THE SECRET BATTLEGROUND, U.S. TREASURY

Beneath the wars, the geopolitical manoeuvres and the tariffs and trade tussles, a secret battleground has emerged, the US Treasury. In this domain, India is making critical moves.

- HINDOL SENGUPTA

The international financial system is currently traversing its most significant period of structural realignment since the 1944 Bretton Woods Conference.

At the epicentre of this transformation is the United States Treasury market, which for decades served as the undisputed “risk-free” anchor of global capitalism. However, recent years have witnessed a fundamental shift in how sovereign nations perceive and interact with US debt. This evolution is driven by a realisation among global reserve managers that the US dollar and its underlying securities are no longer merely economic instruments but have been transformed into potent tools of geopolitical coercion. The freezing of Russian sovereign reserves in 2022 acted as a catalytic watershed, prompting a coordinated, albeit fragmented, retreat from US Treasury exposure by major holders such as Japan and China, while emerging powers like India have begun constructing parallel financial architectures to insulate their economies from Western financial leverage.

The immediate reaction from central banks, particularly across the Global South, has been a move toward “neutrality”. Reserve managers are increasingly viewing the dollar-clearing system, including the SWIFT messaging network and the New York-based Clearing House Interbank Payments System (CHIPS), as a “single-key veto” held by Washington over global commerce. Consequently, a May 2025 survey revealed that 85% of 84 central bank reserve managers believe the weaponization of reserves will have permanent consequences for the future of reserve management, with 76% classifying US sanctions risk as a “significant” factor in their asset allocation decisions—a figure that stood at only 30% before 2022 (Table 1).