By Your retirement account, a car company’s cash reserve and a foreign central bank may have something in common: They may hold U.S. government debt, making them lenders to the U.S. government.
You might hold such debt as part of your 401(k) or individual retirement account (IRA), saving for the future. The car company might hold it to manage billions in cash reserves between paying suppliers and receiving revenue. Meanwhile, the Bank of Japan, the People’s Bank of China and the Reserve Bank of India hold it as part of their countries’ foreign-exchange reserves. (See the chart below from online database FRED.) Different purposes, same asset. This raises an important question: Why would ordinary savers, multinational corporations and central banks all choose to hold the same investment?
How Much U.S. Government Debt Do Foreign Institutions Own?
In late 2025, 24.8% of U.S. government debt was owned by foreign institutions (which include foreign businesses and central banks). The Bank of Japan and Japanese investors owned a combined $1.1 trillion worth of U.S. securities, followed by investors and central banks in the United Kingdom, China, Belgium, Canada, the Cayman Islands and Luxembourg. The following pie chart shows the top foreign holders of U.S. government debt.
To put the amounts in perspective, in 2025, Japan’s central government called for spending $809.6 billion, according to an April 2025 public finance fact sheet from the country’s Ministry of Finance,1 while the country’s central bank and investors were holding $1.1 trillion of U.S. debt. Similarly, for the 2026-27 fiscal year, India’s central government estimated $587.4 billion2 in spending, while the country’s central bank and investors hold $186 billion of U.S. debt. So why do all these entities hold U.S. government debt? To understand this, we first need to see why the U.S. dollar dominates global commerce, and how the U.S. debt became the asset for security.
Companies Often Use the U.S. Dollar for Trade
Suppose a South Korean chocolate-maker needs cocoa from a Brazilian company. South Korea’s currency is the won, and Brazil uses the real. Yet, the two companies may decide to use a third currency for the transaction: the U.S. dollar, which is the most widely used for trade. The Korean company must exchange won for dollars, and those dollars will ultimately come from the Bank of Korea’s foreign exchange reserves — and the dollar dominates such reserves globally. According to International Monetary Fund (IMF) foreign exchange reserves data, the U.S. dollar made up 57% of foreign exchange reserves in the first quarter of 2026.
Central banks like the Bank of Korea and the Central Bank of Brazil maintain large dollar reserves to ensure that their companies can conduct international trade smoothly. This reflects a broader pattern in international finance: Currencies that are widely held and traded tend to be cheaper and easier to convert into, which is part of the reason the dollar — rather than either country’s own currency — often serves as the go-between for trade.
How widespread is the use of dollars in trade? According to a September 2025 IMF working paper (PDF), less than 15% of exports go to the U.S., whereas nearly 40% to 45% of world exports are invoiced in dollars. Excluding the European Union, the U.S. dollar accounts for approximately 60% of invoices. This shows that countries overwhelmingly invoice exports in U.S. dollars even though they are not selling to the United States.
Central banks do not keep billions of dollars sitting as cash in vaults for those transactions. They need a safe and liquid way to store dollars, and U.S. Treasury securities fill that role. Treasuries are considered safe haven in part because the U.S. has built a reputation for solid legal and economic institutions and an open and generally well-regulated financial system, as St. Louis Fed economist Chris Neely and Research Associate Anna Cole noted in a blog post on the dollar as a reserve currency. For that reason, international investors see U.S. dollar assets such as Treasury bonds as “safe,” with the U.S. government very unlikely to default on them.
“Flight to Safety” Destination during Financial Crises
Households maintain a rainy day fund to help them during a crisis. Similarly, a country’s foreign exchange reserve is its rainy day fund. During a financial crisis, foreign investors may withdraw their capital from domestic assets like stocks or bonds. When foreign investors withdraw capital, a country’s currency may depreciate, and it would be expensive for domestic companies to repay dollar-denominated loans or finance imports.
This happened during the 1997 Asian Financial Crisis. As foreign capital started fleeing several Asian economies, accessing U.S. dollars became increasingly difficult in the face of rising demand, as banks and companies needed them to repay dollar-denominated debt. The crisis showed the importance of a large rainy day fund of foreign currency that can be accessed quickly.
After the crisis, many Asian economies increased their foreign exchange reserves. Since reserves needed to remain in an asset that is safe and readily available during a crisis, central banks invested a significant portion of them in highly liquid assets like U.S. government debt. An asset that is liquid is easily convertible into cash with relatively little loss of value in the conversion process.
Why Is U.S. Government Debt a Desirable Asset?
The depth of the market for U.S. government debt and the debt’s liquidity make it a desirable asset.
Imagine you have $100 to invest. You have plenty of choices. Now imagine you are a central bank with $100 billion to invest. Then the choices become limited. You would need a market that is deep enough to absorb billions of dollars without moving prices — meaning you can buy or sell without your own transaction pushing prices against you — and that is liquid enough to allow you to sell quickly when you need cash. The U.S. Treasury market provides both.
As the world’s largest borrower, the U.S. government has created a market whose value was almost $29.9 trillion in August 2026. It is one of the most traded financial markets in the world: In 2025, more than $1 trillion worth of U.S. government debt changed hands on an average trading day, compared with $824.3 billion for U.S. equity markets (that includes stock and exchange-traded funds markets, etc.), according to the 2026 SIFMA Research Capital Markets Fact Book. This liquidity allows governments and investors to buy and sell enormous quantities of Treasury securities easily, which becomes particularly valuable during financial crises.
When economic uncertainty rises, investors move away from riskier investments toward assets perceived as safer, in what is known as a “flight to safety.” U.S. Treasuries have historically been one of the main destinations for these flows. During the 2007-09 financial crisis, and most recently during the COVID-19 pandemic, investors rushed to the safety of these assets. The surge in demand for Treasuries caused their prices to increase and their yields to decline, as seen in the following FRED graphs. The yield declines enabled the U.S. government to borrow at lower costs to finance crisis response measures.
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