For decades, the global dominance of the United States has been primarily based on the strength of the US dollar. The fact that the dollar is the primary reserve currency of the global economy has meant that all other countries need and want our currency. In reality, the dollar is our number one export product. Most Americans do not realize it, but more dollars are used outside the US than inside. Having such a strong currency for so long has allowed us to enjoy a standard of living that far exceeds what we might deserve. What will happen now that the rest of the world is beginning to move away from the US dollar?
The beginning of the end
In 2025, the value of the US dollar suffered a sharp decline. The dollar index was down by approximately 10% during the year, and in recent days the fall has continued. This time, China decided to pour oil on the fire. It is no secret that our relations with China have deteriorated. The Trump administration does not like China, and China does not like the Trump administration. In recent months, both sides have been implementing measures aimed at the economic damage of the other side, and in early 2026 it seems that things are being led to an entirely new level. We have now learned that the Chinese authorities gave an order to the country's banks to "limit their holdings in US bonds"
The "directive"
Chinese regulators have advised financial institutions to limit their holdings in US bonds, citing concerns about concentration risk and market instability, according to sources familiar with the matter. Officials asked banks to limit purchases of US government bonds and requested those with high exposure to reduce their positions, the sources said, asking not to be named due to the confidentiality of the discussions. The order does not apply to China's state holdings of US bonds. The guidance was given verbally to some of the country's largest banks in recent weeks, reflecting the growing concern of officials that large holdings of US government debt may expose banks to sharp fluctuations, the sources said.
It's not just the Chinese
It is not, of course, only that the Chinese are suddenly selling everything. But certainly, this is a serious indication. The Chinese are informing their financial institutions that it is time to move in another direction, and the rest of the world will surely notice. The Trump administration will notice as well, as officials of the Trump administration have shown particular sensitivity regarding "how foreign investors behave toward US assets"... If there is something that draws the attention of the second Trump administration, it is the behavior of foreign investors toward US assets. More specifically, their stance toward the safe haven offered by US bonds. A month ago, Deutsche Bank provoked the ire of Treasury Secretary Scott Bessent when one of its analysts suggested that foreign investors might use their holdings in US loans and stocks to offset White House threats regarding the sovereignty of Greenland. While Bessent dismissed the "minor" significance of US debt holders from Denmark, Trump reduced his rhetoric on tariffs after turbulence in the bond market. Thus, the Trump administration will likely not be satisfied with this week's reports indicating that Chinese banks were encouraged to limit their holdings in US bonds.
Retaliation
It is quite possible that we will see some retaliation from the Trump administration. Of course, every time one side escalates the situation, our relations with China deteriorate even further. History has shown repeatedly that trade wars have a tendency to evolve into wars. For now, the latest news from China has led the US dollar index to a new decline. Bond yields, which move inversely to prices, were slightly higher on Monday morning. The dollar fell more sharply, with the dollar index recording a drop of nearly 1% after the news. This new fall follows the reduction of the dollar to four-year lows. When the value of the dollar decreases, the purchasing power of wages decreases. And when the purchasing power of wages decreases, our standard of living decreases. Already the US is experiencing a horrific cost-of-living crisis without any prospect of a solution, and those who control the system continue to treat our currency like toilet paper. US debt has exceeded the threshold of 38 trillion dollars, and Elon Musk warns that unless there is an economic revolution involving artificial intelligence and robotics, then the country will go bankrupt "1000%".
www.bankingnews.gr
Σχόλια αναγνωστών