A report by Sun Jiaqi of Renmin University's International Monetary Institute has stirred debate by recommending that China reduce its massive foreign exchange reserves, particularly holdings of US Treasury bonds. The paper argues that maintaining “moderately ample” reserves is sufficient to back the yuan, but once the currency gains wider adoption for cross-border settlement and store of value, a gradual drawdown becomes inevitable.
11.49% GDP: The Proposed Ceiling for Reserves
The report sets a precise target: optimal foreign reserves should equal 11.49% of China's gross domestic product. Holding above that threshold, it warns, will drag on the economy and slow the yuan's internationalization. While Beijing has already trimmed its US debt pile, Treasuries still dominate the composition of its reserves. The authors highlight the risks of oversized foreign government bond holdings: “low yields and depreciation risks should an issuing country’s currency weaken.”
Gold as the Strategic Hedge
As China reduces dollar exposure, the report champions gold as a crucial alternative. Sun Jiaqi states that gold reserves “have become a tool hedging against the risks of the US dollar, enhancing long-term value preservation and providing solid credit support for the yuan’s internationalization.” This aligns with a February article in the Communist Party of China journal, which quoted President Xi Jinping’s vision for a “powerful” yuan capable of being “widely used in international trade, investment and foreign exchange markets, and attaining reserve currency status.”
Yuan Revaluation Under Geopolitical Pressure
The paper arrives as the yuan has recently appreciated against the dollar, though ongoing geopolitical tensions have chipped away at those gains. No specific timeline for reserve reduction is provided, but the policy tilt is clear: shift away from dollar dependency and let the yuan earn global trust through structural reforms rather than sheer reserve size.
China’s central bank has already been buying gold and selling US Treasuries in recent years. This report provides academic reinforcement for that strategy. For crypto markets, any sustained reduction in US Treasury demand and accelerated yuan internationalization could eventually reshape global reserve dynamics, indirectly influencing the pricing of non-sovereign assets like bitcoin.