When China stops funding America

Donald Trump recently stated that losing the dollar's status as the world's reserve currency would be akin to losing a major war. This is no small comparison. The dollar's primacy is an essential source of American power: it allows the United States to finance itself more cheaply, impose sanctions, and sustain deficits that are very costly for any other economy.This is why two recent signals are concerning. Federal debt has just surpassed $40 trillion, double what it was when Trump first arrived at the White House. In 2025 alone, interest payments neared $970 billion, more than its entire defense spending. And this August, the yield on the thirty-year bond reached 5.34%, the highest level since 2007. The market is demanding more and more to lend to Washington.At the same time, China has reduced its holdings of Treasury bonds to $633.4 billion, 13% less than a year ago and the lowest figure since 2008. In 2013, it held nearly $1.3 trillion. It is not a sudden flight nor a weapon capable of sinking the United States: the global market continues to absorb its debt, and Japan and the United Kingdom already hold more American bonds than Beijing. But it is a slow and deliberate withdrawal.

China has learned a lesson from the freezing of Russian reserves: dollar assets also carry geopolitical risk. Therefore, it is reducing its exposure to the Treasury and accumulating gold. The People's Bank of China now exceeds 2,360 tons, after twenty-one consecutive months of purchases.At the same time, Beijing is expanding local currency exchanges, bilateral currency agreements, and payment systems less dependent on Washington. Xi Jinping has made the internationalization of the renminbi a central piece of China's financial ambition: for it to be a currency increasingly used in trade, investment, and international reserves.This does not mean that the dollar has a successor today. It still accounts for about 57% of global reserves, compared to less than 2% for the renminbi. North American markets are much deeper and more liquid; China maintains capital controls, and Europe lacks a common safe asset comparable to Treasuries. De-dollarization is, for now, erosion, not substitution.But Washington is straining its “privilege”. Trump and Biden understood that the United States had to recover industry, technology, and productive capacity. The diagnosis was correct. But generalized tariffs, external unpredictability, persistent deficits, and the conflict with Iran —which increases energy costs and fuels inflation— weaken the economy, alliances, and the confidence that sustain the dollar.Faced with rising rates, the Treasury has doubled its purchases of long-term bonds. The measure may temporarily ease tensions, but it does not alter the underlying problem: the United States continues to issue enormous quantities of debt and has little room to correct a deficit bordering on 6% of GDP. The calm only lasted a few hours. Bond markets are not convinced by financial artifices.

These turbulences are not far from us. American rates are dragging the cost of capital to Europe as well. When states and large tech companies compete to attract global savings, credit becomes more expensive for SMEs, families, and administrations. For an open economy like Catalonia's, this can affect investment, industry, and the ability to finance the welfare state.The lesson for Europe and Catalonia is not to embrace indiscriminate austerity, but to control the deficit, prioritize productive spending, and build more efficient and solvent institutions. Not all spending generates the same return, nor does all debt leave the same legacy.Catalonia has three decisive folders this autumn: completing the cancellation of 17.104 million euros of debt from the FLA, approving a new financing model that provides 4,686 million annually, and launching the consortium that must guarantee that the resources budgeted by the State for investments in Catalonia arrive even if the works are not executed within the planned fiscal year.They are three different folders, but with the same purpose: to strengthen the financial capacity of the Generalitat and reduce its dependence on debt. A need that is even more urgent when the invoices transferred from one fiscal year to another – the so-called “displaced spending” – have reached the worrying record of 5,295 million euros. Controlling the deficit is also sovereignty. The chronic and unfair underfunding that Catalonia suffers from the State makes it very difficult, but it does not exempt us from managing with rigor. Because credibility, both that of a country and that of a currency, is built much more slowly than it can be lost.