China directs banks to reduce U.S. Treasury holdings

China directs major banks to cut U.S. Treasury holdings, citing volatility and risk. The move could boost interest in gold and cryptocurrencies as China diversifies its reserves.

China has directed its major commercial banks to limit new purchases and reduce existing holdings of U.S. Treasury securities, citing concerns over market volatility and concentration risk. This guidance, which lacks a formal timeline or specific reduction targets, does not apply to sovereign reserves. As a result, China’s U.S. Treasury holdings have dropped to around $683 billion, down significantly from the 2013 peak of over $1.3 trillion. Regulators attribute the move to risk management, not geopolitical tensions or doubts about U.S. creditworthiness, highlighting increased volatility in U.S. bond markets due to rising interest rates and fiscal uncertainty. This decision has fueled speculation about its impact on global markets and the potential for alternative assets like gold and cryptocurrencies to gain favor as China diversifies its reserves. The approach reflects broader efforts to optimize risk exposure amid ongoing macroeconomic and geopolitical uncertainties.