According to a Bloomberg report, the guidance was delivered verbally and appears aimed at reducing currency risk rather than signaling a loss of confidence in U.S. government debt. The warning does not apply to China’s official reserves or government holdings of dollar-denominated assets, the report said.
Even so, some Chinese banks have already begun trimming their exposure. As of September, Chinese banks held about $298 billion in dollar-denominated bonds, according to data from China’s State Administration of Foreign Exchange. The prospect of reduced demand from Chinese financial institutions added to negative sentiment surrounding the dollar.
Geopolitical implications
At its core, the move does not suggest China is rushing to sell U.S. Treasuries because of heightened concerns about U.S. creditworthiness. Instead, it reflects a broader effort to diversify away from assets closely tied to U.S. policy at a time of heightened geopolitical and economic uncertainty.
China’s official Treasury holdings have been declining steadily for more than a decade. The country now holds roughly $683 billion in U.S. Treasuries, down sharply from a peak in 2013 and the lowest level since 2008. China has fallen from being the largest foreign holder of U.S. debt to third place, behind Japan and the United Kingdom.
What stands out in the current episode is not the long-term reduction itself, but the apparent informal encouragement for domestic banks to cut back on dollar exposure. Such guidance, even if unofficial, marks a notable shift in tone and underscores growing unease about concentrated exposure to U.S.-linked assets.
Changing perceptions of the dollar
For decades, U.S. Treasuries and the dollar have been viewed globally as the ultimate “safe” assets—highly liquid, stable, and largely insulated from political risk. That assumption is increasingly being questioned, not only in China but among other major investors as well.
Several factors are contributing to a perception of greater volatility in the dollar. These include President Donald Trump’s stated comfort with a weaker currency, his criticism of the Federal Reserve and threats to its independence, and an unpredictable approach to tariffs and trade policy. Together, these dynamics have increased the likelihood of sharp currency swings.
While Chinese authorities may not be publicly framing their guidance to banks in political terms, markets tend to react to shifts in behavior rather than official statements. With the dollar already under pressure, even modest signs of diversification by large holders such as Chinese banks can amplify concerns and weigh further on the currency’s outlook.