India dumps US Treasuries, buys up gold to mitigate threats

The threat of US sanctions, tariffs, and asset seizures has encouraged central banks to diversify away from greenback-based holdings  

News Desk - The Cradle 

India has drastically reduced its investment in US Treasuries, as New Delhi and some of the world’s largest nations move away from dollar-based investments to protect against Washington's policy of economic coercion, Bloomberg reported on 23 January.

India’s holdings of long-term US sovereign debt have dropped to $174 billion, down 26 percent from a 2023 peak, according to recently released US government data.

According to the Reserve Bank of India, US Treasuries now account for just 30 percent of India’s foreign-exchange assets, down from 40 percent a year ago.

At the same time, India has expanded its holdings of gold, mirroring the actions of China and other nations.

According to Win Thin, chief economist at Bank of Nassau 1982 Ltd., India may further reduce its holdings of US Treasuries to mitigate sanctions risks.

China has also reduced its holdings of US Treasuries in recent months, with holdings falling $11.8 billion in October to $688.7 billion, the lowest level since 2008.

Fear of US sanctions has grown since 2022, when the US froze Russia’s foreign exchange reserves following its invasion of Ukraine in 2022.

Though the US and India have long been allies, President Donald Trump threatened New Delhi with sanctions and tariffs last summer in response to its purchases of Russian oil, in defiance of US wishes.

In September, India’s Finance Minister Nirmala Sitharaman announced that the central bank was taking a “very considered decision” to diversify its reserves.

“The speed at which relations between the US and India deteriorated last year would have taken many by surprise and jolted policymakers to reduce their vulnerabilities,” Shilan Shah of Capital Economics told Bloomberg.

Trump’s threat to impose tariffs on European countries opposed to the US taking control of Greenland has also amplified fears of outsized reliance on US dollar investments.

At the same time, both India and China have increased purchases of gold.

China’s central bank has increased its gold purchases for the 14 straight months amid its own tariff disputes with Washington.

Bullion held by the People’s Bank of China rose by 30,000 troy ounces in December, bringing total purchases since November 2024 to around 1.35 million ounces, or 42 tons.

The People’s Bank of China will likely continue to increase its gold reserves in the future to strengthen its “ability to withstand external risks," explained Xi Junyang, a professor at the Shanghai University of Finance and Economics.

However, other countries more closely aligned with the US have chosen to expand their purchases of US Treasuries amid Trump’s threats, with purchases hitting an all-time high in January, Reuters reported on 15 January.

Foreigners bought $85.6 billion in Treasuries in November, as opposed to selling $60.1 billion of the asset in the previous month.

Foreign investors also bought $92.2 billion in US stocks in November, compared ‍with purchases of $60.3 billion in October.

Data also showed a net overall capital inflow of $212 billion into the US in November, following outflows of $22.5 billion in October.