The Chinese Take A Hammer To The U.S. Dollar By Instructing Their Banks To Dial Back Their Holdings Of U.S. Treasuries
Michael Snyder

For decades, the dominance of the United States has been primarily based on the strength of the U.S. dollar. Having the main reserve currency of the world has meant that everyone else has wanted and needed our currency. In fact, our currency is our number one export. Most Americans don’t realize this, but far more dollars are used outside the United States than are used inside the United States. Having such a strong currency for such an extended period of time has allowed us to enjoy a standard of living that is far beyond what we actually deserve. So what is going to happen now that the rest of the world is starting to move away from the U.S. dollar?

In 2025, the value of the U.S. dollar declined precipitously.  The U.S. dollar index was down about 10 percent for the year, and in recent days that decline has continued.

Now China has decided to pour fuel on the fire.

It is no secret that our relations with China have been going downhill.  The Trump administration doesn’t like China, and China doesn’t like the Trump administration.  In recent months both of them have been implementing measures that are intended to do economic damage to the other side, and here in early 2026 it appears that things are going to an entirely new level.

On Monday, we learned that authorities in China have instructed Chinese banks “to rein in their holdings of US Treasuries”…

Chinese regulators have advised financial institutions to rein in their holdings of US Treasuries, citing concerns over concentration risks and market volatility, according to people familiar with the matter.

Officials urged banks to limit purchases of US government bonds and instructed those with high exposure to pare down their positions, the people said, asking not to be identified discussing private deliberations. The directive doesn’t apply to China’s state holdings of US Treasuries.

Communicated verbally to some of the nation’s biggest banks in recent weeks, the guidance reflects growing wariness among officials that large holdings of US government debt may expose banks to sharp swings, the people said.

It isn’t as if the Chinese are suddenly selling everything.

But without a doubt, this is a major signal.

The Chinese are letting their financial institutions know that it is time to start moving in another direction, and the rest of the world is definitely going to take notice.

The Trump administration is going to take notice as well, because Trump administration officials have been very sensitive about “how foreign investors behave toward U.S. assets”…

If there’s one thing that catches the attention of the second Trump administration, it’s how foreign investors behave toward U.S. assets. Perhaps most notably, it’s their attitude toward the safe haven of U.S. Treasuries.

Last month, Deutsche Bank earned the ire of Treasury Secretary Scott Bessent after one of its analysts suggested foreign investors may leverage their holdings of U.S. borrowing and equities against the White House’s threats over the sovereignty of Greenland. While Bessent dismissed the “irrelevance” of Denmark’s holdings of American debt, Trump eased up on his tariff rhetoric after the bond markets hiccuped.

The Trump administration is therefore unlikely to be pleased with reports this week that Chinese banks had been urged to limit their holdings of U.S. Treasuries.

I think that it is quite likely that we will see some sort of retaliation from the Trump administration.

Of course every time either side escalates matters, our relationship with China deteriorates even more.

And history has shown us over and over again that trade wars have a way of evolving into shooting wars.

For the moment, this latest news out of China has pushed the U.S. dollar index even lower…

Treasury yields, which move inversely to prices, were slightly higher on Monday morning. The dollar dropped more sharply, with the Dollar Index down almost 1% on the news. The fresh dip in the greenback follows its recent decline to four-year lows.

When the value of the U.S. dollar goes down, the purchasing power of our paychecks goes down.

And when the purchasing power of our paychecks goes down, our standard of living goes down.

We are already in the midst of a horrific cost of living crisis with no end in sight, and those running the system continue to treat our currency like toilet paper.

For years, I have been ranting about the size of the U.S. national debt.

Now it has crossed the 38 trillion dollar threshold, and Elon Musk is warning that unless an economic revolution involving AI and robotics produces some sort of an economic miracle we are “1,000% going to go bankrupt as a country”…

Reflecting on his work with DOGE, Musk said he had hoped to slow down the unsustainable financial trajectory the U.S. is on, buying more time for AI and robotics to boost growth.

“It’s the only thing that could solve the national debt. We are 1,000% going to go bankrupt as a country, and fail as a country, without AI and robots,” he predicted. “Nothing else will solve the national debt. We just need enough time to build the AI and robots to not go bankrupt before then.”

In late November, Musk made similar comments, saying on Nikhil Kamath’s podcast that the deployment of AI and robotics “at very large scale” is the only solution to the U.S. debt crisis.

Needless to say, I am even more pessimistic than Musk.

At this stage, I don’t think that there is any hope of reversing course quickly enough to avoid financial disaster as a nation.

The rest of the world can see how rapidly we are piling on more debt, and they are abandoning ship.

Of course the other elements of “the perfect storm” that we are experiencing are only going to accelerate the problems that we are facing.

There is going to be a lot of anger directed at China for starting to move away from the U.S. dollar, but ultimately we only have ourselves to blame.

Year after year, Congress should not have authorized the borrowing and spending of trillions of dollars that we did not have.

And the Federal Reserve should not have used trillions of freshly created dollars to artificially prop up the financial markets.

For a while it seemed like we were getting away with treating our currency like toilet paper, but now the consequences are starting to become apparent.

As the U.S. dollar circles the drain, other nations are feverishly stocking up on precious metals, and that isn’t likely to change any time soon.

Michael’s new book entitled “10 Prophetic Events That Are Coming Next” is available in paperback and for the Kindle on Amazon.com, and you can subscribe to his Substack newsletter at michaeltsnyder.substack.com.

 Michael Snyder’s new book entitled “Why” is available in paperback and for the Kindle on Amazon.com. He has also written eight other books that are available on Amazon.com including “Chaos”, “End Times”, “7 Year Apocalypse”, “Lost Prophecies Of The Future Of America”, “The Beginning Of The End”, and “Living A Life That Really Matters”.  When you purchase any of Michael’s books you help to support the work that he is doing.  You can also get his articles by email as soon as he publishes them by subscribing to his Substack newsletter.  Michael has published thousands of articles on The Economic Collapse Blog, End Of The American Dream and The Most Important News, and he always freely and happily allows others to republish those articles on their own websites.  These are such troubled times, and people need hope.  John 3:16 tells us about the hope that God has given us through Jesus Christ: “For God so loved the world, that he gave his only begotten Son, that whosoever believeth in him should not perish, but have everlasting life.”  If you have not already done so, we strongly urge you to invite Jesus Christ to be your Lord and Savior today.

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