European officials are considering a drastic economic response to potential geopolitical shifts involving the US and Russia, specifically if the US abandons its commitment to Ukraine. The plan involves the mass liquidation of the US Treasury securities held by European governments, a move that could destabilize the American economy. With the UK and EU holding approximately $2.34 trillion in US debt, a coordinated sell-off could trigger a financial crisis, potentially worse than the 2008 crash. Such action is being considered due to concerns over a potential deal between the Trump administration and Russia, which could undermine European security interests.
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Central banks globally now hold more gold than US Treasuries, a shift not seen since 1996, signaling a significant global rebalancing. This surge in gold holdings is driven by substantial purchases in recent years, with record-breaking acquisitions in 2024, significantly outpacing previous decades. Gold has become the second most significant foreign exchange reserve asset, surpassing the euro. Despite a recent easing in buying activity, central banks still plan to increase their gold reserves, likely due to concerns about the US dollar’s dominance as the global reserve currency.
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In March, China decreased its holdings of US Treasuries by $18.9 billion, falling to third place among foreign holders behind Britain. This reduction occurred before April’s sharp sell-off triggered by President Trump’s tariff announcements. Britain surpassed China to become the second largest foreign holder of US Treasuries, increasing its holdings by $29 billion. The overall foreign holdings of US Treasuries reached a record high of $9.05 trillion in March.
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John Q. Hosedrinker