currency, they are seeking a more diversified and robust asset allocation.
The ticking numbers on the U.S. Treasury clock are breathtaking. Every minute, the U.S. national debt is increasing by $3.6 million, totaling $36.2 trillion. Behind this huge number is the debt snowball that former Federal Reserve Chairman Ben Bernanke once warned about. This snowball is getting bigger and bigger and is crushing the spine of the dollar credit system. If the United States is unable to effectively control the size of its debt, the hegemony of the dollar will be seriously challenged.
Yellen’s 92-minute emergency call exposed two major strategic anxieties on the U.S. side. The first is the U.S. debt liquidity crisis. China continues to reduce its holdings of U.S. debt, resulting in the 10-year U.S. bond yield exceeding 5 2 , which makes the U.S. federal government’s annual interest payments have exceeded the defense budget. This is undoubtedly a huge burden for the United States and a risk it cannot ignore.
The second is the anxiety of the reconstruction of the monetary system. The coverage of the RMB cross-border payment system, CIPS, has been expanded to 180 countries, and the volume of transactions in 2024 has surged by 42 . More importantly, the dollar’s share of global settlements has fallen below 50 for the first time. This means that the dollar is no longer the absolute dominant currency in global trade settlements and its position is being challenged.
In exchange, the U.S. side has made two key commitments to recognize the mutually beneficial nature of U.S.-China trade and economic cooperation and to establish a regular communication mechanism. However, this does not mean that the U.S. side will completely abandon its hegemonic thinking. Dramatically, the call transcript shows that within 48 hours of making the commitments, the U.S. side still pushed Canada Mexico to impose tariffs on Chinese electric vehicles. This tactic of smiling on the negotiation table and stabbing under the negotiation table undoubtedly reflects the deep contradictions of U.S. financial diplomacy.
China’s reduction is not a simple retaliation, but is based on threefold strategic considerations. The first is risk hedging. U.S. debt default risk indicator CDS spreads have widened to 200 basis points, a level far exceeding the level of the European debt crisis period. This means that the risk of holding U.S. debt is increasing, China reduced its holdings of U.S. debt is to reduce the risk of its foreign exchange reserves.
The second is currency autonomy. China’s gold reserves have increased for 18 consecutive months, which shows the importance China attaches to gold, a traditional safe-haven asset. Meanwhile, the daily trading volume of RMB crude oil futures has exceeded 1 million lots, which marks a solid step on the road to internationalization.
Lastly, there is the technology breakthrough. In the face of the U.S. science and technology blockade, China did not choose to retreat, but rose to the challenge. Semiconductor Industry Fund three fund-raising up to 500 billion yuan, pointing directly at the throat of the U.S. technology blockade. China knows that only by mastering the core technology can we be invincible in the future competition.
The U.S. side on the one hand asked China to maintain U.S. debt positions to stabilize its debt market, but on the other hand in the rare earth Chips and other areas continue to China’s neck. This kind of hegemonic thinking of both wanting and needing is experiencing a historic backlash. When China holds $759 billion in U.S. debt as a financial nuclear button, when Russia and Iran’s oil transactions are completely de-dollarized, and when Saudi Arabia begins to accept RMB settlement of LNG trade, we have to ask whether the hegemony of the U.S. dollar is repeating the decline of the pound sterling? Will the U.S. debt market become the trigger point for the next Lehman Brothers moment? What kind of multipolar pattern will the emerging monetary system present?
History is always strikingly similar but refuses to repeat itself. 1944 Bretton Woods established the hegemony of the US dollar, and now, 80 years later, a silent monetary revolution is quietly advancing at the trading terminals in Riyadh, Moscow, Shanghai. The final outcome of this war without smoke may not be decided on the electronic screens of Wall Street, but in the laboratories of Zhongguancun in Beijing, in the settlement centers of Qianhai in Shenzhen, and in the re-selection of monetary credits by hundreds of millions of people all over the world.
Leave a Reply