the-market

China Reins in US Bond Exposure. Is USD Stable Next?

Donald ElefsonMarket AnalystMay 12, 2026

China has been reducing its holdings of US Treasury bonds. From a peak of $1.3 trillion in 2013, China's holdings have fallen to $750 billion as of early 2026. This reduction has accelerated in the past two years as US-China trade tensions have increased.

China's reduction of US Treasury holdings is a significant development. The US has relied on foreign central banks, led by China and Japan, to buy US Treasuries, helping to keep US interest rates low. As China sells Treasuries, it puts upward pressure on US interest rates, which is negative for US economic growth.

What is China doing with the proceeds? China has been diversifying into gold, which it has been buying aggressively. China's gold reserves have risen from 1,948 tonnes in 2019 to 2,280 tonnes as of early 2026. China has also been diversifying into other currencies, including the euro and the yen.

The big question is: what does this mean for the US dollar? The US dollar has been the world's reserve currency since the Bretton Woods agreement of 1944. The dollar's reserve currency status is underpinned by the fact that oil and other commodities are priced in dollars, and that foreign central banks hold dollars as their primary reserve asset.

China's reduction of US Treasury holdings is a signal that the dollar's reserve currency status is being challenged. If other central banks follow China's lead and reduce their dollar holdings, the dollar could weaken significantly. A weaker dollar would be inflationary for the US, as it would raise the cost of imports.

The implications for crypto are significant. If the dollar weakens, crypto assets priced in dollars will rise in dollar terms. More importantly, a weakening dollar would likely accelerate the adoption of crypto as an alternative store of value. Bitcoin, in particular, could benefit as it is seen as a hedge against dollar weakness.

For investors, the message is clear: diversify away from the US dollar. Tokenized bonds in emerging market currencies, like those offered by Etherfuse in Mexico, Brazil, and South Korea, offer an attractive way to diversify away from the dollar while earning attractive yields.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

Donald Elefson

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Donald Elefson

Market Analyst

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