Mike Campbell, the protagonist in Ernest Hemingway’s “The Sun Also Rises,” has a succinct response when asked how he went bankrupt: “Gradually, then suddenly.”
The sturm und drang over risks around the long-term decline in the U.S. dollar is a little like that.
The global diversification away from the dollar is a slow process that will occur in a gradual manner, with occasional large and unexpected moves.
But diversification is far different from an outright end of the greenback as the global reserve currency.
It’s possible that at some point the dollar will no longer be the global reserve currency, but not anytime soon.
That has to do with the size and distribution of the $35.9 trillion in dollar-denominated securities held across the global economy and the role of American finance in the basic operation of international finance.
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Consider the holdings of dollar-denominated securities among the major economies. A quarter of all U.S. securities are held by 20 of the largest U.S. trading partners and financial centers.
These economies include the U.K, the European Union and Japan, and, more recently, centers along the Pacific rim, according to the Treasury International Capital (TIC) database through November.
It’s not just American investors willing to finance the U.S. government and business.
There are many reasons that the global investment community is attracted to the U.S.:
- The liquidity of the U.S. public and private bond markets.
- The safety and returns of the U.S. equity exchanges.
- The liquidity of a large foreign-exchange market dominated by dollar transactions.
- The presence of global trade carried out in dollars.
- The presence of the U.S. trade deficit, which in turn supplies the funding for investment in U.S. securities.
This status as a safe haven is not going to change anytime soon because Europe does not yet have an integrated bond market, Japan is normalizing its monetary and fiscal policies, and China is simply not going to liberalize its market to become the center of global finance.
Total holdings of U.S. securities
Investors in Europe hold roughly 20% of total U.S. long-term securities, which includes Treasuries, corporate bonds and corporate equities.
Investors in the U.K., Luxembourg and Ireland hold $8.5 trillion of U.S. securities, with Canada holding $3.2 trillion and Japan $2.9 trillion.
Taking foreign investment for granted
As reliable as the international investment community is for the U.S., it has, at times of extreme stress, turned to holdings of cash, as occurred during the financial crisis and again during the pandemic.
More recently, there have been two episodes when EU investors sold more U.S. securities than they purchased (other than at year end).
The first was in the spring of 2023 during the U.S. regional banking turmoil and the second was in April 2025, when the U.S. announced sweeping new tariffs.
These examples suggest that in times of geopolitical stress or during a breakdown of the global economy, the U.S. might not be able to rely on global investors to bail it out.
Foreign holdings of Treasury securities
The top 20 foreign investors in the Treasury market hold more than 20% of the outstanding Treasury bills, notes and bonds as of November 2025.
Japan has been the leading buyer of Treasury securities. Its dependence on zero-interest rates and the trashing of the yen have led global investors to use Japan as a funding source for carry trades and domestic buyers of Treasuries.
But Japan has turned off that spigot, which will push the demand for securities lower while raising financing costs for U.S. businesses and households.
Foreign holdings of U.S. corporate bonds
Foreign holdings of U.S. corporate bonds are centered in EU financial centers in Luxembourg, Belgium and Ireland as well as the U.K., Japan and Canada.
The top 20 counties hold roughly 37% of the U.S. corporate bond market, which helped push the value of the dollar higher before 2025.
Foreign holdings of U.S. equities
The same financial centers are the dominant buyers of U.S. stocks, with Canada and the U.K. the top two.
The top 20 foreign investors of U.S. equities hold 29% of the U.S. stocks.
The takeaway
A U.S. national accounts (GDP) identity is that the U.S. budget deficit mirrors the U.S. trade deficit. That implies the U.S. trade deficit provides the means for foreign investors to invest in the U.S. economy and to finance U.S. deficit spending.
The idea that the U.S. could simply withdraw from the global economy to reduce its trade deficit amounts to a nonsensical slogan from the era of mercantilism 100 years ago.
The U.S. depends on foreign investors to supply it with goods and financial support while the U.S. maintains the global financial markets, as well as provide the global security, education, technology, and the innovation to maintain those markets.
