What Happened
- India reduced its holdings of US Treasury securities by over 18% during 2025 — from approximately $241.4 billion (October 2024) to approximately $190.7 billion (October 2025) — a reduction of over $50 billion in one year.
- The reduction of approximately 21% (as reported by multiple sources) is the first annual decline in US Treasury holdings in four years and marks the largest absolute reduction in recent history.
- Simultaneously, the Reserve Bank of India (RBI) significantly expanded its gold reserves, increasing them from approximately 822 metric tonnes to approximately 880 metric tonnes.
- Gold's share of India's total foreign exchange reserves rose from approximately 9.3% to approximately 13.6% over the same period.
- Finance Minister Nirmala Sitharaman confirmed the RBI's diversification was a "very considered decision."
- India's total foreign exchange reserves stand at approximately $694 billion, making India the fourth-largest reserve holder in the world.
- The strategic context: the US freezing of Russia's $300 billion in foreign reserves following the Ukraine invasion in 2022 prompted central banks globally — including the RBI — to reduce exposure to dollar-denominated assets.
Static Topic Bridges
Foreign Exchange Reserves Management and the RBI's Mandate
India's foreign exchange reserves are managed by the Reserve Bank of India under the Foreign Exchange Management Act (FEMA), 1999. The RBI's reserve management objectives prioritize safety, liquidity, and returns — in that order. Diversification across asset classes and currencies is a standard reserve management principle.
- India's foreign exchange reserves (February 2026): approximately $694 billion — the fourth-largest in the world after China, Japan, and Switzerland.
- Reserve composition: foreign currency assets (primarily US Treasuries, other sovereign bonds), gold, SDRs (Special Drawing Rights), and reserve tranche position at the IMF.
- FEMA (Foreign Exchange Management Act), 1999 replaced FERA (Foreign Exchange Regulation Act), 1973 and governs all foreign exchange transactions and RBI's reserve management authority.
- The RBI Act, 1934, Section 17 grants the RBI authority to purchase, hold, and sell gold and foreign securities.
- The RBI's Annual Report discloses the broad composition of reserves but not the granular country-by-country breakdown of foreign currency assets (except US Treasury data, which is disclosed by the US Treasury Department).
Connection to this news: The legal and institutional framework for reserve diversification is well-established. The RBI's shift away from US Treasuries toward gold is a policy choice within existing statutory authority — not a departure from its mandate, but a recalibration of its execution.
US Treasury Securities as a Reserve Asset: Risks and Benefits
US Treasury securities — bonds issued by the US federal government — are considered the world's safest and most liquid financial asset, forming the backbone of global foreign exchange reserves. Their appeal lies in the depth of the US Treasury market, the dollar's reserve currency status, and the US government's historically zero default risk.
- The US Treasury market is the world's largest and most liquid bond market, with outstanding debt exceeding $35 trillion (2025).
- Foreign holdings of US Treasuries: approximately $8.5 trillion, representing roughly one-quarter of total US federal debt.
- Largest foreign holders (2025): Japan (~$1.1 trillion), China (~$760 billion), UK (~$750 billion), India (~$190 billion after reduction).
- Risk factors for holding US Treasuries: US dollar depreciation risk, potential asset freeze (demonstrated with Russia in 2022), and geopolitical weaponization of the dollar system.
- The "exorbitant privilege" — a term coined by French Finance Minister Valéry Giscard d'Estaing in the 1960s — refers to the US's ability to borrow cheaply globally because the dollar is the world's reserve currency.
Connection to this news: The Russian precedent demonstrated that US Treasuries carry a geopolitical risk previously considered negligible. For large emerging-market central banks like the RBI, the lesson has been to diversify away from pure dollar concentration — even at the cost of some yield, given gold's lower returns relative to interest-bearing Treasuries.
Gold as a Reserve Asset: The Case for Diversification
Gold has been held as a reserve asset by central banks for centuries. While gold does not yield interest (unlike bonds), it is free from counterparty risk, immune to sanctions and asset freezes, and serves as a hedge against inflation and currency debasement.
- Global central bank gold purchases reached record highs in 2022, 2023, and 2024 — driven by geopolitical uncertainty, dollar risk, and inflation concerns.
- The World Gold Council reports that emerging market central banks (China, India, Turkey, Poland, Russia) have been the primary buyers.
- India's gold reserves trajectory: from approximately 357 tonnes (early 2000s) to approximately 880 tonnes (late 2025).
- Gold at 880 tonnes is valued at approximately $95-102 billion at prevailing prices, representing the RBI's second-largest reserve asset after dollar-denominated securities.
- Gold's share of India's reserves: approximately 13.6% (September 2025) — a 20-year high.
- The IMF includes gold in its definition of international reserves and gold is used to back emergency liquidity arrangements.
Connection to this news: India's accelerated gold accumulation is consistent with a global central bank trend away from dollar concentration. The shift also reflects India's growing forex reserve base, which allows it to absorb the lower yield of gold without impairing reserve adequacy for currency defense or import cover purposes.
De-dollarization: Global Trends and India's Positioning
"De-dollarization" refers to the gradual reduction of the US dollar's dominance in global trade, finance, and reserve management. While the dollar's share of global reserves remains the largest (approximately 58% as of 2024), it has declined from 71% in 2001, reflecting a structural — if slow — diversification.
- Dollar's share of global forex reserves (2024): approximately 58% (down from ~71% in 2001).
- Key alternative reserve currencies: Euro (~20%), Japanese Yen (~6%), British Pound (~5%), Chinese Renminbi (~2.3%).
- BRICS nations (Brazil, Russia, India, China, South Africa) have advocated for alternatives to dollar-denominated trade; India has promoted rupee trade settlement with some partners.
- India has bilateral rupee trade settlement agreements with UAE, Russia, and several other countries.
- The RBI approved a framework for invoicing, payment, and settlement of exports and imports in Indian Rupees (INR) in July 2022.
- The de-dollarization trend accelerated post-2022 following the use of dollar system as a sanction tool against Russia.
Connection to this news: India's reduction of US Treasury holdings is a data point in the broader de-dollarization narrative. India's approach is measured — it is not aggressively reducing dollar exposure but strategically diversifying its reserve portfolio as its reserve base grows, hedging against scenarios where dollar assets could be constrained.
Key Facts & Data
- India's US Treasury holdings reduction (Oct 2024 to Oct 2025): from $241.4 billion to $190.7 billion (approximately 21% decline)
- Article's headline figure: "over 18%" reduction during 2025 (different reference period)
- India's total foreign exchange reserves (February 2026): approximately $694 billion (4th largest globally)
- India's gold reserves (late 2025): approximately 880 metric tonnes
- Gold's share of India's reserves: from 9.3% to 13.6% (a 20-year high)
- Gold reserves value: approximately $95-102 billion
- FEMA enacted: 1999 (replaced FERA, 1973)
- RBI Act, 1934: Section 17 — authority to hold gold and foreign securities
- Largest foreign holders of US Treasuries (2025): Japan, China, UK, India
- Global central bank gold accumulation: record levels in 2022, 2023, and 2024
- Dollar's share of global forex reserves (2024): approximately 58%
- Rupee trade settlement framework: approved by RBI July 2022