China’s Military Show of Force and Economic Moves

Last week, China showcased its military might and strengthened ties with its rivals, including Russia, North Korea, and, for the time being, India. However, this demonstration of power is just one part of a broader, more concerning threat posed by today’s alliances.

Equally worrying are the covert economic attacks from China and its partners. There’s a growing sense of alarm among global financial markets as China and other central banks amass gold, shift their reserves away from U.S. government bonds, and watch gold prices rise—actions that could have significant implications. Their allies appear to be following this trend as well.

So, why does this matter to most Americans? Well, a weaker dollar means higher costs for international travel and imports, even without tariffs. Increased interest rates can also raise borrowing expenses.

Indeed, Morgan Stanley recently noted that the value of the U.S. dollar fell by about 11% against other currencies in the first half of this year—marking the steepest drop in over 50 years, ending a bullish cycle that lasted 15 years. The investment bank highlighted that by mid-2025, the dollar had suffered its largest loss since 1973, with expectations of further decline in the upcoming year.

Meanwhile, gold prices have been on a steep rise, reaching over $3,600 per ounce for September delivery—the highest ever recorded. This marks a 45% increase over the past year.

In June, analysts from JP Morgan forecasted that gold prices would keep climbing, largely due to continued buying from central banks. They pointed out that nearly 36,200 tons were held by central banks, representing almost 20% of official reserves, up from around 15% at the end of 2023, according to IMF data.

China’s central bank has urged state banks to cut back on U.S. dollar purchases. The shift away from dollar reserves is gradual but has been accelerating recently. Currently, the share of U.S. dollars in reserves stands at about 57.8%, showing a slight drop of 0.62 percentage points.

Not every central bank is jumping on this trend, as JP Morgan noted key players like China, Poland, Turkey, India, Azerbaijan, the Czech Republic, and Iraq are heavily involved.

There’s also a noticeable increase in gold investments, particularly in China. ETF inflows have surged, with a total of 310 tons being added—around 10% of the global stock—thanks to a 9.5% rise in U.S. holdings and a staggering 70% increase in China’s ETF holdings.

So, what’s driving China to abandon the dollar in favor of other currencies? Well, by undermining the U.S. dollar, they weaken the country itself. Beijing is pushing to see the yuan adopted more widely as a global reserve currency.

However, due to Beijing’s currency manipulation and lack of reliable economic data, that goal seems quite distant. Still, promoting doubt about the dollar plays into China’s strategy, reducing demand for U.S. Treasuries and pushing the U.S. government to offer higher interest rates to attract investors. It’s a familiar scenario, really.

Alice in Wonderland might as well be right about all this—different currencies need to contend for the top spot for the dollar to lose its reserve status. But that’s unlikely anytime soon. Europe faces political and economic stagnation, while Japan is mired in its own issues.

On the brighter side, investment incentives, alongside major legislative efforts and new trade deals, have already provided a boost to U.S. investments. Employment is up, and tax revenues are increasing.

Treasury Secretary Scott Bescent indicated that an “acceleration” in the economy is expected by year-end. If he’s correct, it might just give the dollar a chance to recover and complicate China’s ambitions.