India Rebalances Its Reserves as US Treasury Exposure Slips to Multi Year Low

• India cut US Treasury holdings to a five‑year low of about $174 billion, down 26% from 2023.

• Treasuries now form roughly one‑third of India’s reserves, versus 40% a year ago.

• RBI is diversifying toward gold and non‑dollar assets amid sanctions and geopolitical risks.

• Selling also supports the rupee during trade tensions and high US tariffs.

  
  

India has reduced its exposure to US government bonds to the lowest level in five years, underscoring a broader effort to stabilize its currency and spread risk across a wider range of reserve assets. The move places the country alongside other major economies that are gradually trimming their reliance on the world’s largest bond market.

Data released by the US government last week show India’s holdings of long‑dated Treasuries have declined to about $174 billion. That figure represents a drop of roughly 26% from a high reached in 2023. As a result, US government bonds now make up close to one‑third of India’s foreign‑exchange reserves, down from around 40% a year ago, according to the Reserve Bank of India (RBI).

The pullback comes as gold and other non‑dollar assets occupy a growing share of India’s reserve mix. This pattern echoes similar shifts by larger reserve holders such as China and has reignited debate over the long‑term dominance of US debt as a global store of value. Recent geopolitical tensions, including renewed trade threats from US President Donald Trump involving Greenland, have further unsettled markets and raised the possibility that some European governments could also reconsider their exposure.

According to Win Thin, chief economist at Bank of Nassau 1982 Ltd., part of the motivation reflects a desire to reduce dependence on dollar‑based assets amid rising sanctions risks. With nearly four decades of experience, he noted that India still has scope to further reduce its Treasury holdings as it adjusts its reserve strategy.

The RBI declined to comment directly on the reduction in US bond holdings. However, Finance Minister Nirmala Sitharaman said in September that the central bank was approaching reserve diversification cautiously and with careful consideration.

For India and many other countries, recent policy decisions are shaped by lessons from 2022, when the US froze Russia’s foreign‑exchange reserves following Moscow’s invasion of Ukraine. India’s continued purchases of Russian oil later became a source of friction with Washington, contributing to the imposition of steep US tariffs on Indian exports.

“The pace at which US‑India relations worsened last year caught many off guard,” said Shilan Shah of Capital Economics, who ranked as Bloomberg’s top rupee forecaster last quarter. He added that the shift likely pushed policymakers in New Delhi to reassess vulnerabilities tied to their reserve holdings.

Currency management has also played a key role. The RBI has been working to support a weakening rupee, which has fallen to record lows amid delays in a US‑India trade agreement and the introduction of 50% tariffs on Indian exports—the highest applied to any Asian economy. By selling Treasuries, the central bank can free up dollars to buy rupees, helping to shore up the local currency.

Among global investors, concerns are mounting over whether US Treasuries still represent the safest cornerstone of reserve portfolios. Trump’s broad trade tariffs and the increasing use of the dollar as a sanctions tool have fueled skepticism, while recent actions involving Venezuela have added to the unease.

Despite the recent sales, India remains a relatively modest holder of US government debt. Its Treasury portfolio is roughly a quarter the size of China’s nearly $683 billion stash and far smaller than Japan’s $1.2 trillion holdings, based on data through November. Foreign ownership of US Treasuries overall remains close to record levels, but India’s shift contributes to a growing conversation about the future role of US sovereign bonds.

Central banks worldwide are navigating an increasingly complex environment that places new pressure on reserve allocation decisions. While the dollar—and US Treasuries by extension—continues to dominate global reserves, the search for alternatives is accelerating.

India’s reduced Treasury exposure coincides with a sustained increase in gold purchases by the RBI. Other emerging markets are following a similar path: China and Brazil cut their long‑term US bond holdings in October to the lowest levels seen since at least 2011, with China significantly boosting its bullion reserves. Meanwhile, the National Bank of Poland, currently the world’s largest reported gold buyer, approved plans this week to acquire an additional 150 tons of the metal.

There are scenarios in which India’s selling could slow. A more stable rupee would lessen the need for currency intervention, and a breakthrough on the stalled trade agreement with the US could ease political and economic tensions.

“If a trade deal is eventually reached, the pressure to defend the currency so aggressively may fade,” said Krishna Bhimavarapu, Asia‑Pacific economist at State Street Investment Management.

Still, many analysts believe the broader shift is here to stay. A survey conducted in November by the Official Monetary and Financial Institutions Forum (OMFIF) found that while most central banks still hold dollars, nearly 60% intend to explore alternative assets within the next one to two years.

“This is no longer a temporary adjustment,” said Michael Brown, senior research strategist at Pepperstone in London. Even if a trade agreement is finalized, he added, India’s Treasury holdings are more likely to level off rather than return to rapid accumulation.