US Dollar Influence: The Implications of Trump's Return for China and US Treasuries

The Changing Landscape of US Dollar Assets

The US dollar has long served as a cornerstone of global finance, yet under Donald Trump's administration, the risk of sanctions poses serious threats to China's holdings of US dollar-denominated assets. Reports indicate that this situation could evolve significantly, potentially leading to a large-scale decoupling from the US financial system.

China's Foreign Exchange Reserves at a Crossroads

China's foreign exchange reserves, currently the largest in the world, risk being impacted by US policies, particularly in light of the invasion of Ukraine. Experts warn that should relations worsen, China may have to reassess its strategy of holding US treasuries, further exposing the vulnerabilities linked to Trump’s policies.

The Consequences of Trump's Economic Warfare

As Trump embarks on a campaign to reshape economic alliances, the impact on the US dollar could be profound. The use of the dollar as a weapon against Russia reminds China that its extensive investments could also face similar repercussions.

Future Perspectives on US Dollar Holdings

• Timothy Geithner emphasizes that the dollar's position is not guaranteed, urging caution.
• Analysts suggest that China's investments in US treasury bonds may need reevaluation.
• The potential for increased tariffs on countries avoiding the US dollar raises additional concerns.

Implications for the Chinese Yuan

Expectations are growing regarding the internationalisation of the Chinese yuan, as China seeks to lessen its dependence on the US dollar. Strategic moves toward promoting their currency for trade settlements could accelerate post-election.