From NYT:
“Geopolitical factors and U.S. weaponization of the dollar through financial sanctions are causing central banks and other official investors to attempt to diversify away from dollar assets,” said Eswar Prasad, the former head of the International Monetary Fund’s China division.
To see how this fits in with the rise in US interest rates, consider the rate at which Fed debt is rising, relative to that acquired by the official sector (according to Treasury data):
Figure 1: Debt held by Foreign official sector (dark green), foreign non-official (light green), Fed (brown), rest (blue), all as share of US GDP. Source: Treasury via FRED, TIC, and author’s calculations.
Even if the official sector holdings might be understated (see Brad Setser’s $300-$400 bn estimate for China), it’s clear that reserves in Treasurys are not rising proportionately with overall debt held by the public.
What’s the picture from (reported) central bank data (IMF’s COFER). For data through end Q1:
Figure 2: US dollar share of foreign exchange reserves (bold blue), share of foreign exchange reserves controlling for fx valuation effects at 2025Q4 rates (light blue). Controls for valuation using EUR, GBP, JPY echange rates. Source: IMF COFER (vers. June 30, 2026), FRED, and author’s calculations.
While initial figures indicate a slight uptick one month after the US-Iran’s war, this is due in part to exchange rate changes (dollar appreciating). Adjusting for exchange rate valuation changes (not other valuation changes though), the uptick is smaller. What is clear, though, is that the share of FX reserves is down since end-2024Q4.
We will get revised numbers for end-Q1 and initial end-Q2 data at the end of this month.
To a considerable extent, official reserves exist as a buffer for foreign private holdings. If official reserves don’t absorb more U.S. debt issuance, the U.S. debt becomes riskier for foreign private holders. That’s on top of any increase due to, say, the deterioration of the rule of law, disregard for obligations or bad fiscal policy in the U.S.
We have enjoyed an “exorbitant privilege” in part because our reliability as a counterparty. Running up huge new debt at the same time we undermine foreigners’ trust in us as a counterparty is crazy stupid.
it may be crazy stupid, but it will become the next administrations problem. trump is only concerned about today.
anybody following the politics in Texas? bo french, the bona fide racist in state politics, is creating tons of headaches for the Texas gop. you see, there is no denying that bo french is a bigot and troll of major proportions. so much so that Karl rove has said he will vote for a Democrat instead, in his statewide election. but what is creating problems is that the Texas state leadership, folks like abbott, Paxton and and Patrick, cannot bring themselves to condemn the horrible bo french. independents and hispanics are beginning to question their support of republican candidates as a result. not sure if it can create a blue wave. but it sure is shaking up Texas politics. if the Hispanic voters make the connection that trump and the gop are responsible for the hate and racist positions of the nation, who knows what will happen. but in Texas, the white population is no longer the majority. why they continue to demonize minorities is strange, but they do. keep an eye out for federal and state agents with arms staking out election polls. intimidation tactics appear to be on the horizon, at least in Texas.
Democrats, as the “outs” in Texas, can blame Republicans for everything that’s going on, and everything that’s coming down the pike. If they don’t link Republicans for future problems, then any political gains Democrats enjoy in November will be used against them when fitire problems land. The Rio Grande is running dry, and that puts billions in economic activity and tens or hundreds of thousands of families’ access to water at risk. It needs to be part of every Texas Democrat’s stump speech.
The cool thing about campaigning on future problems is that you get a running start at dealing with those problems while scoring political points.
Texas actually has some smart Democrats. Get crackin’, kids.
Thank G-d that when Republicans have the White House and control of Congress, they take care to maintain the same level or lower the U.S. federal debt. That is why large numbers of Blacks, Hispanics, and women voted Republican and for the orange creature in the WH, I assume. Thank G-d for illiterate masochists. Does anyone know when Judge Pirro is on TV today?? Me, CoRev, Kopits, and Bruce Hall got bored with sniffing paint and the local gas station ran out of Kratom, so we thought we would edify ourselves watching the TV.