Shocking 2 Trillion in China s Reserves Gone Fake De Dollarization 12 Trillion in Assets Flee

Beijing is believed to have long sought to make the yuan an international currency and eventually replace the US dollar. However, a recent research report by an expert says this plan has not only failed, but has also led to huge amounts of US dollars being hidden in policy banks and state-owned institutions. A major financial scandal is now being exposed. In 2025, China set a record that shocked the world. In the first 11 months, China's good That was a 21.7% increase from the previous year and broke the full year 2024 record of $992 billion. It is important to note that this figure covers only the first 11 months. If December is included, the full year trade surplus is conservatively estimated to exceed 1.2 trillion US dollars. What does 1.2 trillion mean? Most countries in the world have a GDP smaller than that. In other words, China's net income from selling goods in just one year would be larger than the annual economic output of most countries. By common logic, after earning so many US dollars, China's foreign exchange reserves should have risen sharply, and the state treasury should be filled with cash. Yet when we look at the accounts, we see a very different picture. By the end of March 2026, China's official foreign exchange reserves stood at 3.34 trillion US dollars. This number may seem large, but compared with the historic high of nearly 4 trillion US dollars in June 2014, it has not increased. Instead, it is hundreds of billions of dollars lower. This raises a key question. Over the past decade, China has reported large trade surpluses year after year. And in recent years, these surpluses have often reached about 1 trillion US dollars. Where did all these US dollars go? This is not just a routine accounting issue, it may be one of the most intriguing financial schemes in modern global financial history. Today, we will examine this mystery. Under normal economic logic, when a country owns large amounts of foreign exchange through exports, those US dollars usually flow to only three places. First, they may enter the central bank's foreign exchange reserves. Second, they may remain in foreign currency accounts at commercial banks. Third, they may be held by companies and individuals, known as keeping foreign exchange among the people. No matter which path the money takes, it should leave a clear trace in the data. However, after researchers compared figures from the People's Bank of China, the State Administration of Foreign Exchange, and the General Administration of Customs, they found a shocking fact – the accounts did not match. From 2014 to 2016, China earned about 1.5 trillion US dollars in net surplus from goods trade. Under normal procedures, these US dollars should have appeared in foreign exchange reserves or commercial bank data. In reality, official foreign exchange reserves did not rise at the same pace. Instead, they fell from nearly 4 trillion to about 3 trillion US dollars between 2014 and 2016. In other words, not only did the new income fail to appear, but nearly 1 trillion US dollars also disappeared from existing reserves. From 2020 to 2022, China again recorded a trade surplus of nearly 2 trillion US dollars. Even so, foreign exchange reserves and foreign currency deposits at banks still showed no clear growth. If goods trade, services trade, and non-financial investments are all included, more than 2 trillion in funds had almost no clear destination in the What does 2 trillion mean? It would be enough to buy Apple twice. This is not a small amount. It is an enormous sum that could reshape global capital markets, yet this money seemed to vanish. Beijing's unusual data naturally drew the attention of experts. The first person to examine this mystery in a systematic way was American economist Brad Setzer. He previously served as an advisor at the Office of the United States Trade Representative and is now a senior fellow at the Council on Foreign Relations. For years, he has tracked global capital flows with a special focus on China's foreign exchange and cross-border asset holdings. On April 30, he published a research article at CFR titled China's Fake De-Dollarization. In it, he argued that China has not truly moved away from the US dollar. Setzer said Chinese officials have long claimed that the yuan is becoming more international and that the dollar is becoming less important. At first glance, this claim may seem supported by the data. In 2005, dollar assets made up 79% of China's official foreign exchange reserves. By 2019, that share had fallen to 55%. This makes it appear that China is slowly breaking away from the dollar system, but that reading is highly misleading. What really happened is this. China lowered the share of dollars in its official foreign exchange reserves, stopped allowing those official reserves to keep growing quickly, and moved large amounts of new dollar assets into the books of other state-controlled institutions. In other words, the dollars did not disappear. They were simply moved out of the most visible place. So where are the dollars hidden? According to Setzer's analysis, the dollars that do not appear in official foreign exchange reserves have mainly flowed into three types of institutions. First, policy-based banks. The most important ones include the China Development Bank and the Export-Import Bank of China. For years, these institutions have provided large loans to countries along the Belt and Road, and most of those loans are priced in US dollars. For example, when countries such as Zambia, Sri Lanka, Ecuador and Angola restructured their debt, most of what they owed China was still in dollars, not yuan. This shows that even as Beijing promotes the yuan's global role, China's overseas lending still relies heavily on the dollar. Second, state-owned commercial banks. Setzer points out that the People's Bank of China reports about 3.1 trillion US dollars in official foreign exchange reserves. In reality, state-owned commercial banks and policy-based banks also hold large amounts of dollar assets that are not counted as official reserves. His estimate suggests that the total foreign currency assets controlled by China's state system may be close to 6 trillion US dollars. In other words, the assets hidden outside official reserves may be about the same size as the public figure itself. According to China's official data, about 70% of the foreign currency assets held by state-owned commercial banks are still in US dollars. By the end of 2025, these banks' net external dollar position had exceeded $700 billion and was still rising. Third, state investment funds. Sovereign wealth funds such as China's Investment Corporation hold large amounts of stocks, bonds and other investment assets around the world. These overseas assets are also not included in China's official foreign exchange reserve data. For this reason, so-called de-dollarization is more accurately described as spreading dollar assets across different institutions to reduce transparency, rather than truly cutting dollar holdings. In the simplest terms, China did not throw away its dollars. It moved from its left pocket to its right pocket, then told the outside world that the left pocket was empty. A lower dollar share on official accounts does not mean China has truly moved away from the dollar. It means those dollars have been reclassified, repackaged and placed into books that are harder for the outsiders to track. This is what Setzer calls fake de-dollarization, a grand financial strategy on the surface, but in reality, more like a carefully designed accounting trick. More importantly, Setzer also points out that China's state-owned banks may be playing another role, carrying out backdoor exchange rate intervention for the central bank. This means the central bank does not act directly. Instead, it lets state-owned commercial banks buy or sell dollars in the foreign exchange markets. As a result, the market is still influenced by official power, but these actions do not appear directly on the central bank's balance sheet. Outsiders cannot see large-scale central bank intervention, but they can feel that the exchange rate is being supported or restrained by some force. In December 2025, China's banking system bought about 100 billion US dollars in foreign exchange on a net basis in a single month. If forward positions are included, the amount may have reached 120 billion US dollars. 100 billion dollars is equal to the four-year foreign exchange reserves of many mid-sized countries. If this pace were annualized, backdoor intervention would exceed 1 trillion US dollars in one year, almost matching China's four-year goods trade surplus. In other words, the huge amounts of dollars China earns through exports did not flow naturally into the market, nor did it return to the companies or the public. Instead, it was absorbed again by the state-owned financial system and moved into a more hidden, shadowed treasury. This directly led the US Treasury Department to state clearly in its early 2026 report that future assessments of China's foreign exchange policy should not rely only on the official reserve data released by the People's Bank of China. They should also include the offshore activities of state-owned commercial banks. The meaning behind this statement is very clear. The United States no longer believes China's official foreign exchange data can fully reflect the truth. Looking only at the central bank's books, China may appear to have avoided large-scale intervention and reduced its reliance on the But if policy banks, state-owned commercial banks, and sovereign investment funds are included, China's dependence on the dollar has not fallen. It has only become more hidden, more scattered, and harder to trace. If the earlier discussion focused on the accounting of foreign exchange reserves, the more troubling issue is the total scale of Chinese assets moving overseas. Some China analysts believe that over the past decade or so, China may have moved about If this figure is accurate, the scale is extraordinary. Japan's annual GDP is a little over $4 trillion, Germany's is also a little over $4 trillion, and France's is about $3 trillion. $12 trillion could almost equal the annual output of several major developed economies combined. More importantly, this movement of capital does not appear to be slow, It seems to have accelerated in recent years. Around 2022 in particular, US-China relations worsened sharply, geopolitical risks rose, global supply chains began to shift, and economic pressure inside China increased. It was also around this time that capital outflows, overseas asset allocation, and immigration planning became more visible. This naturally raises the question, if officials are truly confident in China's economic future, why is capital moving overseas faster? If the Yuan is truly becoming an international currency, why are powerful and wealthy groups more actively buying dollar assets, overseas property, and foreign residency or citizenship? Another important signal is China's continued increase in gold holdings. As of early 2026, China's official gold reserves had risen for several months in a row. By the end of March 2026, gold reserves had climbed over 74 million ounces. In March alone, China added more than 100,000 ounces, the largest monthly increase in a year. Gold is different from the US dollar. Dollar assets can face financial sanctions, overseas accounts can be frozen, and cross-border payments can be restricted through the SWIFT system. Gold is harder to freeze, harder to trace, and less dependent on another country's credit. When a country keeps increasing its gold reserves, it may describe this as optimising the reserve structure. But under rising geopolitical tension and growing financial sanctions risk, it may also point to deeper crisis preparation. In other words, officials talk about making the Yuan more international, while the accounts present a picture of de-dollarisation. But in reality, something else is happening. China continues to hold large amounts of dollar assets, while increasing safer hard assets, such as gold, that are harder to sanction. This is not simply financial allocation, it looks more like a self-protection plan for extreme risk. At this point, many people may ask, these are high-level financial operations, so what do they have to do with ordinary people? The answer is, a great deal. First, ordinary people bear the cost of foreign exchange controls. In China, each resident can exchange only US$50,000 per year and must explain the purpose and undergo review. Companies also face many approvals and restrictions when they need to use foreign exchange normally. On the other side, state-owned banks, policy banks, and state investment institutions can move hundreds of billions, even trillions of dollars in assets around the world. The rules restrict ordinary people, not those who control the resources. Second, the benefits of the trade surplus have not truly returned to the public. China exports on a massive scale every year, supported by factories, workers, logistics networks, supply chains, and a manufacturing system that has kept costs low for a long time. But after trillions of dollars in surplus are created, what do ordinary people actually feel? They feel stagnant income, job pressure, weaker consumption, mortgage stress, and a growing sense of insecurity. If the trade surplus truly meant greater wealth for everyone, ordinary families should be richer, social benefits should be stronger, and the burdens of healthcare, education, and retirement should be lighter. But that is not the reality. The money has been earned, but it has not truly flowed to the people who created the wealth. Third, the less transparent the accounts are, the more risk shifts to the bottom. When assets are moved along different institutions, different books, and different overseas platforms, ordinary people have no way to know the country's real financial risk. Once the external environment worsens, or the domestic financial system is shaken, those who control resources are always protected first. The people who bear the final cost are often ordinary families who hold only yuan assets, have no overseas accounts, no path to immigration, and no ability to hedge risk. The use of the yuan in cross-border payments has indeed increased. For example, in March 2026, the yuan's share of global cross-border payments reached 3.1%, up 0.4 percentage points from the previous month. The question is, what does 3.1% really mean? It shows that the use of yuan has increased, but it is still far from proving that the yuan has truly become a major global reserve currency. The US dollar still holds a much stronger position in global trade, energy markets, financial markets, sovereign debts, and international reserves. More importantly, for a currency to truly become international, it depends not on administrative promotion or political slogans, but on trust from global markets. Clearly, a higher share of yuan payments does not mean China is successfully replacing the dollar. A more realistic picture may be this. While officials promote the internationalization of the yuan, the financial system still depends heavily on the dollar. Experts say that since taking power, Xi Jinping has tried to build a broad financial narrative, promoting the internationalization of the yuan, gradually weakening the position of the dollar, and eventually making the yuan a global currency capable of challenging or even replacing the US dollar. This vision sounds ambitious and has been presented as an important symbol of China's rise. But reality has delivered a very different answer. The fact suggests that China has not truly moved away from the dollar. While officials publicly call for breaking away from dollar dependence, in practice, the dollar has appeared to be held more tightly and hidden more deeply. This suggests that Beijing's top leadership and powerful elites may never have truly believed that Xi Jinping could achieve his monetary vision, nor were they willing to tie their own interests to the idea of the yuan replacing the US dollar. Financial institutions and state-owned enterprises may support the message in public, but in their asset allocation, the focus still appears to be on the US dollar, gold, and overseas assets. In recent years especially, as the international situation has changed sharply, the narrative of China rising while the West declines appears to have lost momentum. For China's powerful elites, what seems to be carried out most seriously is not the rise of the yuan, but the movement of capital overseas and the protection of wealth. This may be the real answer behind what some describe as a financial deception of historic scale.