Taiwan’s central bank has issued a stark warning about the rapid U.S. Debt Surge, suggesting it could undermine global confidence in U.S. Treasury bonds, an asset long regarded as the cornerstone of international reserves. With over 80% of its $593 billion in foreign exchange holdings tied to U.S. securities, Taiwan is signaling concerns shared by many global reserve managers. The warning not only reflects unease about America’s growing fiscal imbalance but also a broader shift toward diversification amid rising geopolitical and trade tensions.
Rising U.S. Debt and Taiwan’s Growing Concerns
Reuters reports that Taiwan’s central bank has voiced growing concerns over the mounting U.S. Debt Surge and its implications for global financial stability. Governor Yang Chin-long cautioned that President Donald Trump’s economic and trade strategies, especially his expansive budget proposal, are shaking confidence among global investors and could jeopardize the appeal of U.S. Treasury bonds.
Taiwan, holding $593 billion in foreign exchange reserves, over 80% of which are parked in U.S. Treasury bonds, finds itself especially exposed to shifts in sentiment toward U.S. debt. While the central bank still views Treasuries as a stable and preferred investment and sees no immediate threat to the dollar’s status as the leading global reserve currency, Governor Chin-long emphasized that the environment is becoming increasingly fragile.
Moreover, Governor Chin-long warned that unchecked debt growth could damage long-term trust in U.S. sovereign debt. Trump’s One Big Beautiful Bill Act could push the deficit up by $2.8 trillion over the next decade, according to Congressional Budget Office estimates, even as it delivers short-term economic stimulus.
Governor Chin-long stated in a speech published on the central bank’s website that,
In addition, Trump 2.0’s trade policy has made investors hesitant about holding U.S. Treasury bonds; Trump’s budget, the ‘One Big Beautiful Bill Act,’ may cause U.S. debt to expand too quickly, which is unfavourable to the outlook for U.S. sovereign debt. All of these have had a significant impact on the international monetary system centred on the U.S. dollar and based on U.S. creditworthiness.
Trade Policies and Tariffs Deepen Investor Caution
Beyond fiscal concerns, Governor Chin-long highlighted the risks of Trump’s trade strategy. Early in his second term, Trump imposed broad tariffs on many countries, including Taiwan. Though some were paused for 90 days to allow talks, Chin-long warned these measures fail to address the U.S. trade deficit’s root causes and risk disrupting global trade, straining the U.S. economy, and unsettling investors.
Trump’s repeated criticism of the U.S. Federal Reserve, Governor Yang Chin-long warned, risks eroding confidence in the Fed’s independence. He noted this could have wider repercussions for the global monetary system, which depends on trust in the U.S. dollar and Washington’s reliability in meeting its obligations.
Moreover, recent data shows growing caution among foreign investors. Between late March and mid-May, foreign central banks and sovereign wealth funds cut their U.S. asset holdings at the New York Fed by $48 billion, while use of the Fed’s reverse repurchase facility fell by $15 billion, bringing the total decline to about $63 billion.
Conclusion
Taiwan’s cautionary stance highlights a growing unease among global reserve holders about the long-term sustainability of U.S. fiscal and trade policies. While Treasuries remain dominant, the call for vigilance signals a potential shift toward diversified reserve strategies. As debt levels rise and political unpredictability persists, maintaining investor trust in U.S. debt will be critical, not just for Washington but for the stability of the global financial system.
About The Author
