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In a coordinated shift that is reordering the architecture of global finance, Chinese state-owned banks have accelerated their divestment from US Treasuries in early 2026, reducing holdings to levels unseen since the 2008 financial crisis. This structural realignment — combined with BRICS+ local currency trade reaching 67%, US national debt surpassing $39 trillion, and gold breaching $5,000 per ounce — is pressuring long-term yields and forcing the Federal Reserve to confront the prospect of becoming a buyer of last resort. The great unwind of US Treasuries represents the defining financial narrative of mid-2026.
China's Coordinated Treasury Selloff
According to data from the US Treasury Department, China's holdings of American government debt fell by an estimated $115 billion in 2025, bringing total holdings to approximately $682.6 billion — the lowest level since the 2008 global financial crisis. The People's Bank of China (PBOC) and the nation's "Big Four" state-owned banks have been following "window guidance" issued in February 2026, systematically reducing exposure to dollar-denominated assets. Mainland China and Hong Kong together now hold roughly $938 billion in US Treasuries as of November 2025, down sharply from peaks above $1.3 trillion in 2013.
The selloff has contributed to a sharp rise in long-term yields. The 10-year Treasury yield has spiked toward 4.25%, while the 30-year yield has surged to 4.88% — levels that threaten to increase borrowing costs across the US economy, from mortgages to corporate debt. "This is not a tactical adjustment; it is a structural pivot," said a senior analyst at a major Wall Street bank, speaking on condition of anonymity. "China is systematically reducing its dependence on the dollar system."
Gold: The New Reserve Asset of Choice
Parallel to the Treasury selloff, China has been accumulating gold at an unprecedented pace. The PBOC has bought gold for 17 consecutive months, pushing reserves to a record 2,308 tonnes worth $369.6 billion as of January 2026 — a 260% surge since October 2022. This aggressive accumulation reflects a deliberate strategy to rotate out of dollar-denominated assets and into precious metals. China is not alone: central banks globally are shifting reserves toward gold at a rate unseen in decades. Central bank gold reserves have surpassed US Treasuries for the first time since 1996.
Gold prices hit an all-time high above $5,000 per ounce in January 2026, though they have since retreated to around $4,728 per ounce as of mid-April. Institutional year-end targets range from $5,400 (Goldman Sachs) to $6,300 (JPMorgan), driven by sustained central bank buying of 800–1,000 tonnes annually and growing concerns about US fiscal sustainability. The gold price surge and central bank buying have become a key indicator of de-dollarization trends.
BRICS+ and the Rise of Local Currency Trade
The shift away from the dollar extends well beyond China. BRICS+ nations — including Brazil, Russia, India, China, South Africa, and new members — now conduct approximately 67% of their intra-bloc trade in local currencies, up from just 33% a few years ago. Russia alone settled 60% of its foreign trade in rubles as of February 2026, a record high. The BRICS alliance has been actively developing alternative payment systems, including BRICS Pay and proposals to link central bank digital currencies (CBDCs) for direct cross-border settlements, bypassing traditional systems like SWIFT.
The US dollar's share of global foreign exchange reserves has fallen to 56.32% — the lowest level since 1995 — while the yuan's share of global payments has reached an all-time high of 4.74%. China's Cross-Border Interbank Payment System (CIPS) now connects over 1,500 institutions across 117 countries. Saudi Arabia has increased yuan-priced oil exports to 22%, further eroding the petrodollar system. The BRICS de-dollarization efforts and local currency trade are accelerating faster than most analysts anticipated.
US National Debt Crosses $39 Trillion
The timing of China's Treasury exit is particularly consequential as the US national debt crossed $39 trillion for the first time in March 2026 — nearly doubling since President Trump first took office when it stood at $19.9 trillion in January 2017. Net interest payments on the debt are projected to exceed $1 trillion in fiscal year 2026, nearly triple the $345 billion paid in 2020, and have already surpassed defense spending. The Peterson Foundation warns this rapid borrowing is "the definition of unsustainable," while Penn Wharton's Budget Model estimates the true fiscal gap — including implicit liabilities from Social Security and Medicare — could reach $100 trillion.
Former Treasury Secretary Henry Paulson has warned that America's debt trajectory could destabilize the US Treasury market. "If investor confidence erodes, demand could collapse, forcing yields higher and driving up borrowing costs for mortgages, student loans, and more," Paulson said in April 2026. He warned the Fed may become a buyer of last resort, accelerating a "vicious" debt spiral, and urged an "emergency break-the-glass plan" to halt the crisis before the US "hits the wall."
Federal Reserve: Confronting the Prospect of Last-Resort Buying
The Federal Reserve has already begun taking steps to manage Treasury market stability. In late 2025, the Fed launched "Reserve Management Purchases" (RMPs), buying $40 billion in short-term Treasuries per month — a technical tool to ensure financial market stability as bank reserves declined to their lowest in nearly three years. Bank of America expects $380 billion in purchases through 2026 could reduce the 10-year Treasury yield by 20–30 basis points. However, some analysts, including investor Michael Burry, have warned that RMPs signal banking system fragility.
The broader concern is that if foreign demand for US Treasuries continues to wane, the Fed may be forced to step in as a more aggressive buyer — effectively monetizing the debt. This would risk reigniting inflation, which remains stubbornly above the Fed's 2% target, with March 2026 CPI at 3.3%. The CME FedWatch tool shows a 0% probability of a rate cut in April 2026, as the central bank remains locked at 3.50–3.75%. The Federal Reserve balance sheet and Treasury market interventions are under intense scrutiny.
IMF Flags Geopolitical Fragmentation as Systemic Risk
The International Monetary Fund's April 2026 World Economic Outlook downgraded global growth to 3.1%, down from 3.4% in 2025, citing escalating geopolitical risks including the Middle East conflict and worsening fragmentation. The IMF flagged the US fiscal trajectory and rising geopolitical tensions as top systemic risks, warning that "a reassessment of expectations surrounding AI-driven productivity, or renewed trade tensions could significantly weaken growth and destabilize financial markets." The Financial Stability Board has also warned of significant global financial instability risks from stretched asset valuations and high leverage in non-bank sectors.
What a Multipolar Reserve System Means
The structural realignment underway suggests the world is moving toward a multipolar reserve system — one in which the dollar shares its dominant role with other currencies, gold, and digital assets. For global borrowing costs, this means higher and more volatile long-term yields as the pool of captive buyers for US debt shrinks. For inflation, the risk is that the Fed's eventual need to backstop the Treasury market could reignite price pressures. For financial stability, the fragmentation of the global financial order introduces new sources of contagion and systemic risk.
Winners in this new landscape include gold miners like Newmont and Barrick Gold, and banks with strong fixed-income trading operations like JPMorgan, which saw a 17% surge in fixed-income revenue. Losers include banks with large unrealized losses on long-dated securities, such as Bank of America. The multipolar reserve system impact on global markets will continue to unfold throughout 2026 and beyond.
FAQ
Why are Chinese banks selling US Treasuries?
Chinese banks are selling US Treasuries as part of a coordinated strategy to reduce dependence on the dollar, diversify reserves into gold, and hedge against geopolitical and fiscal risks. The PBOC issued "window guidance" in February 2026 urging banks to limit exposure to American government debt.
How much US debt does China hold in 2026?
As of early 2026, China's holdings of US Treasuries are estimated at approximately $682.6 billion, down from over $1.3 trillion at their peak in 2013. Including Hong Kong, total Chinese holdings are around $938 billion.
What is the BRICS+ local currency trade percentage?
BRICS+ nations now conduct approximately 67% of their intra-bloc trade in local currencies, up from about 33% a few years ago, according to Russian Foreign Minister Sergey Lavrov.
Will the Federal Reserve become a buyer of last resort for Treasuries?
Former Treasury Secretary Henry Paulson and other analysts have warned that the Fed may be forced to become a buyer of last resort if foreign demand continues to decline. The Fed has already launched Reserve Management Purchases (RMPs) of $40 billion per month in short-term Treasuries, which some view as a precursor to more aggressive intervention.
What does de-dollarization mean for the average investor?
De-dollarization could lead to higher US borrowing costs, increased market volatility, and a weaker dollar over time. Investors may benefit from diversifying into gold, other currencies, and international assets. Gold prices have already surged past $5,000 per ounce, reflecting these structural shifts.
Conclusion
The great unwind of Chinese banks from US Treasuries is not an isolated event but the leading edge of a broader transformation in the global financial system. With US debt on an unsustainable trajectory, BRICS+ nations building alternative payment infrastructure, and central banks around the world diversifying into gold, the dollar's dominance is being challenged as never before. For policymakers, investors, and citizens alike, understanding these tectonic shifts is essential to navigating the financial landscape of 2026 and beyond.
Sources
- Financial Content: Chinese Banks Accelerate Exit from US Treasuries
- Business Insider: China Treasury Holdings and Market Impact
- Fortune: US National Debt Crosses $39 Trillion
- Fortune: Paulson Warns Treasury Market at Risk
- IMF World Economic Outlook April 2026
- Pakistan Observer: China Gold Reserves Record
- ConvertZ: BRICS De-Dollarization Progress Tracker
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