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The global narrative of de-dollarization relies on two political assumptions: that central banks can successfully diversify away from the US Dollar, and that the domestic financial system will follow suit. The reality, revealed in the Chinese official sector's own data, is the definitive refutation of that narrative.
Analysis confirms that while the People's Bank of China (PBoC) strategically reduces its headline US Treasury holdings, major Chinese state-owned commercial banks have been engaged in a massive, non-transparent US Dollar purchasing operation during 2024 and 2025.
The most critical finding, demonstrating the structural dominance of the dollar, is the near $200 billion increase in the net foreign asset position of these state banks—an accumulation intentionally shielded from official foreign exchange reserves. This structural divergence is not a failure of policy, but a commercial confession of the dollar's true power.
The Structural Mechanism: The Proxy Intervention Loop
The $200 billion accumulation is the direct result of a centrally orchestrated, defensive policy known as Proxy Intervention, not a commercial decision by the banks themselves. This mechanism is the ultimate structural test of the dollar's necessity.
1. The Stability Mandate
The PBoC’s core objective is Renminbi (RMB) stability to prevent deflationary pressures and protect the export sector. The Chinese financial system continuously generates massive foreign exchange inflows. If these dollars hit the open market, the RMB would appreciate rapidly, making Chinese goods expensive and crippling manufacturing.
2. The Opacity Layer
To prevent this volatility—and to avoid international scrutiny over currency manipulation—the PBoC directs state-owned commercial banks to absorb this dollar flow. This moves the dollar accumulation off the central bank's balance sheet and into the commercial banking system. This strategic ambiguity enables continued currency management while minimizing the visible footprint of intervention activity.
3. The Structural Consequence
Every dollar acquired by these state banks to ensure the Yuan’s short-term stability becomes a US Dollar asset on the Chinese financial system’s books. This mandatory, policy-driven accumulation is the ultimate evidence of the dollar's structural dominance.
The Valuation Breakpoint: Liquidity Over Politics
This hidden accumulation proves that even China's state-controlled commercial entities prioritize liquidity and risk-free convertibility over geopolitical strategy.
The Commercial Confession: The PBoC’s reliance on this proxy buffer affirms that the global financial ecosystem has no viable, risk-free substitute for the US Dollar as the primary settlement and reserve asset. The cost of illiquidity in a non-USD asset outweighs the theoretical political risk.
The RMB’s Constraint: The need for constant intervention—even when the currency is facing appreciation pressure —is a structural admission that the RMB lacks the necessary depth, transparency, and legal certainty required of a true global reserve currency. The continuous use of strict capital controls limits the RMB's international trust.
The Structural Moat: The action confirms the USD's moat is anchored by financial necessity. When faced with market pressure, the commercial system—even a state-controlled one—is compelled to buy the dollar, confirming it as the world's most necessary store of large-scale value.
The Structural Takeaway
The structural message is highly bullish for the US Dollar and its related asset classes. The $200 billion divergence is the most significant structural data point of the year, signaling that the de-dollarization thesis remains commercially inert.
The investment signal is clear: view the dollar's strength not as a cyclical anomaly, but as a validation of its unassailable liquidity and safety moat, which even the largest state-backed financial system on earth cannot escape. This ensures the dollar's continued status as the world’s only true safety anchor for the foreseeable future.
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Education, not investment advice.
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