The Reserve Bank of India’s holdings in US Treasury bonds fell to a five-year low as India seeks to support the rupee against the US dollar and diversify its foreign exchange reserves, joining a broader shift by some major economies from the world’s largest bond market.
The RBI’s holding in long-term US bonds has fallen 26% to $174 billion from a peak in 2023, according to US government data made available last week. According to RBI data, US Treasury bonds now account for a third of India’s foreign currency assets, compared to 40% a year ago.
Since gold and other alternatives take up a larger share of the RBI’s foreign exchange reserves, the shift is mirrored by large holders such as China, re-raising questions about US exceptionalism and the role of its debt as a reserve asset. President Donald Trump’s renewed trade threats over Greenland are deepening unease, raising the possibility that European governments may also begin to back off.
Much of this shift reflects a move away from dollar assets to reduce sanctions risk, said Win Thin, chief economist at Bank of Nassau 1982 Ltd., with nearly four decades of market experience. “India still has room to offload its US Treasury holdings.”
The RBI did not respond to a request for comment on the decline in holdings of US government bonds. Finance Minister Nirmala Sitharaman had said in September that the RBI was taking a “very thoughtful decision” to diversify its reserves.
rupee vs dollar
For Mumbai and others, the lesson came when the US froze Russia’s foreign exchange reserves after its invasion of Ukraine in February 2022. India’s continued purchases of Russian oil has become a point of contention with US President Donald Trump, contributing to higher tariffs on the Asian nation.
“The speed at which relations between the United States and India deteriorated last year may have surprised many and jolted policymakers into reducing their vulnerabilities,” said Shilan Shah of Capital Economics, the top rupee forecaster last quarter according to Bloomberg Rankings.
Part of the calculation stems from the RBI’s efforts to protect India’s weak rupee. The trade fell to a record low due to delays in the India-US trade deal after Washington imposed 50% tariffs on Indian exports – the highest in Asia. By selling US Treasury holdings, the RBI can use the funding to buy the rupee to strengthen its value.
weaponization of the US dollar
In investment circles, Trump’s weaponization of the dollar through global trade tariffs and sanctions has raised questions about whether US Treasury bonds will remain the best bet. Recent raids on Venezuela are further increasing those suspicions.
The RBI is not a major holder of US bonds, with about $683 billion of China’s holdings and only a quarter of Japan’s $1.2-trillion book, according to data through November. And foreign ownership of US Treasuries remains at an all-time high. Still, the sale heightens the debate over the role of US sovereign bonds in global portfolios.
Central banks around the world now face an increasingly complex policy landscape that puts greater pressure on reserve allocation. While the dollar, and by extension US Treasuries, remain the dominant global reserve asset, the search for alternatives is undoubtedly gaining momentum.
gold > us treasury
RBI’s selling has come when the central bank has increased the process of buying gold. China and Brazil cut their long-term US Treasury holdings in October to the lowest level on record since at least 2011, with the former leading a rise in bullion.
Just this week, the National Bank of Poland, the world’s biggest gold buyer, approved a plan to buy another 150 tons of the precious metal.
There are a number of reasons why India sales could decline, for example a stabilizing rupee, or a reduction in tensions if a stalled trade deal is finally finalized.
“If the trade agreement is successful, the need for aggressive currency defense may be reduced,” said Krishna Bhimavarapu, Asia Pacific economist at State Street Investment Management.
Yet a growing number of market watchers say a shift toward other assets is coming. A November survey by think tank OMFIF found that most central banks still hold the greenback, but about 60% planned to explore alternatives over the next one to two years.
“The trend is very underlying at this point,” Michael Brown, a senior research strategist at Pepperstone in London, said of India selling Treasuries. A trade agreement would “only stabilize the holdings and not allow India to make any large-scale purchases”.
