Countries buy U.S. debt because Treasury securities offer a combination no other asset matches: near-zero default risk, the deepest and most liquid market in the world, interest income on dollar reserves they already have to hold, and, for export-driven economies, a way to keep their goods affordably priced in the American market. As of December 2025, foreign entities held roughly $9.3 trillion in Treasuries, about a quarter of the nearly $38.9 trillion national debt.
Safety Backed by the Constitution
The core appeal is that the United States has never missed a scheduled interest or principal payment on its debt, and the obligation to pay is written into the founding legal document. The Fourteenth Amendment states that the validity of the public debt “shall not be questioned,” a constitutional-level commitment to repayment that no other major economy has embedded at that level.
The U.S. Treasury’s own fiscal data site notes that a default would “likely have catastrophic repercussions in the United States and in markets across the globe,” which is one measure of how seriously the government treats the obligation. For a foreign central bank choosing where to store national wealth, that combination of constitutional mandate and unbroken payment history is difficult to replicate anywhere else.
Corporate bonds default. Developing-country sovereign debt restructures. Even some European government bonds have required haircuts. Treasuries sit at the opposite end of that spectrum, which is why rating agencies and institutional investors worldwide treat them as the benchmark for “risk-free.”
A Market Deep Enough to Exit Any Day
Safety alone would not be enough if the asset were hard to sell. In 2025, average daily trading volume in Treasuries topped $1 trillion for the first time on record, and through early 2026 the figure climbed above $1.19 trillion per day. No other government bond market comes close.
The practical consequence: a foreign central bank can sell tens of billions of dollars in Treasuries on any given day without meaningfully moving the price. During the 2008 financial crisis and the 2020 pandemic shock, countries that needed emergency cash could liquidate holdings almost instantly. Smaller bond markets freeze up during periods of stress, trapping holders in positions they cannot exit. Treasury depth eliminates that risk.
The Dollar Is Already the Reserve Currency
Most foreign governments are going to hold large dollar balances no matter what, because nearly every major commodity trade and international banking transaction involves dollars. According to IMF data from mid-2025, the dollar accounted for about 56 percent of allocated global foreign exchange reserves, far ahead of the euro at roughly 21 percent and the Chinese renminbi at just over 2 percent.
Sitting on billions of dollars in a non-interest-bearing account is wasteful. Treasuries convert that idle cash into an income-producing asset that is still denominated in dollars and can be sold at any time. The interest, even at modest yields, compounds over years into meaningful revenue for a central bank’s reserves.
The reserves also function as insurance. If a country’s own currency drops sharply against the dollar, it can sell Treasuries to intervene in currency markets or pay for essential imports like food and fuel. Treasuries earn interest in stable times and serve as an emergency fund during crises.
Rival Currencies Are Not Close
Talk of “de-dollarization” has run for years, but the shift is happening slowly. The dollar’s share of global reserves has drifted from over 70 percent two decades ago to around 56 percent, and most of that decline went to a mix of smaller currencies rather than any single rival. The euro’s share has hovered near 20 percent for years, partly because the eurozone lacks a single unified bond market comparable to U.S. Treasuries. The renminbi sits at roughly 2 percent, constrained by Beijing’s capital controls and limited currency convertibility.
Keeping Exports Competitive
For export-driven economies, buying U.S. debt is a deliberate strategy to keep their goods cheap for American consumers. When a country sells products to the United States, it receives dollars. If those dollars were immediately converted back into the local currency, the resulting demand would push the local currency’s value up, making the country’s exports more expensive and less competitive.
Instead, the exporting country’s central bank absorbs those dollars and channels them into Treasury securities. Dollar demand stays high, which supports the dollar’s value, while more of the domestic currency stays in foreign exchange markets, which holds its value down. The result is an indirect subsidy for domestic manufacturers: their products stay affordable in the American market without any tariff manipulation or explicit handout.
China pioneered this at massive scale during its export boom of the 2000s and 2010s, accumulating over $1.3 trillion in Treasuries at peak. Japan, currently the largest foreign holder at about $1.19 trillion, uses a similar playbook.
A Tax Exemption Private Investors Do Not Get
Foreign governments get a favorable tax treatment on Treasury income that private investors do not. Under IRC 892, income a foreign government earns from investments in U.S. securities, including Treasury bonds, is not included in gross income and is exempt from U.S. taxation. Foreign central banks collect the full coupon without any withholding.
Private foreign investors, by contrast, face a 30 percent withholding tax on interest paid to nonresident aliens and foreign entities under the general rule, though tax treaties can reduce or eliminate that rate, and portfolio interest on certain Treasuries may qualify for a separate exemption. For sovereign wealth funds and central banks, the blanket exemption makes Treasuries even more attractive than other investments that might trigger U.S. tax obligations.
Who Holds the Most
The concentration of foreign holdings reflects the trade and financial relationships behind them. As of December 2025, the five largest foreign holders were:
- Japan: $1,185.5 billion
- United Kingdom: $866.0 billion
- China: $683.5 billion
- Belgium: $477.3 billion (largely reflecting holdings managed through the Euroclear settlement system based in Brussels)
- Canada: $468.1 billion
China’s trend draws the most attention. Chinese holdings have dropped from roughly $1.1 trillion five years ago to under $700 billion by the end of 2025, a decline of about 36 percent. Beijing has been a net seller for several years, shifting reserves into gold and other assets. The selloff has not disrupted the Treasury market visibly, because other buyers, including private investors, allied governments, and domestic institutions, have absorbed what China shed. Total foreign holdings actually rose from about $8.6 trillion to $9.3 trillion over the same period.
Could a Major Holder Dump Treasuries as a Weapon?
This is the question that comes up in every geopolitical discussion, and the answer is that a fire sale would hurt the seller at least as much as the target. A rapid, large-scale liquidation would push Treasury prices down and yields up, raising U.S. borrowing costs. The selling country would simultaneously destroy the value of its own remaining holdings and take losses on the securities it sold at depressed prices. If the selloff moved the market enough, the resulting spike in U.S. interest rates could ripple through global bond markets and raise the seller’s borrowing costs too.
There is also nowhere else to put the money. Eurozone bonds are the most commonly cited alternative, but flooding into that market would drive European yields down to unattractive levels. Gold cannot absorb that kind of inflow without extreme price distortion. Holding raw cash in dollars defeats the purpose of selling the bonds. China’s gradual, multi-year reduction of its holdings shows what deliberate divestment looks like; a fire sale would be a fundamentally different event, and the country attempting it would find itself locked in a financial scenario where everyone loses.