Yes, but if you happen to have a few million spare dollars laying around that have become unappetizing to you, it won't be hard to find someone who thinks they are appetizing :)
This is nonsense. The rest of the world holds 9.7 Trillion in Treasuries and this amount increased by $500 billion over the last year.
So the opposite of this article is true. You can get all the data from the Z.1 release.
Please don't take these types of flame bait articles seriously or try to spin up an entire world view based on them as you will end up not only directionally wrong, but believe in the exact opposite of reality.
FYI, that $500B increase in treasury holdings is not the whole picture, there are also the agencies (housing mortage backed securities guaranteed by the govt) and foreign holdings of those also increased by $70 billion over the last year, and are about 1.5 Trillion.
You are using the wrong metric. The supply of t-bills is increasing rapidly because of the massive deficit. That is sufficient to explain the increased number of holdings.
The correct metric is price. If there is decreased demand, it will show up in the yield. And it does.
> That is not explained by increased deficit, but by net increase in demand.
A yield going up means you pay more for the same thing. So if the US wants to issue more debt, they can. The fact that more debt was bought but the yield went to means the supply grew faster than the demand. So an absolute increase in demand, but a net decrease, thus a higher price as shown by the yield
That is not true. Yield is going up globally, so you need to adjust for the difference in yield.
For example, the US and Euro (average) yield have gone up by almost the same amount in that period, and other currencies like Japan and Australia have experienced an even larger increase.
I’m not sure why the level of discussion in this post is so poor.
To be fair, while accelerating isn't necessarily what you want per se, you must maintain airspeed in an aeroplane if it loses engines. The instinct is to preserve altitude since hitting the ground is the key thing you don't want to happen - but if you preserve that altitude at the cost of losing airspeed (and now that you don't have engines you can't keep both) you will experience aerodynamic stall and fall out of the sky anyway.
There are two best glide airspeeds for this scenario: lowest descent rate (typically not published) and greatest range. Simplistically, the published airspeed number will get you pretty close to the best lift/drag ratio for make/model. This should be a memory number.
As for the landing, perhaps the best advise I read was from Bob Hoover (aerobatics in a twin Aero Commander): If you’re faced with a forced landing, fly the thing as far into the crash as possible.
The key word: fly. You are not flying if you are stalling. And you only have positive control if you're flying. Or also: don't stop too abruptly.
It's not just about treasure bonds. The mood is shifting in Europe that, maybe, putting all the eggs in the USA basket is perhaps not that great of an idea.
It's the vindication of Gaullism half a century after De Gaulle's death, the concept of strategic autonomy is getting traction in the rest of Europe. It's not that we can't be friends, but that we shouldn't let our future be gambled in the hands of Wisconsin voters every two years.
> the concept of strategic autonomy is getting traction in the rest of Europe.
I think you may have missed the part where Sweden just joined NATO recently. As long as the EU countries are in NATO which is de facto under American leadership, then there will be no strategic autonomy.
Secondly, even if the mood is sour between the US and the EU currently, Germany, Poland and other small eastern states very much still like to have the US as backers if only just for the fact that there is no EU army.
If the EU countries were leaving NATO to form their own military alliance, then I would agree with you but that hasn't happened and maybe never will.
Countries aren't leaving NATO yet, but they are setting up and strengthening alternatives which will make such an option easier. For an example, Canada just joined SAFE.
> If the EU countries were leaving NATO to form their own military alliance, then I would agree with you but that hasn't happened and maybe never will.
The whole point is that, in general, global cooperation has worked well in the last 80 years. Europe doesn't want that to change but the US didn't vote for this guy once, but twice. Fool me once, shame on me, fool me twice, shame on you.
So Europe won't leave NATO, but it is pivoting to being more self sufficient. It's another area where the US is quickly spending the political capital it accumulated for decades.
Institutional investors are very slow to adapt, so I wouldn't take their continued investment as a positive signal. The sentiment shift is real, and a lot of goodwill has been spent.
It's basically divide and conquer on a national scale tearing down the democratic world police and the democratic systems it supported.
The point is that the entire article is wrong, factually.
In terms of institutional investors and sentiment, I think you are fundamentally not understanding why the rest of the world holds US debt, it is to support running trade surpluses. That is a core economic need of much of the world, and as long as there is that need, you will see foreign government accumulation of dollar denominated assets.
For some reason people either refuse to understand simple balance of payment accounting constraints or they are deeply offended by them, and want to live in a world in which moral outrage determines things like global capital flows.
But we do not live in that world. The reason why the rest of the world accumulated a trillion of dollar denominated assets last year, split roughly 50/50 between private and public, is solely because China needed to run a trillion dollar trade surplus. And next year it will also need to run an even bigger surplus. That forces everything else.
Yep. The flow has to balance out somehow. If the US buys more then it sells (all in, including services, which trump ignores for no clear reason) the sellers have to end up owning USD denominated assets.
There are an excess of dollars floating around internationally and only so many ‘risk free’ dollar-denominated assets. US Treasuries will continue to be purchased. There are plenty of buyers who are obligated to buy risk-free assets and US Treasuries are the vehicle of choice.
> America was in practice running an empire that collected tribute from the rest of planet earth in exchange for entries in a database denominated in a currency they controlled and that was accepted everywhere. Really the only way it could go wrong is putting it under the control of someone who doesn't understand the kayfabe...
The U.S. was growing at the same rate or faster as the UK from 1830 to 1930, when the UK had an empire and the U.S. didn’t. Then, in the second half of the 20th century when the U.S. had an empire and the UK didn’t, the growth rates were more or less the same in both places in the long run trend (ignoring the UK’s step change hit from WWII).
There are other backers to that as well. The main ones being oil trades being settled largely in USD and the need to acquire USD to pay for US goods/services. It's not all military might there's a lot of economic might in there too.
This is the important point. Oil was/is settled in dollars. The world is rapidly moving away from oil. China has already hit peak oil. China is 1/3rd of global manufacturing capacity. If you're leaving oil behind, and buying solar, batteries, and EVs from China, your need for dollars declines, and need for yuan goes up. Also, stocks vs flows. You have to keep buying oil every day from petrostates, while the clean tech you buy is yours for its entire service life (a decade or more for EVs, decades for solar and stationary battery storage).
The US did well when the Saudis required dollars for oil as part of the US-Saudi security and military arrangement, and that arrangement is declining in value over time as the value of oil to the global economy declines. The US loses investors in US treasuries when folks who sold oil for dollars do not have dollars from oil sales. Shades of theta decay.
> "The petrodollar loop requires two moving parts: dollars earned and dollars invested. Both have stopped."
> The standard reassurance is that there is no alternative to Treasuries — no other market offers the depth, liquidity and legal infrastructure that central banks require. This remains true. Foreign central banks will not abandon Treasuries wholesale. But “no realistic alternative” and “unquestioned safe haven” are not the same thing, and the Iran war is clarifying the difference.
> As the world’s largest manufacturer of clean technologies, data on China’s cleantech exports provide an important early insight into the pace and scale of the energy transition. In 2024, China produced around 80% of the world’s solar PV modules and battery cells, and 70% of electric vehicles.
(as of this comment, China is exporting EVs at a 12M unit/year annualized run rate, with the capacity to build 50M EVs/year; they are only constrained by not enough marine vessels to keep up with export demand; every 24 months of EV production destroys ~1M barrels/day of oil demand at current run rates, which continue to increase)
Oil being settled in dollars is completely unimportant.
It makes no difference in what currency a trade is conducted.
What matters is the jurisdiction in which you store the proceeds.
That selection of jurisdiction drives everything else.
I can declare that all oil must be settled in blue seashells. Who cares? What matters is that I do not keep my profits from selling oil as a pile of blue seashells, I invest those profits in some country. As long as that country remains the US, disproportionately, then oil can be marked in British pounds, seashells, hollywood B-list handjobs, it really makes no difference at all.
But, you object, "Doesn't oil being priced in dollars mean that nations need to have dollars to buy oil?". Nope, there are forex markets. So let's look at a situation in which oil is priced in Euros but Saudi Arabia stores its surpluses in dollars.
Which currency sees an increase in demand?
Japan goes to buy oil, so it sells the Yen and buys Euros. Those Euros are handed over to Saudi Arabia, which immediately sells them to buy dollars.
So the net result is that the euro transactions cancel out and all that matters is the selling of Yen and the buying of dollars. The yen falls against the dollar and the euro goes nowhere. It's a literal null op, in terms of net demand for the currency. It means nothing. The jurisdiction in which the proceeds are stored - that is everything.
Now I would ask you, in which jurisdictions do you think Saudi Arabia can efficiently store the ten billion or so it earns each day from selling oil? Nepal? Where does it store a couple trillion dollars worth of financial assets each year? Argentina? Which nation allows such vast unrestricted capital inflows and outflows? Go ahead, make a list.
So you see, whereas one can literally invent anything in which oil is priced in, to find a jurisdiction that can accept those capital inflows, that limits you to basically a single choice. Now, given that Saudi Arabia needs (not wants, but needs) to store its proceeds in dollars, it makes sense that it would price the oil in dollars to save on transaction fees. But really it can price the oil in anything it wants, no one cares except people caught in dank youtube caverns where the ominous phrase "petrodollar" is scrawled on the walls by torchlight.
No France still needs X USD to send to Saudi Arabia for Y barrels of oil. The only way the USD becomes funny money is if SA buys X from France also denominated in USD so that the cycle is closed, otherwise France needs a continuous source of USD to send over to SA. [0]
[0] Simplifying to national here; yes it's not just one unit in France and one in SA but on net there's X trade between the major money movers in each country.
I am asking you to imagine a situation in which oil is priced in currency A but the proceeds are stored in currency B in order to determine whether it is A or B that matters, or both.
In your example, A and B are the same (dollars) and you demonstrate that there is a need for the common currency of A and B, but you are unable to distinguish between the demand caused by A and the demand caused by B, so I don't think you are groking the example. Suppose A and B were different. Oil is priced in dollars but the proceeds are stored in yen. So
1. France sells euros to buy dollars
2. France gives the dollars to KSA for oil
3. KSA sells the exact same number of dollars for Yen.
So now we see that 1 and 3 cancel the net demand for dollars to zero, and what remains is a transaction in which euros were sold for Yen, so the Yen rises against the euro and nothing at all happens to the dollar. No demand for the dollar due to oil being priced in dollars. All that matters is the currency in which you store the proceeds.
By the way, this used to be an adage of currency traders - it doesn't matter what currency a thing is priced in, what matters is the currency where you store the proceeds of the sale. This was shorthand for "the seller determines which currency gains from a trade, and the buyer determines which currency loses". So France, in selling euros for dollars, determines that euros will lose value, but does not determine that dollars will increase. It is Saudi Arabia, the seller, in choosing where to store the proceeds that determines which currency, in this case, the yen, will increase.
Wouldn't the more relevant point of comparison be the difference between long-term government bonds. The exorbitant privilege is that it's easier to fund US government debt because trade in USD means that large institutions around the world need USD and store those dollars in the form of US treasuries, which in turn lead to lower bond rates and cheaper debt.
What we care about at the end of the day is bottom line economic growth, specifically GDP per capita growth. Whether government debt is more or less expensive is a collateral matter. It just means you need to make different choices in taxation versus borrowing—as long as the end result is the same how does it matter?
Cost of capital is a direct input to growth (from both investment and consumption). The more expensive it is to borrow, the lower future growth is, and the cost to borrow is increasing. This means taxation must go up if you want higher potential future growth through reduced cost of capital.
Bond yields go up (ie government debt)->consumer debt costs and cost of capital for business investment goes up (all consumer debt is priced off of "risk free" gov debt)->consumption slows->growth is reduced
You're not totally wrong but you do underestimate the power of an organized Europe with freedom of movement and commerce. I'm not saying you're getting this wrong but many people reading these comments take seriously that nominal US per capita GDP is an unequivocal signal that we've got it right. A lot of that signal goes away on the basis of a PPP comparison, and then even more goes away when you compare things like healthcare costs. And on top of all of that Europe can point to superior quality of life outcomes. If that GDP number doesn't translate into quality of life, what good is all of that money?
European, living within the EU, who loves the idea of the conmon market.
But it is badly implemented and in need of drastic improvements. Just see recent comments made by EU President Von der Leyen and head of the ECB Christine Lagarde on how the biggest obstacles to the EU isn't US tarrifs but internal tarrifs.
Counted up they effectively make goods twice as costly as they should be.
A true common goods and finance market in the EU would be a force to reckon with.
We’re seeing a return to multilateral regional hegemony. Russia, China, India, a new Persia, Israel and Turkey duking it out in Asia. The edges of those conflicts trying to bring war back to Europe. And America getting potentially balanced by China and Europe in the Americas, with the Pacific theatre figuring out its own balancing game plan.
The wild card being this will be the first time the world has entered this sort of unstable state since the invention of nuclear weapons. I expect to see a total failure of non-proliferation and the first nuclear civil war in my lifetime, if not the first nuclear war of territorial conquest. (I do not expect to see the first nuclear extermination.)
This seems right to me. Nuclear proliferation could very well end up being the most consequential legacy of this administration. Their malicious incompetence in this area has dimmed the outlook for humanity to a material degree.
The amount of countries with nukes is going to increase dramatically in the medium term. That will mean exponentially more opportunities for a nuclear conflict to break out. I think there is a very good chance we see a nuclear war in the next couple decades, and the odds are dramatically higher than they were pre-trump.
The only spot I sort of disagree is that I think it's an uncomfortably short hop from a moderately sized nuclear war to a global nuclear war, and I think the chances of the latter are uncomfortably high now as well.
> America getting potentially balanced by China and Europe in the Americas
I can't figure out a way to parse this sentence that makes sense. Are you saying that "Europe" will "balance" the USA in the Americas? As in, European influence will counteract US influence in the Americas?
Would assume it's in reference to things like the EU offering associate membership to Canada, or China's trade deals with Nicaragua, Costa Rica, Ecuador, Peru, etc.
> European influence will counteract US influence in the Americas?
Yes. If you’re Canada or Mexico or frankly anyone else in the Americas, you probably don’t want all your weapons systems to be dependant on American supply chains. And then if you think about it, you probably don’t want all your energy imports dependent on Washington’s noblesse. Et cetera.
American exceptionalism was built on the trust the world put in us getting so unilaterally powerful without being balanced.
On the bright side, if enough people agree with this, I could finally buy a house in my neighborhood for <$3M. Prices remain stubbornly high and no amount of "America sucks" on HN and reddit are convincing these (mostly foreign, wealthy) people to sell their houses :(
Dedollarizing the world economy has more net losers than the US (though that's the obvious one).
It's not without its benefits -- over the last couple decade, the US has found ways to weaponize access to USD, so if you're not a fan of having a country other than your own able to effectively regulate or sanction you and your business, there's some niceties here.
Being able to trade and invest in a stable, highly liquid, easily converted, low risk currency was a net win for most of the world for about half a century. There isn't an obvious replacement, so we'll just see more friction.
The problem with replacing the world reserve currency with something else is that nobody can agree on what that something else should be. Expect to see a lot of jockeying for power as people realize the U.S. isn't the world hegemon anymore. Jockeying, on a state level, usually means war.
> The problem with replacing the world reserve currency with something else is that nobody can agree on what that something else should be.
It isn’t a decision made by some sort of vote, or done overnight. It’s an emergent phenomenon. Sterling had already lost the role de facto by the time Bretton Woods blessed the role of the dollar de jure.
Whatever replaces the dollar will be messy because it won’t have the set of systems the dollar had at its peak (large, highly liquid markets; complete convertibility; bonds backed by huge government spending coupled with huge GDP).
There is really only one alternative and it’s not a great one. It’s not China, as the government is afraid of letting go of control (thus no complete convertibility) and markets lack credibility which impairs liquidity.
The only other opening is unfortunately the Euro. Large, liquid markets yes in aggregate but national markets (e.g. France, Germany) are not unified. They weren’t in the US when the dollar became the reserve currency either, but times have changed. The bond markets are likewise not unified, so risk is higher. But they do have complete liquidity, which is the most important of all after GDP size.
So there will be chipping away at the dollar for years.
Before the industrial revolution, there was almost no sustained economic growth and business was essentially a zero-sum game. Wars of conquest were high-risk business ventures that promised higher returns than actual business.
Then the industrial revolution happened. Economic growth made business more lucrative, while wars got deeper into the negative-sum territory. Leaders were slow to understand that, which is why the 19th and 20th centuries saw a series of increasingly destructive wars that left almost everyone worse off.
But there have been no wars between major powers in the last 80 years. Maybe people in power have realized that all-out wars are no longer productive. But there have been plenty of lesser wars: civil wars, proxy wars, and wars against much weaker states. As well as regional wars, where at least one of the parties is so dysfunctional that it does not benefit from positive-sum business.
> But there have been no wars between major powers in the last 80 years. Maybe people in power have realized that all-out wars are no longer productive.
People talked like that before WW I. There hasn't been a major war in Europe since 1870 almost half a century and trade is such a large war would bankrupt all the major powers and so would never happen. The Great Illusion was published in 1909 and was positively received at the time:
> In The Great Illusion, Angell's primary thesis was, in the words of historian James Joll, that "the economic cost of war was so great that no one could possibly hope to gain by starting a war the consequences of which would be so disastrous."[4][5] For that reason, a general European war was very unlikely to start, and if it did, it would not last long.[6] He argued that war was economically and socially irrational[7] and that war between industrial countries was futile because conquest did not pay.
There was a major war between Russian and Ottoman empires in 1877–1878. And if you look outside Europe, there was an even greater war between Russia and Japan in 1904–1905.
0.15% of world population was mobilized to fight in the Russo–Japanese war. That would correspond to ~12.5 million combatants today. Napoleon's invasion of Russia saw more casualties from combat, starvation, and disease, but it involved a smaller fraction of world population.
I assume you're going off the 1.365M + 1.2M combatant strength listed in the Wikipedia article?
Those are figures for the total size of those national armies at the time. It'd be like saying the Iran war involved 3M people because the U.S. has about 2.1M in uniform and Iran has just under 1M counting reservists. Meanwhile there've been precisely zero boots on the ground in Iran, and the total number of military personnel directly affected is on the order of tens of thousands.
The text of the article has the Russian far east strength at about 95,000 at the start of the war, with another 410,000 trained in over the course of the war. The best proxy for Japanese (and Russian) combat strength might be the Battle of Mukden [1], which had about 250K Japanese and 292K Russian troops. These numbers are smaller by a factor of about 5x.
The present-day Russo-Ukrainian war is significantly larger. Estimated Russian deaths are 500K+, higher than the total number of Russian soldiers involved in the Russo-Japanese war.
If you continue reading the article, it mentions that Russia had mobilized almost a million soldiers in the Far East by the end of the war, and that mobilization largely happened after the Battle of Mukden. Without the naval defeat at the Battle of Tsushima, Russia would have had the upper hand at that point, and the war would likely have reached a different conclusion.
Industrial armies were massive. By the standards of that era, current US military strength exceeds 60 million. But they mostly relied on reserves, which were slow to mobilize. Japan's quick decisive victories ended the Russo–Japanese war before it had a chance to escalate further, potentially reaching the scale of the Eastern Front in WW1. But even then, the Battle of Mukden was one of the largest land battles in history until that point
The biggest Thucydides Trap wars were WW1 and WW2, which happened specifically as Britain (the first major power to industrialize) lost its hegemony over industrialization and faced competition from Germany, Russia, Japan, the US, etc. Thirty years of some of the most brutal war the world has ever seen followed, which only ended with the U.S. re-establishing hegemony because it was the only one whose homeland hadn't been bombed into oblivion.
You're right that there have been no great-power wars in the last 80 years. That's about the timescale at which major hegemonic realignments occur: WW1/WW2 from 1914-1945 (England -> US), Napoleonic Wars from 1803-1815 (England -> France -> England), Nine Years War + Glorious Revolution + War of Spanish Succession from 1688-1715 (France -> England), European Wars of Religion from 1618-1648 which created the nation-state system.
But that just means that this is the first major hegemonic realignment after the development of nuclear weapons and drone swarms, which makes me fear for the survival of civilization a bit.
To some extent yes, but the Soviet Union and Warsaw Pact was never really as threatening as western propaganda made it seem. In basically all metrics that matter - population, GDP, military spending, technological advancement, etc. - the eastern bloc was a distant second to NATO. That makes its collapse far less disruptive to the world order than when the former hegemon falls.
But since the industrial revolution 80 years is something.
I hope it's a trend: but living in Europe right now, I do feel like our strongest ally are giving our enemies reason doubt the deterrence we've collectively built over the past 77 years.
We had to deploy armed troops to Greenland to deter an ally from invasion.
The deterrence to war we've spilled blood building for 77 years.
Economics is part of why we haven't had wars, collective deterrence probably had something to do with it too. Without NATO who is to say how many smaller nations Russia/USSR would have invaded for the fun of it.
I think that's becoming gold. That's why we're seeing the price action in it over the last few years. In a world with little trust, only gold is trusted. Even the Netherlands is repatriating a portion of their gold reserves from New York to London.
Hopefully not. We've lived that movie already with currencies tied to gold. It significantly slowed down past WW1 reconstruction, and is in general makes it very hard to adjust the money supply to enable economic recovery.
The ideal would be something like the International clearing currency proposed by Keynes durin Bretton Woods (he was overruled in favor of the dollar as reserve currency since America had all the power at the time).
The question might be less about what replaced the world reserve currency and more about how the global economy might function or not function without a world reserve currency
Only China has the GDP to replace USA. So while the answer isn't written in stone, it looks like it'll be China, or since China favors UN governance, maybe we'll move to an old discarded idea (because it didn't serve American interests) like an international currency system that Keynes favored.
You are confusing being the world's biggest net exporter with being the world's biggest net importer.
But they are the opposites of each other.
So it's fair to say that China is the exact opposite of what it would take issue a reserve currency.
Let China spend a few decades running net trade deficits, let it open its capital market so the CNY fully floats, and allow unfettered foreign capital inflows and outflows for a few decades.
Then we can have a discussion about how it can be a dominant reserve currency.
The US was a net exporter for most of the time it was a de jure and de facto reserve currency, up until the dollar was floated (i.e. end of gold convertibility). IOW, it was arguably the reserve currency status that drove the trade deficits, not the other way around. The effect was muted by the artificial constraint of gold convertibility, but the pressures from that restraint manifested in other problems, culminating in a currency crisis and Nixon's decision to end convertibility. That unleashed the deflationary pressures caused by reserved status, accelerating the shift to goods imports.
China probably has the fiscal firepower to replace Eurodollars, but while their financial system remains split between "internally used currency" and "currency for everyone else" and while external investment is treated with deep suspicion and harsh rules, it would be limited to liquidity and exchange purposes. Nobody wants to hold a currency like the yuan over an appreciable period of time. That might be enough; that confers a lot of power and influence to the currency issuer. But definitely different ground than US Treasuries cover.
Historically this is also where we'd insert something into the conversation about who gets to hold the moral high ground, but as you've noted, that's something the current US administration has abandoned entirely.
No, China's economy is not setup to be a reserve currency. To be a reserve currency other countries need to have a stockpile of it to trade with 3rd party countries.
The only way for other countries to have the RMB is either China has to start issues massive amounts of bonds (doubt they'll be okay with foreign government owning their debts) or they stop being an export driven economy (this is because all the money goes back to China, and RMB is unable to actually leave the country if you're in a trade deficit with China) . Neither of which seems likely.
It will not be China as it doesn't have a floating currency. That is one of the prerequisites for becoming a reserve currency, that and removing capital controls.
Finally there has to be a certain willingness from other countries to accept this new currency and I just don't see the EU countries conducting all their international trade in yuan anytime soon.
Finally replacing the USD is just one part. The second part is how to stop the next currency from being weaponized just like the USD is/was. Without the answer to that question, then switching to a new reserve currency is just replacing one problem with another.
A stable, simple cryptocurrency is ideal for this. Not only is it not controlled by any nation state, it's not controlled by anyone. It's just there, a tradable asset that has mathematically-defined rules for how many will ever be created. Also gets around the Triffin Dilemma by not being used as a national currency, or for general consumer purchases.
The international settlement use-case also gets around two of the traditional weaknesses of Bitcoin. The fact that it's deflationary is not concerning when used as a unit of international settlement, because national currencies can be made to be inflationary to spur consumer activity, and then just float relative to Bitcoin. And its low TPS limits also don't matter much when it's only used for general international settlement between large financial entities, rather than as a payment coin for ordinary consumer purchases.
Ideally we get some international cooperation and get an international clearing currency, and don't end up with the reserve currency being tied to a specific nation again.
The different blocs could already start experimenting with this: the Euro could be used for currency exchange within partner nations while bringing back national currencies, BRICS could setup their own currency for trade between themselves, etc.
These problems are not new, they were the same questions we had post WW2, and some good ideas from that era may have been squashed by the ruling power of the time (namely the US), but their merit remains.
I think you might have misread the graphs as they clearly support the title. There are two types
One type (e.g. chart 1 and 4) showing the holdings by governments and central banks, which are clearly falling. The other shows holdings by foreign entities, which is also explained to include many US offshore funds and foreign subsidiaries, so actually still US entities that are holding these treasuries. Here the picture is more amorphous with overall foreign treasury holdings rising in the past years with a dip basically for a number of countries since last year for most countries.
I read it as clearly governments reducing treasuries with investors in some markets still absorbing some.
The only real dumping has happened from Japan, which is fighting to defend the yen, and China, which is obviously repositioning though to a way lesser degree than a nation dumping an adversary’s bonds would.
The story is just another way of saying we’re issuing more debt. Central banks aren’t reducing exposure. They just didn’t increase them with our own finances, which makes sense, our finances don’t increase their reserve requirements.
Holdings by France, Taiwan, and India have also decreased year over year. Based on the charts, it could be the start of a reversal, but charts are charts and we’ll just have to see.
Brazil is on a long term downtrend although they may be bottoming out.
Norway just proposed reducing bond holdings in its sovereign fund.
It’s not as clear cut as you’re making it out to be. I think the headline may be overstated, but the article does a reasonable job of making the point.
> it could be the start of a reversal, but charts are charts and we’ll just have to see
This is the correct conclusion. Currently, there is no discernable signal. Given American politics, I'd be shocked if we didn't see folks trying to diversify central-bank holdings.
But as long as America runs a trade imbalance, we'll be dumping dollars abroad, and those dollars will work their ways into their countries' banking systems from which they'll work into their central banks, and unless their governments want to strengthen their currency (unlikely for an exporter), they're going to hold those dollars, and if you're holding dollars as an asset, holding the currency type versus the pays-a-yield type is just giving free money to Washington.
> Norway just proposed reducing bond holdings in its sovereign fund
That was explicitly a portfolio-weighting move. They're reducing buying of Treasuries in favour of higher-yielding agency bonds. Their total exposure to U.S. credit isn't being cut. It was just being re-weighted away from Treasuries at a time when they weren't yielding as much as they are now.
All true and good clarification. There is definitely a phase shift happening that is worth paying attention to, but it’s not yet a crisis, and it may not precipitate one.
I think the more interesting story is the long-term decline in the quality of virtually all sovereign debt. Many things are anchored to the assumption that high-quality sovereign debt is widely available.
This is a great point, it’s not like there’s a good alternative. The idea of “safe” money might be over for a time. It could explain why so many central banks have been moving to acquire bullion.
The article couldn't be less true. Treasuries are the deepest and most liquid market by far. Foreign CBs hold them so that they can liquidate them when it becomes hard to find dollars. Why else do foreign CBs want to constantly open up swap lines to us when they are hurting?
There seems to be a strong attempt to unseat the USA and the dollar right now. BRICS has tried to, China and Russia would love to and it looks like the EU may follow suit.
The question as always is what to replace it with, and hopefully not something worse.
The issue (real issue?) is that it’s unclear whether these governments reduced their holdings or switched them to these opaque structures (tether can be considered one). The idea is, it would be hard for the US to untangle true ownership. I wonder if UBO was getting undone blue or red because it’s a real threat for such a system but the US needs this “second” lifeline.
I was dismissive when I saw the title, but they have real statistics: foreign holdings are at 2012 levels while total treasuries outstanding are 3x larger.
Holdings have increased by $500 billion over the last year. Why cherry pick 2012? Because that was in the aftermath of QE from the great recession and foreign holdings of treasuries were enormous as they rotated out of US private debt and sought the safety of treasuries. Today it is risk on, relatively speaking.
These go up and down based on cash management needs and portfolio allocation choices between public and private debt, and so you can pick one year when cash management needs were high or appetite for riskier were low. And then count on people being dupes, LOL.
The trouble is the US never paid down the debt for those years, they just rolled it over and incurred new debt. If foreign holdings decrease further, it doesn't matter if it is simply for cash management reasons -- the US will be rolling over historic debt at historic interest rates.
By paying down the debt, you mean issuing less debt over time? The US government is not an uncle that pays off his debt so he can retire and move to Florida. An individual does that, but the household sector as a whole does not pay down debt, because for every uncle moving to Florida, there is an Aunt borrowing for a new house. So instead, we talk about things like sectoral debt ratios and do not use language like "when will people in Maine finally pay down debt, I'm sick of seeing people in Maine owing debt".
The government is a sector of the economy. You can argue that we are borrowing too much, and I would agree, but you are not gonna fix that until you address the foreign capital inflows. That means rolling back the investor rights agreements. As long as foreign nations can print money and use it to buy dollars in order to stimulate their exports, the US is going to have a problem with excessive debt loads. The flipside of that is that the US will not have a problem of foreign investors decreasing their holdings. It will increase every single year, in line with foreign export demands. If anyone tells you the opposite, just look for the error or the lie, because I guarantee you there is one. This article has both.
treasuries are the same as cash. All that means is there is still too much USD Money supply from QE and rates will continue to go higher to reduce the supply.
Yes, that's called Quantitative Easing after the Global Financial Crisis. The peak in the graph was 2008 after which the US issues a shit ton of debt which was bought by the Fed. China used to be the biggest holder of US Treasuries but now it's the Federal Reserve and Japan.
But the idea that you look at that graph as say it's "unappetizing" is dumb. Most foreign governments besides China have INCREASED their UST holdings. The only reason why the % is dropping is because of the massive amount bought by the Fed which messed up the %.
Basically the article linked above is dumb, and they either are stupid and don't understand what they're talking about or trying to cast a false narrative
China also has not gone down, they are merely shifting their ownership structures. China accumulated over a trillion in dollar denominated assets last year, but rumors are the big players have been Chinese regional banks. It's a byzantine mess of hidden ownership structures over there.
If true, this would change the narrative. But I wouldn’t base anything on rumors. China is also rapidly building its supply of bullion and is attempting to shift trade away from the USD, so it would make sense for it to be drawing down on USD reserves. (Not that it will ever eliminate those reserves completely.)
It doesn't matter whether it is Chinese regional banks, or SAFE, or any other instrument. Brad Setzer tries to do a heroic job decoding this stuff at his CFR blog (https://www.cfr.org/blogs/follow-the-money) but at the end of the day, all that matters is total foreign holdings of dollar denominated assets - that measures their exposure to the dollar.
Everything else is portfolio allocation choices between treasuries or agencies or BAA corporates or AAA corporates, there are so many different instruments to invest in, you can shift your holdings back and forth however you like, all while keeping your dollar exposure exactly the same. And you can set up a fund in the Caymans and hold your assets there. And China does all of that. So really it is all fungible once you are in the "foreign ownership" bucket.
Your point about dollar exposure is true, we just have limited insight into foreign private ownership, as the article points out. If nations are using these vehicles to conceal their dollar exposure (or for some other purpose that results in the same effect), then we will have trouble understanding the functioning of the global economy and the risks present in the system. That seems important.
Also, equities and treasuries are not equivalent. If foreign holdings are moving to equities over treasuries, the added risk will be a serious problem in a crisis. It could also be a sign that some nations are being “encouraged” to prop up equity markets, either by the US or large domestic holders of US equities, which is a rumor that I’ve come across.
(If they are just shifting from treasuries to other types of bonds, that’s less risky but still moreso than treasuries. And it may affect yields.)
Exactly. Same as when Bessent wanted to buy 6B in long bonds but only bought 5.XB, people said that it failed but anyone who understands knows that it's the opposite. The oversubscription rate is normally 3X or more but this time it was 2X which means that people would rather keep their long bonds, which shows confidence in them.
I've been hesitant to talk about this too much, because it's such a bad joke, but personally I'm waging a War On Acronyms (WOA). They really don't save much time or effort, but make communication much more opaque. They can be a way of in-group signaling, which just makes it harder for newcomers / outsiders to come up to speed. And so many collisions.
RoW is not opaque. It’s widely used especially in academia. Acronyms exists for a good reason. If you like everything spelled out please stop using apostrophes while you’re at it.
US everything has become unappetizing for everyone outside the US.
And many of us inside the US as well, tbf.
We're basically in some rendition of planet serenity, where 20% of the population absolutely is eating this shit up.
Yes, but if you happen to have a few million spare dollars laying around that have become unappetizing to you, it won't be hard to find someone who thinks they are appetizing :)
This is nonsense. The rest of the world holds 9.7 Trillion in Treasuries and this amount increased by $500 billion over the last year.
So the opposite of this article is true. You can get all the data from the Z.1 release.
Please don't take these types of flame bait articles seriously or try to spin up an entire world view based on them as you will end up not only directionally wrong, but believe in the exact opposite of reality.
FYI, that $500B increase in treasury holdings is not the whole picture, there are also the agencies (housing mortage backed securities guaranteed by the govt) and foreign holdings of those also increased by $70 billion over the last year, and are about 1.5 Trillion.
You are using the wrong metric. The supply of t-bills is increasing rapidly because of the massive deficit. That is sufficient to explain the increased number of holdings.
The correct metric is price. If there is decreased demand, it will show up in the yield. And it does.
Foreign holding of US treasuries has also increased last year. That is not explained by increased deficit, but by net increase in demand.
> That is not explained by increased deficit, but by net increase in demand.
A yield going up means you pay more for the same thing. So if the US wants to issue more debt, they can. The fact that more debt was bought but the yield went to means the supply grew faster than the demand. So an absolute increase in demand, but a net decrease, thus a higher price as shown by the yield
That is not true. Yield is going up globally, so you need to adjust for the difference in yield.
For example, the US and Euro (average) yield have gone up by almost the same amount in that period, and other currencies like Japan and Australia have experienced an even larger increase.
I’m not sure why the level of discussion in this post is so poor.
T-bills are offering higher yields, that helps with demand.
Sure, the engines may have died, but not only is the plane still airborne, it's even accelerating!
To be fair, while accelerating isn't necessarily what you want per se, you must maintain airspeed in an aeroplane if it loses engines. The instinct is to preserve altitude since hitting the ground is the key thing you don't want to happen - but if you preserve that altitude at the cost of losing airspeed (and now that you don't have engines you can't keep both) you will experience aerodynamic stall and fall out of the sky anyway.
There are two best glide airspeeds for this scenario: lowest descent rate (typically not published) and greatest range. Simplistically, the published airspeed number will get you pretty close to the best lift/drag ratio for make/model. This should be a memory number.
As for the landing, perhaps the best advise I read was from Bob Hoover (aerobatics in a twin Aero Commander): If you’re faced with a forced landing, fly the thing as far into the crash as possible.
The key word: fly. You are not flying if you are stalling. And you only have positive control if you're flying. Or also: don't stop too abruptly.
I could kiss you!
gravity... is working against me... dream of ways... to throw it all away...
https://www.youtube.com/watch?v=7VBex8zbDRs
View looks great from up here. Any peanuts?
It's not just about treasure bonds. The mood is shifting in Europe that, maybe, putting all the eggs in the USA basket is perhaps not that great of an idea.
It's the vindication of Gaullism half a century after De Gaulle's death, the concept of strategic autonomy is getting traction in the rest of Europe. It's not that we can't be friends, but that we shouldn't let our future be gambled in the hands of Wisconsin voters every two years.
> the concept of strategic autonomy is getting traction in the rest of Europe.
I think you may have missed the part where Sweden just joined NATO recently. As long as the EU countries are in NATO which is de facto under American leadership, then there will be no strategic autonomy.
Secondly, even if the mood is sour between the US and the EU currently, Germany, Poland and other small eastern states very much still like to have the US as backers if only just for the fact that there is no EU army.
If the EU countries were leaving NATO to form their own military alliance, then I would agree with you but that hasn't happened and maybe never will.
> but that hasn't happened and maybe never will.
Countries aren't leaving NATO yet, but they are setting up and strengthening alternatives which will make such an option easier. For an example, Canada just joined SAFE.
https://www.youtube.com/watch?v=EOdabtEUoyY
> If the EU countries were leaving NATO to form their own military alliance, then I would agree with you but that hasn't happened and maybe never will.
The whole point is that, in general, global cooperation has worked well in the last 80 years. Europe doesn't want that to change but the US didn't vote for this guy once, but twice. Fool me once, shame on me, fool me twice, shame on you.
So Europe won't leave NATO, but it is pivoting to being more self sufficient. It's another area where the US is quickly spending the political capital it accumulated for decades.
A US-led NATO may very well not survive two more years of Trump presidency.
Institutional investors are very slow to adapt, so I wouldn't take their continued investment as a positive signal. The sentiment shift is real, and a lot of goodwill has been spent.
It's basically divide and conquer on a national scale tearing down the democratic world police and the democratic systems it supported.
The point is that the entire article is wrong, factually.
In terms of institutional investors and sentiment, I think you are fundamentally not understanding why the rest of the world holds US debt, it is to support running trade surpluses. That is a core economic need of much of the world, and as long as there is that need, you will see foreign government accumulation of dollar denominated assets.
For some reason people either refuse to understand simple balance of payment accounting constraints or they are deeply offended by them, and want to live in a world in which moral outrage determines things like global capital flows.
But we do not live in that world. The reason why the rest of the world accumulated a trillion of dollar denominated assets last year, split roughly 50/50 between private and public, is solely because China needed to run a trillion dollar trade surplus. And next year it will also need to run an even bigger surplus. That forces everything else.
Yep. The flow has to balance out somehow. If the US buys more then it sells (all in, including services, which trump ignores for no clear reason) the sellers have to end up owning USD denominated assets.
There are an excess of dollars floating around internationally and only so many ‘risk free’ dollar-denominated assets. US Treasuries will continue to be purchased. There are plenty of buyers who are obligated to buy risk-free assets and US Treasuries are the vehicle of choice.
Exorbitant privilege is a gift that lasts only as long as the trust does.
https://en.wikipedia.org/wiki/Exorbitant_privilege
https://news.ycombinator.com/item?id=47635834 covers this succinctly:
> America was in practice running an empire that collected tribute from the rest of planet earth in exchange for entries in a database denominated in a currency they controlled and that was accepted everywhere. Really the only way it could go wrong is putting it under the control of someone who doesn't understand the kayfabe...
from
Gold overtakes U.S. Treasuries as the largest foreign reserve asset - https://news.ycombinator.com/item?id=47635056 - April 2026 (250 comments)
This argument fundamentally does not make sense. Look at a chart of U.S. GDP per capita growth: https://substackcdn.com/image/fetch/$s_!zSCw!,f_auto,q_auto:...
The U.S. was growing at the same rate or faster as the UK from 1830 to 1930, when the UK had an empire and the U.S. didn’t. Then, in the second half of the 20th century when the U.S. had an empire and the UK didn’t, the growth rates were more or less the same in both places in the long run trend (ignoring the UK’s step change hit from WWII).
The £ was backed by UK's (perceived) military might just as $ is by the States'.
The the war on Iran (and many years of war on terror) showed we have anything but
There are other backers to that as well. The main ones being oil trades being settled largely in USD and the need to acquire USD to pay for US goods/services. It's not all military might there's a lot of economic might in there too.
This is the important point. Oil was/is settled in dollars. The world is rapidly moving away from oil. China has already hit peak oil. China is 1/3rd of global manufacturing capacity. If you're leaving oil behind, and buying solar, batteries, and EVs from China, your need for dollars declines, and need for yuan goes up. Also, stocks vs flows. You have to keep buying oil every day from petrostates, while the clean tech you buy is yours for its entire service life (a decade or more for EVs, decades for solar and stationary battery storage).
The US did well when the Saudis required dollars for oil as part of the US-Saudi security and military arrangement, and that arrangement is declining in value over time as the value of oil to the global economy declines. The US loses investors in US treasuries when folks who sold oil for dollars do not have dollars from oil sales. Shades of theta decay.
China Adds Currencies to Central Clearing in Yuan's Global Push - https://news.ycombinator.com/item?id=49736124 - September 2026
The Iran War Just Broke the Petrodollar - https://www.bloomberg.com/opinion/articles/2026-04-06/the-pe... | https://archive.today/RyJA8 - April 6th, 2026
> "The petrodollar loop requires two moving parts: dollars earned and dollars invested. Both have stopped."
> The standard reassurance is that there is no alternative to Treasuries — no other market offers the depth, liquidity and legal infrastructure that central banks require. This remains true. Foreign central banks will not abandon Treasuries wholesale. But “no realistic alternative” and “unquestioned safe haven” are not the same thing, and the Iran war is clarifying the difference.
https://ember-energy.org/data/china-cleantech-exports-data-e...
> As the world’s largest manufacturer of clean technologies, data on China’s cleantech exports provide an important early insight into the pace and scale of the energy transition. In 2024, China produced around 80% of the world’s solar PV modules and battery cells, and 70% of electric vehicles.
(as of this comment, China is exporting EVs at a 12M unit/year annualized run rate, with the capacity to build 50M EVs/year; they are only constrained by not enough marine vessels to keep up with export demand; every 24 months of EV production destroys ~1M barrels/day of oil demand at current run rates, which continue to increase)
China growth straining global auto shipping capacity - https://news.ycombinator.com/item?id=49553327 - September 2026 (0 comments)
China's Manufacturing Advantage, Explained [video] - https://news.ycombinator.com/item?id=49451076 | https://www.youtube.com/watch?v=OgYKVpOsMJs - August 2026
(think in systems)
Oil being settled in dollars is completely unimportant.
It makes no difference in what currency a trade is conducted.
What matters is the jurisdiction in which you store the proceeds.
That selection of jurisdiction drives everything else.
I can declare that all oil must be settled in blue seashells. Who cares? What matters is that I do not keep my profits from selling oil as a pile of blue seashells, I invest those profits in some country. As long as that country remains the US, disproportionately, then oil can be marked in British pounds, seashells, hollywood B-list handjobs, it really makes no difference at all.
But, you object, "Doesn't oil being priced in dollars mean that nations need to have dollars to buy oil?". Nope, there are forex markets. So let's look at a situation in which oil is priced in Euros but Saudi Arabia stores its surpluses in dollars.
Which currency sees an increase in demand?
Japan goes to buy oil, so it sells the Yen and buys Euros. Those Euros are handed over to Saudi Arabia, which immediately sells them to buy dollars.
So the net result is that the euro transactions cancel out and all that matters is the selling of Yen and the buying of dollars. The yen falls against the dollar and the euro goes nowhere. It's a literal null op, in terms of net demand for the currency. It means nothing. The jurisdiction in which the proceeds are stored - that is everything.
Now I would ask you, in which jurisdictions do you think Saudi Arabia can efficiently store the ten billion or so it earns each day from selling oil? Nepal? Where does it store a couple trillion dollars worth of financial assets each year? Argentina? Which nation allows such vast unrestricted capital inflows and outflows? Go ahead, make a list.
So you see, whereas one can literally invent anything in which oil is priced in, to find a jurisdiction that can accept those capital inflows, that limits you to basically a single choice. Now, given that Saudi Arabia needs (not wants, but needs) to store its proceeds in dollars, it makes sense that it would price the oil in dollars to save on transaction fees. But really it can price the oil in anything it wants, no one cares except people caught in dank youtube caverns where the ominous phrase "petrodollar" is scrawled on the walls by torchlight.
No France still needs X USD to send to Saudi Arabia for Y barrels of oil. The only way the USD becomes funny money is if SA buys X from France also denominated in USD so that the cycle is closed, otherwise France needs a continuous source of USD to send over to SA. [0]
[0] Simplifying to national here; yes it's not just one unit in France and one in SA but on net there's X trade between the major money movers in each country.
I am asking you to imagine a situation in which oil is priced in currency A but the proceeds are stored in currency B in order to determine whether it is A or B that matters, or both.
In your example, A and B are the same (dollars) and you demonstrate that there is a need for the common currency of A and B, but you are unable to distinguish between the demand caused by A and the demand caused by B, so I don't think you are groking the example. Suppose A and B were different. Oil is priced in dollars but the proceeds are stored in yen. So
So now we see that 1 and 3 cancel the net demand for dollars to zero, and what remains is a transaction in which euros were sold for Yen, so the Yen rises against the euro and nothing at all happens to the dollar. No demand for the dollar due to oil being priced in dollars. All that matters is the currency in which you store the proceeds.By the way, this used to be an adage of currency traders - it doesn't matter what currency a thing is priced in, what matters is the currency where you store the proceeds of the sale. This was shorthand for "the seller determines which currency gains from a trade, and the buyer determines which currency loses". So France, in selling euros for dollars, determines that euros will lose value, but does not determine that dollars will increase. It is Saudi Arabia, the seller, in choosing where to store the proceeds that determines which currency, in this case, the yen, will increase.
But what does “backed” actually buy you in economic terms?
Wouldn't the more relevant point of comparison be the difference between long-term government bonds. The exorbitant privilege is that it's easier to fund US government debt because trade in USD means that large institutions around the world need USD and store those dollars in the form of US treasuries, which in turn lead to lower bond rates and cheaper debt.
What we care about at the end of the day is bottom line economic growth, specifically GDP per capita growth. Whether government debt is more or less expensive is a collateral matter. It just means you need to make different choices in taxation versus borrowing—as long as the end result is the same how does it matter?
Cost of capital is a direct input to growth (from both investment and consumption). The more expensive it is to borrow, the lower future growth is, and the cost to borrow is increasing. This means taxation must go up if you want higher potential future growth through reduced cost of capital.
Bond yields go up (ie government debt)->consumer debt costs and cost of capital for business investment goes up (all consumer debt is priced off of "risk free" gov debt)->consumption slows->growth is reduced
Imagine, even Apple is moving itself to the shitlist.
There must always be a hegemon. Will it be Europe? No, too weak and divided..will it be China? No, too authoritarian..
The US remains the best option among a mixed field of weak, corrupt, divided and authoritarian alternatives.
You're not totally wrong but you do underestimate the power of an organized Europe with freedom of movement and commerce. I'm not saying you're getting this wrong but many people reading these comments take seriously that nominal US per capita GDP is an unequivocal signal that we've got it right. A lot of that signal goes away on the basis of a PPP comparison, and then even more goes away when you compare things like healthcare costs. And on top of all of that Europe can point to superior quality of life outcomes. If that GDP number doesn't translate into quality of life, what good is all of that money?
European, living within the EU, who loves the idea of the conmon market.
But it is badly implemented and in need of drastic improvements. Just see recent comments made by EU President Von der Leyen and head of the ECB Christine Lagarde on how the biggest obstacles to the EU isn't US tarrifs but internal tarrifs.
Counted up they effectively make goods twice as costly as they should be.
A true common goods and finance market in the EU would be a force to reckon with.
We’re seeing a return to multilateral regional hegemony. Russia, China, India, a new Persia, Israel and Turkey duking it out in Asia. The edges of those conflicts trying to bring war back to Europe. And America getting potentially balanced by China and Europe in the Americas, with the Pacific theatre figuring out its own balancing game plan.
The wild card being this will be the first time the world has entered this sort of unstable state since the invention of nuclear weapons. I expect to see a total failure of non-proliferation and the first nuclear civil war in my lifetime, if not the first nuclear war of territorial conquest. (I do not expect to see the first nuclear extermination.)
This seems right to me. Nuclear proliferation could very well end up being the most consequential legacy of this administration. Their malicious incompetence in this area has dimmed the outlook for humanity to a material degree.
The amount of countries with nukes is going to increase dramatically in the medium term. That will mean exponentially more opportunities for a nuclear conflict to break out. I think there is a very good chance we see a nuclear war in the next couple decades, and the odds are dramatically higher than they were pre-trump.
The only spot I sort of disagree is that I think it's an uncomfortably short hop from a moderately sized nuclear war to a global nuclear war, and I think the chances of the latter are uncomfortably high now as well.
> America getting potentially balanced by China and Europe in the Americas
I can't figure out a way to parse this sentence that makes sense. Are you saying that "Europe" will "balance" the USA in the Americas? As in, European influence will counteract US influence in the Americas?
Would assume it's in reference to things like the EU offering associate membership to Canada, or China's trade deals with Nicaragua, Costa Rica, Ecuador, Peru, etc.
> European influence will counteract US influence in the Americas?
Yes. If you’re Canada or Mexico or frankly anyone else in the Americas, you probably don’t want all your weapons systems to be dependant on American supply chains. And then if you think about it, you probably don’t want all your energy imports dependent on Washington’s noblesse. Et cetera.
American exceptionalism was built on the trust the world put in us getting so unilaterally powerful without being balanced.
> […] of weak, corrupt, divided and authoritarian alternatives.
Is the US included in the set of alternatives/possibilities with these attributes?
On the bright side, if enough people agree with this, I could finally buy a house in my neighborhood for <$3M. Prices remain stubbornly high and no amount of "America sucks" on HN and reddit are convincing these (mostly foreign, wealthy) people to sell their houses :(
Dedollarizing the world economy has more net losers than the US (though that's the obvious one).
It's not without its benefits -- over the last couple decade, the US has found ways to weaponize access to USD, so if you're not a fan of having a country other than your own able to effectively regulate or sanction you and your business, there's some niceties here.
Being able to trade and invest in a stable, highly liquid, easily converted, low risk currency was a net win for most of the world for about half a century. There isn't an obvious replacement, so we'll just see more friction.
It's kind of a prelude to a Thucydides Trap.
The problem with replacing the world reserve currency with something else is that nobody can agree on what that something else should be. Expect to see a lot of jockeying for power as people realize the U.S. isn't the world hegemon anymore. Jockeying, on a state level, usually means war.
> The problem with replacing the world reserve currency with something else is that nobody can agree on what that something else should be.
It isn’t a decision made by some sort of vote, or done overnight. It’s an emergent phenomenon. Sterling had already lost the role de facto by the time Bretton Woods blessed the role of the dollar de jure.
Whatever replaces the dollar will be messy because it won’t have the set of systems the dollar had at its peak (large, highly liquid markets; complete convertibility; bonds backed by huge government spending coupled with huge GDP).
There is really only one alternative and it’s not a great one. It’s not China, as the government is afraid of letting go of control (thus no complete convertibility) and markets lack credibility which impairs liquidity.
The only other opening is unfortunately the Euro. Large, liquid markets yes in aggregate but national markets (e.g. France, Germany) are not unified. They weren’t in the US when the dollar became the reserve currency either, but times have changed. The bond markets are likewise not unified, so risk is higher. But they do have complete liquidity, which is the most important of all after GDP size.
So there will be chipping away at the dollar for years.
That "usually" was in a different world.
Before the industrial revolution, there was almost no sustained economic growth and business was essentially a zero-sum game. Wars of conquest were high-risk business ventures that promised higher returns than actual business.
Then the industrial revolution happened. Economic growth made business more lucrative, while wars got deeper into the negative-sum territory. Leaders were slow to understand that, which is why the 19th and 20th centuries saw a series of increasingly destructive wars that left almost everyone worse off.
But there have been no wars between major powers in the last 80 years. Maybe people in power have realized that all-out wars are no longer productive. But there have been plenty of lesser wars: civil wars, proxy wars, and wars against much weaker states. As well as regional wars, where at least one of the parties is so dysfunctional that it does not benefit from positive-sum business.
> But there have been no wars between major powers in the last 80 years. Maybe people in power have realized that all-out wars are no longer productive.
People talked like that before WW I. There hasn't been a major war in Europe since 1870 almost half a century and trade is such a large war would bankrupt all the major powers and so would never happen. The Great Illusion was published in 1909 and was positively received at the time:
> In The Great Illusion, Angell's primary thesis was, in the words of historian James Joll, that "the economic cost of war was so great that no one could possibly hope to gain by starting a war the consequences of which would be so disastrous."[4][5] For that reason, a general European war was very unlikely to start, and if it did, it would not last long.[6] He argued that war was economically and socially irrational[7] and that war between industrial countries was futile because conquest did not pay.
There was a major war between Russian and Ottoman empires in 1877–1878. And if you look outside Europe, there was an even greater war between Russia and Japan in 1904–1905.
These were small wars: https://en.wikipedia.org/wiki/Russo-Japanese_War
Smaller than the one in Ukraine today.
0.15% of world population was mobilized to fight in the Russo–Japanese war. That would correspond to ~12.5 million combatants today. Napoleon's invasion of Russia saw more casualties from combat, starvation, and disease, but it involved a smaller fraction of world population.
I assume you're going off the 1.365M + 1.2M combatant strength listed in the Wikipedia article?
Those are figures for the total size of those national armies at the time. It'd be like saying the Iran war involved 3M people because the U.S. has about 2.1M in uniform and Iran has just under 1M counting reservists. Meanwhile there've been precisely zero boots on the ground in Iran, and the total number of military personnel directly affected is on the order of tens of thousands.
The text of the article has the Russian far east strength at about 95,000 at the start of the war, with another 410,000 trained in over the course of the war. The best proxy for Japanese (and Russian) combat strength might be the Battle of Mukden [1], which had about 250K Japanese and 292K Russian troops. These numbers are smaller by a factor of about 5x.
The present-day Russo-Ukrainian war is significantly larger. Estimated Russian deaths are 500K+, higher than the total number of Russian soldiers involved in the Russo-Japanese war.
[1] https://en.wikipedia.org/wiki/Battle_of_Mukden
If you continue reading the article, it mentions that Russia had mobilized almost a million soldiers in the Far East by the end of the war, and that mobilization largely happened after the Battle of Mukden. Without the naval defeat at the Battle of Tsushima, Russia would have had the upper hand at that point, and the war would likely have reached a different conclusion.
Industrial armies were massive. By the standards of that era, current US military strength exceeds 60 million. But they mostly relied on reserves, which were slow to mobilize. Japan's quick decisive victories ended the Russo–Japanese war before it had a chance to escalate further, potentially reaching the scale of the Eastern Front in WW1. But even then, the Battle of Mukden was one of the largest land battles in history until that point
The biggest Thucydides Trap wars were WW1 and WW2, which happened specifically as Britain (the first major power to industrialize) lost its hegemony over industrialization and faced competition from Germany, Russia, Japan, the US, etc. Thirty years of some of the most brutal war the world has ever seen followed, which only ended with the U.S. re-establishing hegemony because it was the only one whose homeland hadn't been bombed into oblivion.
You're right that there have been no great-power wars in the last 80 years. That's about the timescale at which major hegemonic realignments occur: WW1/WW2 from 1914-1945 (England -> US), Napoleonic Wars from 1803-1815 (England -> France -> England), Nine Years War + Glorious Revolution + War of Spanish Succession from 1688-1715 (France -> England), European Wars of Religion from 1618-1648 which created the nation-state system.
But that just means that this is the first major hegemonic realignment after the development of nuclear weapons and drone swarms, which makes me fear for the survival of civilization a bit.
Fall of the Soviet union was also a major hegemonic realignment.
I don't know I have some hopes that maybe it'll play out more with economic tools.
Oh, and I don't think western alliances and trade relationships necessarily need to collapse. But Trump certainly tries :(
To some extent yes, but the Soviet Union and Warsaw Pact was never really as threatening as western propaganda made it seem. In basically all metrics that matter - population, GDP, military spending, technological advancement, etc. - the eastern bloc was a distant second to NATO. That makes its collapse far less disruptive to the world order than when the former hegemon falls.
In history 80 years is nothing.
But since the industrial revolution 80 years is something.
I hope it's a trend: but living in Europe right now, I do feel like our strongest ally are giving our enemies reason doubt the deterrence we've collectively built over the past 77 years.
We had to deploy armed troops to Greenland to deter an ally from invasion.
The deterrence to war we've spilled blood building for 77 years.
Economics is part of why we haven't had wars, collective deterrence probably had something to do with it too. Without NATO who is to say how many smaller nations Russia/USSR would have invaded for the fun of it.
I think that's becoming gold. That's why we're seeing the price action in it over the last few years. In a world with little trust, only gold is trusted. Even the Netherlands is repatriating a portion of their gold reserves from New York to London.
Hopefully not. We've lived that movie already with currencies tied to gold. It significantly slowed down past WW1 reconstruction, and is in general makes it very hard to adjust the money supply to enable economic recovery.
The ideal would be something like the International clearing currency proposed by Keynes durin Bretton Woods (he was overruled in favor of the dollar as reserve currency since America had all the power at the time).
Here's an Op Ed from Greece's past finance minister in favor of this scheme: https://www.weforum.org/stories/economic-growth/yanis-varouf...
The question might be less about what replaced the world reserve currency and more about how the global economy might function or not function without a world reserve currency
Only China has the GDP to replace USA. So while the answer isn't written in stone, it looks like it'll be China, or since China favors UN governance, maybe we'll move to an old discarded idea (because it didn't serve American interests) like an international currency system that Keynes favored.
https://en.wikipedia.org/wiki/Bancor
Recall that America is currently attacking Iran without provocation and is aiding a genocide.
You are confusing being the world's biggest net exporter with being the world's biggest net importer.
But they are the opposites of each other.
So it's fair to say that China is the exact opposite of what it would take issue a reserve currency.
Let China spend a few decades running net trade deficits, let it open its capital market so the CNY fully floats, and allow unfettered foreign capital inflows and outflows for a few decades.
Then we can have a discussion about how it can be a dominant reserve currency.
The US was a net exporter for most of the time it was a de jure and de facto reserve currency, up until the dollar was floated (i.e. end of gold convertibility). IOW, it was arguably the reserve currency status that drove the trade deficits, not the other way around. The effect was muted by the artificial constraint of gold convertibility, but the pressures from that restraint manifested in other problems, culminating in a currency crisis and Nixon's decision to end convertibility. That unleashed the deflationary pressures caused by reserved status, accelerating the shift to goods imports.
China probably has the fiscal firepower to replace Eurodollars, but while their financial system remains split between "internally used currency" and "currency for everyone else" and while external investment is treated with deep suspicion and harsh rules, it would be limited to liquidity and exchange purposes. Nobody wants to hold a currency like the yuan over an appreciable period of time. That might be enough; that confers a lot of power and influence to the currency issuer. But definitely different ground than US Treasuries cover.
Historically this is also where we'd insert something into the conversation about who gets to hold the moral high ground, but as you've noted, that's something the current US administration has abandoned entirely.
China is actively broadcasting its plans to start the next Russia/Ukraine conflict. There is no moral high ground there.
No, China's economy is not setup to be a reserve currency. To be a reserve currency other countries need to have a stockpile of it to trade with 3rd party countries.
The only way for other countries to have the RMB is either China has to start issues massive amounts of bonds (doubt they'll be okay with foreign government owning their debts) or they stop being an export driven economy (this is because all the money goes back to China, and RMB is unable to actually leave the country if you're in a trade deficit with China) . Neither of which seems likely.
It will not be China as it doesn't have a floating currency. That is one of the prerequisites for becoming a reserve currency, that and removing capital controls.
Finally there has to be a certain willingness from other countries to accept this new currency and I just don't see the EU countries conducting all their international trade in yuan anytime soon.
Finally replacing the USD is just one part. The second part is how to stop the next currency from being weaponized just like the USD is/was. Without the answer to that question, then switching to a new reserve currency is just replacing one problem with another.
Bitcoin as the new Bancor.
A stable, simple cryptocurrency is ideal for this. Not only is it not controlled by any nation state, it's not controlled by anyone. It's just there, a tradable asset that has mathematically-defined rules for how many will ever be created. Also gets around the Triffin Dilemma by not being used as a national currency, or for general consumer purchases.
The international settlement use-case also gets around two of the traditional weaknesses of Bitcoin. The fact that it's deflationary is not concerning when used as a unit of international settlement, because national currencies can be made to be inflationary to spur consumer activity, and then just float relative to Bitcoin. And its low TPS limits also don't matter much when it's only used for general international settlement between large financial entities, rather than as a payment coin for ordinary consumer purchases.
Bitcoin is used for two things - speculation and crime. It is highlynvolatile Not a good reserve currency.
Ideally we get some international cooperation and get an international clearing currency, and don't end up with the reserve currency being tied to a specific nation again.
The different blocs could already start experimenting with this: the Euro could be used for currency exchange within partner nations while bringing back national currencies, BRICS could setup their own currency for trade between themselves, etc.
These problems are not new, they were the same questions we had post WW2, and some good ideas from that era may have been squashed by the ruling power of the time (namely the US), but their merit remains.
http://www.sofer.com/blog/keynes-on-the-balance-of-trade.htm...
https://www.weforum.org/stories/economic-growth/yanis-varouf...
Nothing this article claims or shows de-dollarisation other than the editorialized headline.
Dedollarizing the world is enormously harmful for almost every country on the short term. That's why nobody really tried before Trump got back.
Looking at the graphs in the article, I don't think the overall picture supports the headline...
I think you might have misread the graphs as they clearly support the title. There are two types
One type (e.g. chart 1 and 4) showing the holdings by governments and central banks, which are clearly falling. The other shows holdings by foreign entities, which is also explained to include many US offshore funds and foreign subsidiaries, so actually still US entities that are holding these treasuries. Here the picture is more amorphous with overall foreign treasury holdings rising in the past years with a dip basically for a number of countries since last year for most countries.
I read it as clearly governments reducing treasuries with investors in some markets still absorbing some.
Yeah. The headline is utterly divorced from the reality of the charts?
How so? Foreign official holdings are flat since 2012.
The headline specifically refers to central bank and government holdings.
The only real dumping has happened from Japan, which is fighting to defend the yen, and China, which is obviously repositioning though to a way lesser degree than a nation dumping an adversary’s bonds would.
The story is just another way of saying we’re issuing more debt. Central banks aren’t reducing exposure. They just didn’t increase them with our own finances, which makes sense, our finances don’t increase their reserve requirements.
Holdings by France, Taiwan, and India have also decreased year over year. Based on the charts, it could be the start of a reversal, but charts are charts and we’ll just have to see.
Brazil is on a long term downtrend although they may be bottoming out.
Norway just proposed reducing bond holdings in its sovereign fund.
It’s not as clear cut as you’re making it out to be. I think the headline may be overstated, but the article does a reasonable job of making the point.
> it could be the start of a reversal, but charts are charts and we’ll just have to see
This is the correct conclusion. Currently, there is no discernable signal. Given American politics, I'd be shocked if we didn't see folks trying to diversify central-bank holdings.
But as long as America runs a trade imbalance, we'll be dumping dollars abroad, and those dollars will work their ways into their countries' banking systems from which they'll work into their central banks, and unless their governments want to strengthen their currency (unlikely for an exporter), they're going to hold those dollars, and if you're holding dollars as an asset, holding the currency type versus the pays-a-yield type is just giving free money to Washington.
> Norway just proposed reducing bond holdings in its sovereign fund
That was explicitly a portfolio-weighting move. They're reducing buying of Treasuries in favour of higher-yielding agency bonds. Their total exposure to U.S. credit isn't being cut. It was just being re-weighted away from Treasuries at a time when they weren't yielding as much as they are now.
All true and good clarification. There is definitely a phase shift happening that is worth paying attention to, but it’s not yet a crisis, and it may not precipitate one.
I think the more interesting story is the long-term decline in the quality of virtually all sovereign debt. Many things are anchored to the assumption that high-quality sovereign debt is widely available.
This is a great point, it’s not like there’s a good alternative. The idea of “safe” money might be over for a time. It could explain why so many central banks have been moving to acquire bullion.
The article couldn't be less true. Treasuries are the deepest and most liquid market by far. Foreign CBs hold them so that they can liquidate them when it becomes hard to find dollars. Why else do foreign CBs want to constantly open up swap lines to us when they are hurting?
There seems to be a strong attempt to unseat the USA and the dollar right now. BRICS has tried to, China and Russia would love to and it looks like the EU may follow suit.
The question as always is what to replace it with, and hopefully not something worse.
Treasuries Have Become Badly Unappetizing for Foreign Central Banks & Governments
"Badly" is used to modify participial adjectives ("written", "organized"), not plain property adjectives like "unappetizing".
But seeing Wolf Street on HN brightened my day.
The issue (real issue?) is that it’s unclear whether these governments reduced their holdings or switched them to these opaque structures (tether can be considered one). The idea is, it would be hard for the US to untangle true ownership. I wonder if UBO was getting undone blue or red because it’s a real threat for such a system but the US needs this “second” lifeline.
Are their sovereign states dumb enough to invest in Tether?
I was dismissive when I saw the title, but they have real statistics: foreign holdings are at 2012 levels while total treasuries outstanding are 3x larger.
Holdings have increased by $500 billion over the last year. Why cherry pick 2012? Because that was in the aftermath of QE from the great recession and foreign holdings of treasuries were enormous as they rotated out of US private debt and sought the safety of treasuries. Today it is risk on, relatively speaking.
These go up and down based on cash management needs and portfolio allocation choices between public and private debt, and so you can pick one year when cash management needs were high or appetite for riskier were low. And then count on people being dupes, LOL.
The trouble is the US never paid down the debt for those years, they just rolled it over and incurred new debt. If foreign holdings decrease further, it doesn't matter if it is simply for cash management reasons -- the US will be rolling over historic debt at historic interest rates.
By paying down the debt, you mean issuing less debt over time? The US government is not an uncle that pays off his debt so he can retire and move to Florida. An individual does that, but the household sector as a whole does not pay down debt, because for every uncle moving to Florida, there is an Aunt borrowing for a new house. So instead, we talk about things like sectoral debt ratios and do not use language like "when will people in Maine finally pay down debt, I'm sick of seeing people in Maine owing debt".
The government is a sector of the economy. You can argue that we are borrowing too much, and I would agree, but you are not gonna fix that until you address the foreign capital inflows. That means rolling back the investor rights agreements. As long as foreign nations can print money and use it to buy dollars in order to stimulate their exports, the US is going to have a problem with excessive debt loads. The flipside of that is that the US will not have a problem of foreign investors decreasing their holdings. It will increase every single year, in line with foreign export demands. If anyone tells you the opposite, just look for the error or the lie, because I guarantee you there is one. This article has both.
treasuries are the same as cash. All that means is there is still too much USD Money supply from QE and rates will continue to go higher to reduce the supply.
Thanks, Trump.
Soooo tired of all this winning! /s
US policy:
1. print money
2. suppress wages by shipping in cheap labor
3. reassure the population you arent doing the above
Step 3 is profit. As in, "we are robbing you blind but that's not my hand in your pocket".
unreal that they are still doing it too
Yes, that's called Quantitative Easing after the Global Financial Crisis. The peak in the graph was 2008 after which the US issues a shit ton of debt which was bought by the Fed. China used to be the biggest holder of US Treasuries but now it's the Federal Reserve and Japan.
But the idea that you look at that graph as say it's "unappetizing" is dumb. Most foreign governments besides China have INCREASED their UST holdings. The only reason why the % is dropping is because of the massive amount bought by the Fed which messed up the %.
Every graph of foreign ownership is up and to the left over the last 10 years
https://tradingeconomics.com/united-states/foreign-treasury-...
https://tradingeconomics.com/united-states/foreign-treasury-...
https://tradingeconomics.com/united-states/foreign-treasury-...
Only China has gone down:
https://tradingeconomics.com/united-states/foreign-treasury-...
I stand corrected about Japan it looks like they've been flat over the last 10+ YEARS
https://tradingeconomics.com/united-states/foreign-treasury-...
Basically the article linked above is dumb, and they either are stupid and don't understand what they're talking about or trying to cast a false narrative
China also has not gone down, they are merely shifting their ownership structures. China accumulated over a trillion in dollar denominated assets last year, but rumors are the big players have been Chinese regional banks. It's a byzantine mess of hidden ownership structures over there.
If true, this would change the narrative. But I wouldn’t base anything on rumors. China is also rapidly building its supply of bullion and is attempting to shift trade away from the USD, so it would make sense for it to be drawing down on USD reserves. (Not that it will ever eliminate those reserves completely.)
It doesn't matter whether it is Chinese regional banks, or SAFE, or any other instrument. Brad Setzer tries to do a heroic job decoding this stuff at his CFR blog (https://www.cfr.org/blogs/follow-the-money) but at the end of the day, all that matters is total foreign holdings of dollar denominated assets - that measures their exposure to the dollar.
Everything else is portfolio allocation choices between treasuries or agencies or BAA corporates or AAA corporates, there are so many different instruments to invest in, you can shift your holdings back and forth however you like, all while keeping your dollar exposure exactly the same. And you can set up a fund in the Caymans and hold your assets there. And China does all of that. So really it is all fungible once you are in the "foreign ownership" bucket.
Your point about dollar exposure is true, we just have limited insight into foreign private ownership, as the article points out. If nations are using these vehicles to conceal their dollar exposure (or for some other purpose that results in the same effect), then we will have trouble understanding the functioning of the global economy and the risks present in the system. That seems important.
Also, equities and treasuries are not equivalent. If foreign holdings are moving to equities over treasuries, the added risk will be a serious problem in a crisis. It could also be a sign that some nations are being “encouraged” to prop up equity markets, either by the US or large domestic holders of US equities, which is a rumor that I’ve come across.
(If they are just shifting from treasuries to other types of bonds, that’s less risky but still moreso than treasuries. And it may affect yields.)
Yeah ... and exactly how many of our treasury auctions have failed? Zero. Overbid by foreign parties, all of them.
Exactly. Same as when Bessent wanted to buy 6B in long bonds but only bought 5.XB, people said that it failed but anyone who understands knows that it's the opposite. The oversubscription rate is normally 3X or more but this time it was 2X which means that people would rather keep their long bonds, which shows confidence in them.
I think RoW is trying to send a message to certain US constituents.
Edit: so much hate for something so benign.
Please don't make us decode your acronym https://www.acronymfinder.com/ROW.html
I've been hesitant to talk about this too much, because it's such a bad joke, but personally I'm waging a War On Acronyms (WOA). They really don't save much time or effort, but make communication much more opaque. They can be a way of in-group signaling, which just makes it harder for newcomers / outsiders to come up to speed. And so many collisions.
RoW is not opaque. It’s widely used especially in academia. Acronyms exists for a good reason. If you like everything spelled out please stop using apostrophes while you’re at it.
I don't live in the USA. Never heard of it.
Very solipsistic take. Most people don't live in your bubble.
RoW = Rest of World?
If so, those constituencies are immune to facts and common sense.
Good guess. I'm usually pretty good with acronyms, but this one's got me stumped.