Much is being made of the sustainability of the dollar’s primacy in international trade and finance because of assorted decreases in foreign holdings of U.S. Treasury securities.
It’s not surprising such talk is taking place given the risks to the petrodollar market, the likely deprecation of the dollar once the war ends, and the 8.8% decline in the greenback against a trade-weighted, inflation-adjusted basket of currencies since the beginning of 2025.
But the decreases in foreign holdings of Treasury securities has less to do with decline in the dollar’s status and more to do with the particular needs of larger economies like Brazil, India, and China. In addition, some economies have had to prop up their own currencies as financial stress has mounted.
While dollar hegemony is being challenged by China in a number of ways both explicit and subtle, that is not the case with India and Brazil.
India added to its Treasury holdings from February to May 2025 but then sold heavily from September to October (the months of peak rupee stress and dollar sales by India’s central bank).
The rebound in India’s holdings in January to $190.4 billion, up by $7.5 billion from December, is the strongest single-month recovery signal.
If this were de-dollarization, one would not have observed such a large snap-back.
As for Brazil, the plateau in holdings with no rebound, combined with the Brazilian central bank’s explicit dollar-share reduction and gold doubling, suggests something between currency intervention and deliberate diversification.
China’s 9% reduction in holdings over the past 12 months is modest compared to India’s and Brazil’s 16% selloff.
But a five-year context shows that China is in a completely different category as it sold $400.8 billion in Treasuries, a 36.6% structural reduction, with no reversals.
China has been reducing its dollar denominated assets for years and that is the de-dollarization signal in the dataset.
But it is equally important to remember that China for many reasons cannot afford to liberalize its currency and needs the dollar to remain the reserve currency. The case for de-dollarization appears weak at best despite China’s intentions.
China holds only 7.5% of total foreign holdings of Treasuries while India and Brazil each have 2%.
In comparison, the largest single holders of Treasuries are Japan with 13% and the U.K. with 10%. The combined share of smaller economies is 20%.
The takeaway
Among the large emerging economies, only China is making a challenge to dollar dominance while the behavior of India and Brazil does not imply a sustained move against the dollar.
Rather, a variation in the need for cash to finance intervention in the foreign exchange market is behind the recent sales of U.S. Treasuries.
