The discussion of de-dollarization has resurfaced following new data from the US Treasury Department, which shows that China sold nearly $50 billion in US Treasuries during the first quarter of 2023 and reduced its holdings by over $100 billion for the year ending in March 2023. This development comes amid growing tensions between China and the US over trade issues and China’s stance on Taiwan.

Belgium, often viewed as a proxy custodian for Chinese debt, also reportedly sold more than $20 billion in US Treasuries during the same period.

Not all analysts view China’s sales of US debt as indicative of a major policy shift. Some see these moves as part of a routine adjustment in China’s debt management strategy. However, the potential for a shift away from US debt, coupled with increasing use of the renminbi, suggests that the US government may need to address potential impacts on the dollar’s status as the world’s primary reserve currency.

Brad Setser, a senior fellow at the Council on Foreign Relations, pointed out on X (formerly Twitter) that it remains unclear whether China’s diversification out of US dollars and dollar-denominated bonds is a significant strategic change or merely a shift in custodians.

China’s ongoing strategy to diversify its holdings, including investing in commodities like gold, reflects its desire to manage risks, especially given the threat of US sanctions related to trade with Russia. Under the Biden administration, punitive tariffs might also be pushing China to seek greater diversification. In the first quarter of 2023, China’s gold reserves increased by 27.06 tons, second only to Turkey’s, according to the World Gold Council.

Additionally, the expanded BRICS trade bloc, which includes China, has expressed concerns about the dominance of the dollar and is exploring alternative reserve currencies. This might support China’s efforts to promote the renminbi and provide a geopolitical alternative within the bloc, although not all BRICS members are in agreement.

Sanctions and trade restrictions have led to increased use of the United Arab Emirates’ dirham in India-Russia trade, partly due to Indian officials’ unease with using the renminbi for such transactions, according to a December report by the Carnegie Endowment for International Peace on BRICS de-dollarization efforts.