China’s Reserves and the Quiet Re-Balancing Away from “Pure USD”

Executive perspective

If one is expecting a dramatic headline moment—China “dumping dollars”, markets convulsing, Washington issuing stern communiqués—one will be disappointed. What is occurring is more interesting, and rather more consequential: a steady, technically rational re-engineering of the People’s Bank of China (PBoC) / SAFE reserve stack away from an overt dependence on U.S. dollar government paper, and towards a more sanctions-resilient, option-rich mix.

The evidence is visible in the public data we do have: China’s headline foreign-currency reserves remain broadly stable (US$3.3464 trillion at end-November 2025). (State Council of China) At the same time, China’s reported holdings of U.S. Treasury securities have continued to drift lower; the U.S. Treasury’s TIC Table 5 shows mainland China at US$688.7bn at end-October 2025, down from US$760.1bn a year earlier (October 2024). (U.S. Department of the Treasury) In parallel, official gold holdings have been rising; SAFE’s “Official reserve assets” table places gold at US$3,106.47bn (in “100 million USD” units: 3106.47) at November 2025, and the World Gold Council notes the PBoC reported a further 0.9 tonnes added in November, taking official holdings to 2,305 tonnes, with gold’s share of reserves rising (in value terms) versus late-2024.

It is therefore fair to say China is “cutting back” in a meaningful sense—but not through a theatrical liquidation. This is a reserve manager’s shift: slow, methodical, and designed to avoid moving the market it must continue to inhabit.

What we can say with high confidence (and what we cannot)

Reserve debates are usually ruined by a simple mistake: confusing valuation with preference. The IMF has recently gone out of its way to point out that the reported currency shares in global reserves can move sharply even when no central bank changes behaviour, because COFER data are reported in U.S. dollars and exchange-rate moves mechanically alter the measured shares. (IMF)

So, three statements can be true at once:

1. The U.S. dollar remains the dominant reserve currency globally (the IMF’s exchange-rate-adjusted figures still put the dollar at 56.32% of allocated reserves in 2025 Q2). (Reuters)
2. A portion of the apparent “dollar decline” is valuation noise (the IMF estimates most of the Q2 move was driven by FX). (IMF)
3. China can still be actively de-risking from certain USD instruments—especially U.S. Treasuries—while keeping large absolute USD liquidity buffers.

China’s own disclosures do not give a clean USD share of reserves; they do, however, publish totals and the broad reserve-asset categories (FX reserves, IMF reserve position, SDRs, gold, other). The U.S. publishes custody-based Treasury holdings by country, which provides a useful (if imperfect) window into one important slice of China’s reserve stack. (U.S. Department of the Treasury)

The visible signals in late-2025 data

A compact dashboard makes the pattern clearer:

This is not “de-dollarisation” in the adolescent sense of an abrupt exit. It is “de-single-point-of-failure-isation”—a portfolio engineered to maintain liquidity, while reducing vulnerability to concentrated legal, political, and settlement channels.

Why China is doing it: three drivers, one unifying logic

1) Sanctions risk is a balance-sheet variable now

For decades, reserve management was treated as a technocratic craft: maximise safety, liquidity, and a modicum of return, within a conservative mandate. The post-2022 world has inserted an additional constraint: asset seizure / settlement denial risk. It is no longer theoretical that a large state can see parts of its external buffers immobilised by the legal reach of advanced-economy payment networks.

From Beijing’s perspective, this is not a moral argument; it is simply a change in the probability distribution. If your worst-case scenario includes impaired access to dollar clearing, then a reserve stack that relies too heavily on Treasuries held through channels visible to, and enforceable by, the U.S. and its allies becomes an unattractive concentration.

Gold, by contrast, is an old-fashioned asset with a modern advantage: it is not someone else’s liability, and it settles outside the neat jurisdictional geometry of correspondent banking. The World Gold Council’s note that China’s gold share (in value terms) has risen relative to late-2024 is entirely consistent with this logic. (World Gold Council)

2) Treasuries have become more politically “priced” in Beijing’s mind

Even if one sets aside sanctions risk, Treasuries now carry a political premium. U.S.–China strategic rivalry has a habit of metastasising into finance: technology controls, investment screens, and a growing willingness to use market infrastructure as leverage. In such an environment, a large Treasury book can start to look less like a neutral liquidity buffer and more like a hostage to narrative.

Reserve managers dislike hostages. They prefer options.

The reduction from US$760.1bn (Oct 2024) to US$688.7bn (Oct 2025) is not a stampede, but it is a direction of travel. (U.S. Department of the Treasury) It suggests China is gradually lowering the share of reserves expressed as claims on the U.S. sovereign.

3) The yuan’s “internationalisation” is changing shape: from ambition to utility

For years, discussions of RMB internationalisation oscillated between two unsatisfying poles: either the yuan was about to dethrone the dollar, or it would never matter. Reality is arriving in a more practical costume: the yuan is becoming useful as a funding and invoicing currency in specific corridors, and usefulness has a habit of compounding.

A Reuters report this week describes a surge in yuan-denominated debt issuance and overseas lending, with yuan-based overseas bank lending rising sharply over recent years and borrowers/issuers increasingly willing to use RMB when it is cheaper or operationally convenient. (Reuters) This matters for reserves because the currency composition of trade and debt tends to leak, slowly but inevitably, into the currency composition of buffers. Reserve managers hold what their economies need to use.

The unifying logic across these three drivers is straightforward: China is building redundancy—not by exiting the dollar entirely, but by ensuring the state can function through shocks where the dollar system is less accessible, more expensive, or more politically conditional.

How the re-balancing likely works in practice (without causing a tantrum in markets)

A country of China’s scale cannot “sell dollars” in the way commentators imagine. First, because the act of selling would impair the value of what remains. Second, because the dollar is deeply embedded in trade settlement, commodity pricing, and private-sector balance sheets.

So the more plausible mechanics are quieter:

Rolling down the Treasury book rather than dumping it. Mature securities are not replaced one-for-one; new inflows are redirected; the book decays gracefully.

Substituting into non-Treasury USD assets where convenient. Diversification away from Treasuries is not always diversification away from USD. Reserve managers can hold USD liquidity via deposits, agencies, repos, or other instruments depending on constraints and yields. The public TIC data do not capture all of this nuance, but they do show Treasuries—one key pillar—shrinking. (U.S. Department of the Treasury)

Raising the gold allocation on two fronts: quantity and price. The World Gold Council notes both continued reported accumulation and a rising share in value terms. (World Gold Council) SAFE’s own table shows gold’s USD value rising materially through 2025.

Expanding functional RMB usage offshore. The more trade and debt are denominated in RMB, the less existential the dollar becomes as a liquidity backstop—without any need to announce a grand monetary revolution. (Reuters)

This is reserve management as theatre avoidance: change the plumbing, not the slogans.

A contrarian point worth taking seriously: “de-dollarisation” is often a poor description of a good strategy

There is a temptation—particularly in media and politics—to treat any reduction in Treasuries as a referendum on the dollar’s future. That is a category error.

The dollar’s dominance rests on a stack of network effects: deep markets, legal predictability, military and diplomatic reach, and an ecosystem of safe assets. Even central banks with strong political incentives to diversify face the same practical constraint: when crisis hits, they need liquidity that the market recognises instantly.

The IMF’s own framing is instructive: even when the reported dollar share moves, most of the short-term action can be valuation, and underlying changes are gradual. (IMF) That gradualism is not proof that nothing is happening; it is proof that reserve managers behave like adults.

China’s strategy looks less like an attempt to “replace” the dollar and more like an attempt to ensure it is never trapped by the dollar. The distinction matters.

Implications for investors, policymakers, and smaller reserve-holding states

For global investors: the marginal buyer is changing, not disappearing

The key market impact is not a sudden Treasury selloff; it is the slow reshaping of the marginal bid. If a structurally large holder is gradually less enthusiastic about long-duration Treasuries, the burden of absorption shifts incrementally to others—domestic U.S. buyers, other foreign official institutions, or price-sensitive private capital. This does not produce a single dramatic day; it tends to show up as a slightly different term-premium regime over time, particularly when issuance is heavy.

Meanwhile, official gold demand provides a supportive undercurrent to gold prices, even if the monthly tonnage additions look small in isolation. (World Gold Council)

For governments: reserve composition is becoming geopolitically legible

Reserve policy used to be a discreet craft. It is now read as a strategic signal—sometimes unfairly. A state that shifts into gold or non-USD currencies may simply be hedging settlement risk; markets may interpret it as alignment, or defiance, or both. That interpretive risk becomes part of the cost of reserve diversification.

This is where discipline matters: communicate in the language of risk management (liquidity, duration, counterparty concentration), not ideology. China’s gradualism suggests it understands the signalling channel and is trying not to inflame it.

For smaller economies: the lesson is redundancy, not imitation

It would be a mistake for smaller central banks to treat China’s moves as a template to copy. China can absorb frictions and create bilateral settlement corridors; most cannot. The more transferable lesson is concentration risk: over-reliance on any single jurisdiction, payment rail, or asset type should be treated like an operational vulnerability, not a philosophical stance.

Watch-points: what would confirm acceleration versus “steady drift”

Because China does not publish a full currency breakdown, the most practical approach is to monitor a set of proxy indicators:

1. TIC holdings trend: continued declines in China’s Treasury line item, especially if the pace increases. (U.S. Department of the Treasury)
2. SAFE reserve-asset composition: a rising gold allocation as a share of total official reserve assets, not just in value but in ounces/tonnes.
3. Functional RMB expansion: growth in RMB-denominated lending/issuance and trade settlement in key corridors, which reduces the operational need for USD buffers. (Reuters)
4. Global reserve composition: IMF COFER (especially adjusted series) for evidence of structural, not valuation-driven, shifts. (IMF)

If these move together, the story is not noise.

Yes, China is cutting back—but it is doing so like a reserve manager, not a protester

China’s central bank and reserve authorities appear to be reducing their dependence on U.S. Treasuries and raising the role of gold, while keeping the overall reserve stock broadly stable. (U.S. Department of the Treasury) The motivation is best understood as resilience engineering in a world where the “rules of finance” are increasingly intertwined with the rules of geopolitics.

The more subtle point—and perhaps the more important one for boardrooms—is that the real shift is not from USD to “not-USD”, but from single-rail dependency to multi-rail optionality. In other words: China is not trying to set the dollar on fire. It is trying to ensure it never has to ask permission to use the fire exit.