Preamble: this essay picks up on a series of themes I have written about concern fictitious capital, the real economy and questions of system liquidity and dollar issuance. It seeks to extend a recent essay on the misdiagnosis of U.S. bonds as a sign of impending American government insolvency, to examine the extent and scale of the risks faced by the world in the face of America’s own problems. America’s problems are anchored by what I described as a trilemma and in this essay, I explore what the implications are should the nexus between bonds issuance and government spending be severed. I then extend this discussion to questions of commercial bank credit and liquidity management. All of this is largely operational, though with a political tinge, and it lays the groundwork for a turn to consider what the implications are for the Global South in the face of serious crises facing the US Treasuries market. The question I am left with is are we witnessing the beginning of what Arrighi described as a system-wide crisis of financialised over-accumulation.
Quite a bit of bandwidth has been absorbed dissecting the comments of the US and Chinese negotiating teams after the recent 2-day trade negotiations in London. US President Trump has gone onto social media to announce that a deal has been done. The Chinese, for their part, have indicated that a ‘framework’ has been agreed to give effect to the consensus reached by Xi and Trump in their phone call of 5 June 2025. What kind of a deal is this, really? At best, it appears to be setting into stone (for the time being at least) the pre-2 April arrangements. Trump’s social media message in effect confirmed that. The issue, however, is not what kind of tactical or operational agreements have been entered into but what are the structural contexts of these discussions.
I have previously argued that the hollowing out of American manufacturing has both a cultural dimension (the US still makes things, but not the things that people experience in their daily lives) and an economic dimension - namely that it is a symptom of a political economy that is now dominated by finance capital, or to be more specific, the dynamics and imperatives of fictitious capital. Addressing trade questions in the hopes of overcoming the effects of structural financialisation is a fool’s errand. The path of political nostalgia is a dangerous one, unable, as it is, to address the critical material issues while at the same time laying the groundwork for deeper disappointment and resentment from those who feel that the American social settlement no longer works for them.
One of the most obvious symptoms of the dominance of fictitious capital is the exponential growth of the US Treasuries (bonds or UST) market as a cornerstone of American fiscal operations and increasingly global financial dynamics. I have previously discussed, at length, why the diagnosis of American fiscal deficits as a solvency crisis waiting to happen misses the point; the constraint isn’t solvency, but the fundamental materiality of the American economic model itself.
We are now entering a period in which the problems in the UST market are increasingly difficult to hide. This essay picks up on the recent essay exploring the nexus between U.S. federal government deficits and bonds. It then continues the discussion in two main parts. The first part is what could be called ‘housekeeping’, and addresses three sets of issues. First, I will discuss the nexus between government spending and mandatory bond issuance, and what the issues are should this nexus be severed. Second, we turn to the question of private credit. Lastly, the essay zooms back out to canvas a reframing of how we think about money in financialised capitalism through the language of liquidity management. If these are largely operational considerations, I then wrap up with a bird’s eye view of the structural problems evident now in the UST market and suggest that tinkering with market design and operations may paper over the cracks for a while, but cannot hide the cracks forever. This has implications for countries in the global south, and others too, and I conclude with reflections on what global south nations need to be thinking about.
Part 1: Housekeeping
Severing the Nexus
The nexus between government spending and mandatory bond issuance is a legal one. In other words, it is a creation of Congress, and there is no fundamental economic reason for this nexus to remain in place. So, we wonder, what would it take to sever the nexus between government spending and mandatory bond issuance? What would the mechanics, winners and losers look like?
Severing the nexus - that is, allowing the U.S. Treasury to spend money via Congressional appropriation without issuing bonds to offset deficits - would be a profound institutional shift. It is technically straightforward but politically explosive. The result would be a radical departure from the current performative fiscal regime in which scarcity is simulated through bond markets to confer credibility on spending.
From a legal perspective, the severance of the nexus would require an act of Congress to amend or repeal statutory provisions that bind Treasury spending to debt issuance. This includes repealing or modifying provisions of the Public Debt Acts and the Debt Ceiling framework and rewriting the Federal Reserve-Treasury Accord (1951 legacy) that informally separates monetary and fiscal policy. Alternatively, the executive could attempt a constitutional challenge, though this would almost certainly provoke a constitutional crisis and market panic. The likelihood of such actions is very low in the current political climate. Ironically, that’s despite Senator Elizabeth Warren (Democrat) and President Donald Trump (Republican) both agreeing that there is a need to repeal the so-called debt ceiling. Reform would likely require a crisis and a post-crisis realignment of political institutions.
That said, assuming that such a reform process were to be enacted, this would mean that the Treasury would be allowed to spend upon appropriation without issuing new debt instruments. In practical terms, this necessitates new approaches to liquidity management with a shift from bond issuance (alone) to other mechanisms. These mechanisms could include reserve interest payments made to banks to control short-term rates, the introduction of time-bound term deposits or voluntary savings instruments (ie., non-compulsory, non-offsetting instruments) and central bank sterilisation operations to manage reserve balances and prevent undesired inflationary spillovers. Treasury securities might still be issued for other reasons (e.g., providing collateral to financial markets), but not as a default mechanism for funding. I come back to the question of liquidity management a little later.
No monetary operations are neutral in effect. Distributional consequences are amongst the most significant. We can expect that the winners of such moves to be activities that involve public investment, such as infrastructure, care provisioning, education and health care programs, which could be scaled based on real resource constraints, not bond market tolerance. Low-income households and precarious workers may also be beneficiaries as they would gain from more stable fiscal flows, less regressive interest income transfers and reduced financial pressure. Last but not least, small business and real economy sectors would benefit when fiscal policy is less tied to rate volatility, whereby credit conditions would be more consistent and less distorted by debt servicing priorities.
There are losers too, of course. Chief amongst the losers are bondholders and financial institutions. With fewer bonds issued, or with reduced interest rates, the flow of risk-free income to capital holders declines sharply. The bond market currently offers a privileged position to private capital as an extractor of public money. Severing the nexus removes that privilege for Wall Street traders of fictitious capital and global rentiers. Dollar-based global financial institutions are also likely to experience adverse impacts. The credibility of the U.S. fiscal regime rests in part on the narrative of “market-determined” borrowing. If that disappears, the entire structure of global dollar-based wealth management may weaken, including reserve portfolios, SWFs and private offshore wealth channels. Last but not least, foreign central banks holding USTs are likely to see their portfolio values impaired.
A critical constraint in a post-nexus world is inflation, not so much in a financial sense, but in a real material constraints sense. Once bond issuance is no longer required to “finance” spending, the true limit on fiscal action becomes productive capacity: labour, energy, infrastructure, logistics and such like. This forces governments to focus on the real economy, not financial market performance. And that is what makes the reform so politically sensitive: it would strip the bond market of its privileged political role.
Given these circumstances, and likely effects, severing the nexus is a deeply fundamental policy change. It is more than a tweak to the system. Rather, it is a power redistribution, from financial asset holders to the broader public via the bodies of elected representatives. That’s why it won’t happen easily or quietly; indeed, it’s unlikely to happen in the near future. But unless the U.S. takes this step, it remains stuck in a trap: it is unable to invest boldly without triggering self-inflicted bond panic, and unable to cut without deepening its own decline. This is the dilemma I discussed elsewhere.
Commercial Bank Credit
So far, the entire focus of discussion has been on the role of government spending. The next step toward a more complete systems-level understanding of monetary capitalism is to address commercial bank credit creation. In any monetary economy - especially in the U.S. - commercial bank credit creation is a parallel and often dominant channel of money creation, with major implications for aggregate or total system liquidity, inflation dynamics, capital allocation and circulation and, ultimately, systemic risk. When banks make loans, they create new money in the form of deposits. This is not a redistribution of existing money, it is the creation of purchasing power ex nihilo, issued against assessments of the creditworthiness of borrowers and any regulatory capital requirements.
When a bank issues a loan, it simultaneously creates a deposit, which is money that the borrower can spend immediately. This deposit adds to broad money (M2) and enters circulation like any other dollar. Unlike government appropriations, which are the result of political and legislative processes, bank lending responds to profit incentives, risk appetite, and demand from the private sector. In most years, the volume of bank-created money is greater than that created by government appropriations.
As such, system liquidity isn’t just about public spending. It is also determined by commercial credit expansion. Fiscal policy injects liquidity through net spending. Bank lending injects liquidity through credit extension. Both forms of money creation contribute to aggregate demand, but with very different dynamics and risks. Whereas government-created money is non-repayable (except via taxation or bond drainage), bank-created money must be repaid. This introduces systemic fragility: if too much bank credit is extended without income growth, debt servicing pressure builds, risking contraction or crisis.
It is important to note that the Fed influences but does not control bank lending. It sets short-term interest rates and liquidity rules (e.g. reserve requirements, capital ratios), but the decision to lend is made by private banks. The question of the impact of interest rates is discussed more below.
Understanding the role of commercial bank credit is important because while public money creation is politically contested and visible, commercial money creation is technocratic and opaque. Most people don’t realise that their mortgage, business loan, or credit card balance represents new money creation by a bank. When policymakers only focus on public deficits, they ignore the often larger and more volatile driver of liquidity and inequality: bank credit. A serious liquidity framework must account for both public and private flows, and regulate them with attention to purpose, stability, and distributive outcomes.
Liquidity management isn’t just about deficits or the Fed’s balance sheet. It’s also about how, where and why banks lend and what kind of economy that credit system is building. If we ignore private credit creation, we mistake public deficits for the full story. This could result in targeting the wrong levers when trying to address inflation, inequality or financial instability.
Contrary to popular belief, interest rates do not directly determine the volume of bank lending. Banks do not lend out deposits, nor do they wait for savers to make funds available. They create loans ex nihilo when a creditworthy borrower walks in the door. Interest rates matter, but not in the way most people think.
The conventional model - still taught in many economics departments - imagines a market where savers supply funds, and borrowers demand them. This is known as the loanable funds theory. In this theory, interest rates “clear the market” for loanable funds: higher rates attract more saving, lower rates stimulate more borrowing. But in modern banking systems, this is a fiction. Banks do not lend out savings. They create deposits by lending, and then adjust their reserve positions ex post.
How then do banks lend? Banks make loans based on expected profitability of the loan (creditworthiness, risk-adjusted return), capital and regulatory constraints (e.g. Basel III requirements) and an evaluation of the wider economic conditions affecting default risk. They do not wait for deposits, and their capacity to lend is not constrained by reserves. If they need reserves, they borrow them after the fact; reserves are settled later via interbank markets or the central bank. Banks lend when they believe they’ll get paid back, not when interest rates are low.
Interest rates therefore play a marginal role. Rate changes can affect the cost of borrowing and loan affordability, especially for rate-sensitive products (e.g. variable mortgages). But this is often a second-order concern. In a downturn, even with near-zero rates, banks may pull back on lending due to uncertainty or borrower weakness. Conversely, in a boom, banks may lend aggressively even at higher rates if the profit outlook is strong. Rates may reprice demand, but they don’t determine whether credit is created. The primary constraint is willingness to lend and ability to repay.
The implication of this is that there is often a misplaced focus placed on interest rates. If central banks try to control inflation or credit bubbles only through interest rates, they may miss the point. The real drivers of excessive or misallocated credit are arguably:
Lax regulation;
Speculative incentives (e.g. housing as an asset class); and
Underpriced risk due to financial innovation.
Interest rate changes are a blunt tool, and their effects are unevenly distributed, typically hurting borrowers while often benefiting bondholders and inflating financial assets. Interest rates are not the throttle on bank lending. Credit is created based on confidence, creditworthiness and economic outlook and not the availability of savings or the cost of funds. The persistence of loanable funds thinking leads to misguided monetary policy, distorted public understanding and ineffective inflation control.
Governing Liquidity
If the bond nexus is broken, how is system liquidity managed and why does it matter? In a fiat monetary system, the question is never “where does the money come from?” It’s “how is liquidity managed once money has been created?” If the institutional bond-deficit nexus were severed, thereby allowing the government to spend without issuing bonds, liquidity management would not disappear; it would merely shift from a relatively crude constraint to the need to consider a more precise and purposeful set of tools.
Unchecked liquidity, whether from public spending or private credit creation, risks fuelling demand beyond the economy’s real capacity, triggering inflation. But not all liquidity is equal. Its impact depends on who receives it, where it flows, and what it activates (investment, production, consumption or speculation). Thus, liquidity management isn’t about limiting money creation per se. Rather, it’s about shaping how liquidity enters and exits the system, and how it's distributed across sectors, classes and localities.
If Treasury no longer issued bonds to offset net spending, liquidity could be managed through targeted, dynamic tools, including standing facilities operated by central banks(e.g., interest on reserves) that could regulate excess reserves and control short-term interest rates without sterilising public spending. Alternatively, non-compulsory, yield-bearing deposits could offer households a safe parking space for funds, soaking up liquidity without transferring wealth upward like bonds do. These are time-limited public savings instruments. Of course, liquidity drainage can be executed by way of taxation policy. As for private credit, it is possible to design macro-prudential tools (like countercyclical capital buffers or LTV caps) that can modulate commercial bank credit creation, especially in volatile asset classes like housing.
In this framework, liquidity becomes a policy variable, not a constraint imposed by investor mood swings in the bond markets.
Critics warn that severing the bond nexus risks unleashing inflation. But this rests on the false assumption that liquidity flows evenly through the economy. In reality, inflation is spatial and categorical. Asset inflation occurs when liquidity chases real estate, equities, or crypto in the absence of productive outlets. Alternatively, category-specific inflation (e.g., food, energy and housing) results from supply bottlenecks, not excessive aggregate demand. Finally, we need to recognise the existence of energetic constraints which act as the real limits on production. Here, production is ultimately tied to energy availability, whereby price spikes can be amplified when liquidity outpaces physical throughput capacity.
Arguably, the goal of liquidity management isn’t to “turn down the hose,” but to direct the flow where it enables productive transformation rather than speculative churn. Severing the bond-deficit nexus doesn’t mean abandoning discipline. It means replacing arbitrary constraints with purposeful design. Liquidity management in a post-nexus world would become a matter of strategic allocation, sectoral balance and institutional responsiveness. The aim is not a ritual of appeasing bondholders.
If we accept that money is created through both public appropriation and commercial credit, then liquidity policy must be built to dynamically absorb and redirect flows so as to support real capacity expansion while mitigating distributional harm. The underlying principle is to anchor monetary value in productive reality not arbitrary scarcity. And herein lies the fundamental problem that the ever-expanding bonds market points to.
Part 2: Is tinkering enough?
Structural Loss of Demand at Auction
An emergent sign of crisis is diminished primary market appetite for U.S. Treasuries. This is a growing concern, despite headline assurances of “strong demand.” Many recent auctions have required dealers to absorb unusually large shares, suggesting tepid genuine end-user interest. A lack of organic, price-insensitive demand, historically provided by foreign central banks, sovereign funds and risk-averse institutional allocators, has exposed the fragility of auction dynamics.
Yields are rising not just because of inflation or Fed policy but due to chronic illiquidity. The so-called “deepest and most liquid market in the world” is increasingly proving brittle. Bid-ask spreads have widened, volatility has surged, and market depth has evaporated, especially at the long end. This isn’t a transient technical issue; it’s the byproduct of balance sheet constraints, over-financialisation and saturated global allocation to dollar-denominated debt.
A range of proposals like central clearing, expanded dealer of last resort functions, or even buybacks have been floated in response, but I would suggest that they amount to tinkering around the edges of a structurally overloaded system. The Treasury market is no longer a tool for capital allocation; it’s a bloated collateral infrastructure for global leverage, mismatched with the underlying productive capacity of the U.S. economy.
The scale of the Treasury market is utterly disproportionate to the actual surplus-generating capability of the U.S. economy. It’s not just about fiscal deficits; as I have intimated and discussed in more detail elsewhere, it's about energy throughput, productive capacity and demographic drag. The U.S. cannot grow its way out of this in real terms over the next decade or two. The “safe asset” status of Treasuries is now belied by the underlying thermodynamic and material limits of the issuing economy. What this amounts to is that USTs are no longer neutral collateral. Their reliability as pristine collateral is in question, which has cascading implications for global liquidity, rehypothecation chains and shadow banking. The dollar’s role as a store of value is eroding. This is taking place not by decree, but by functional degradation in real-world terms. If the currency is backed by neither energy surplus nor geopolitical force, its demand must ultimately falter. In trade terms, the U.S.’ role has persistently diminished over the past seven decades, meaning that there are increasingly good reasons for trading nations to settle trades in national currencies rather than via the intermediating currency of the USD. As a result, future offsetting of fiscal expansions must rely more on internal recycling.
The UST market is no longer “just” a tool for offsetting public expenditure. It has evolved into something much more than this. It functions as a collateral backbone for global dollar liquidity and provides a synthetic savings vehicle detached from any need for actual productive surplus. As a consequence, it operates in effect as a platform for leverage, arbitrage and balance sheet expansion across shadow banking structures. In this sense, Treasuries function as fictitious capital par excellence: not claims on surplus energetic value generated in a concrete, determinate production process, but claims on claims, circulating in a hall of mirrors of secondary and tertiary financial layering. The flaw is that this has scaled beyond the real thermodynamic capacity of the U.S. to support in a stable manner.
Patching Market Structure Cannot Solve a Surplus Constraint
The idea that fixing liquidity through market structure tweaks - dealer incentives, CCP reforms, or transparency recalibrations - will restore function assumes that the core issue is market mechanics. It is not. The real issue is resource mismatch, which speaks to an emergent phase of over-accumulation chaos that Arrighi has described (see Galanis et al., 2023 for an excellent recent overview of Arrighi). The real U.S. economy cannot generate enough future energetic surplus to support current Treasuries valuations without monetary alchemy. The foreign sector knows this, hence the slow but persistent de-dollarisation and waning foreign bids other than from ‘friendly central banks’ via daisy chain operations. The domestic private sector is saturated. Pension funds, banks and insurers are full up. One wonders who else is left to absorb this collateral mountain?
The result is a contradiction: more Treasuries issuance is needed to sustain fictitious valuations, but each marginal dollar of issuance finds fewer willing holders, unless priced at ever more unrealistic valuations (i.e. low yields). In these conditions, one is left to wonder, “who would come in to join the trading throng?”. Why would a rational, long-term oriented institution, especially from a real-surplus generating country, commit capital to a structurally misaligned market that is governed by a shrinking oligopoly, where the instrument operates in a market with obviously distorted pricing mechanics. Underpinning all of this is concern that the instrument is backed by a fiscal authority with eroding credibility.
While it’s a question of appetite and probabilistic estimation, there are reasonable grounds to conclude that some, and perhaps many, such institutions won’t unless they are coerced via regulation or subsidised by way of central bank backstops. With that said, the post-market character of the UST system becomes apparent. It’s no longer a voluntary, information-rich arena of price discovery but a regime of managed participation, closer to rationing than exchange.
We may be entering a phase where the Treasuries market is too big to save, and any attempts to preserve its former function will only deepen systemic fragility. A shift away from UST-dependence, while painful, is not only inevitable, but desirable if we are to restore a semblance of alignment between financial claims and real economic capacity. This isn’t just a matter of fixing liquidity; it’s about rethinking the role of public debt in an economic system that can no longer promise unlimited future surplus.
Part 3: The Revenge of the Real Economy
The sheer scale of the market reveals the absurdity. With over $30 trillion in marketable securities outstanding, and an ever-shrinking set of real surplus-generating sectors in the U.S., the Treasuries market floats untethered from the productive base that might justify it.1 Yields are rising, not because of robust growth, but because the natural buyer base is eroding, and liquidity is deteriorating. Post-2008 regulatory reforms, touted as stabilising, have done the opposite. By imposing capital constraints on dealer inventories, mandating central clearing and encouraging high-frequency trading, the U.S. created a Treasuries market in which a handful of banks now dominate secondary trading. In 2024, JPMorgan, Bank of America, and Citigroup accounted for over half of inter-dealer trades. Liquidity is now a mirage: deep in good times, vanishing in stress.
The current market structure, dominated by a shrinking oligopoly of dealers, flooded with algorithmic trading, and reliant on central bank intervention, is not sustainable. The reason isn’t because there’s no buyer of last resort - there always is - but because the inflated valuations of U.S. Treasuries cannot be propped up indefinitely without ever-greater distortions to capital allocation and risk pricing. Sustainability here means alignment with real productive value. The UST market has long since decoupled from that. What we are witnessing is not a liquidity problem or a delinquency problem in financial accounting terms, but the slow implosion of credibility in the very idea that these instruments represent real wealth. The Federal Reserve has become the market’s last buyer of consequence.
A focus on liquidity fixes is to ameliorate symptoms, not address the disease. The UST market is the apex of a structural disconnect between financial representation and real-world surplus. To re-prioritise liquidity, diversity and intermediation is to re-arrange the deckchairs. It does not steer the ship away from the iceberg. This demands not a financial engineering fix, but a reconceptualisation of sovereign debt, monetary architecture, and surplus extraction under planetary constraints.
What Comes After the UST Regime?
Let’s recap some cornerstone propositions. The argument here is that the Treasuries market is structurally outsized; the U.S. cannot produce sufficient real surplus to justify its continuation at scale; and liquidity reforms are cosmetic at best. The central issue then becomes how to transition out of a UST-centric global order without systemic rupture.
That’s the terrain that needs exploration. There is likely to be a need for global UST holders to accept impending impairments, and be willing to gradually write down their notional USD-denominated wealth. Foreign holders, particularly those in Asia and the oil-rich Gulf states, must begin to wind down exposure not by dumping into thin markets, but by gradually ceasing to accumulate. This mirrors the de-dollarisation logic already underway. Where Treasuries have been used as collateral in global dollar liquidity chains, holders may face the prospect of mark-to-market impairments, especially if the Fed is forced into yield curve control or backdoor monetisation. I’ve discussed at length elsewhere the hypothecation that China’s central bank has undertaken over the past decade or so, as part of this de-dollarisation process, most likely recognising that at the end of the day, impairments may be a reality that must be faced.
Alternative collateral regimes will necessarily emerge, such as regionally diversified systems of “safe assets” such as RMB sovereign bonds, commodity-backed instruments or multipolar SDR-like units. At the same time, in the U.S., there will be a need to contemplate a shift toward domestic developmental targeting, where debt issuance aligns with specific energy, infrastructure or demographic needs rather than generalised liquidity. One also is left to wonder whether debt jubilees or roll-off frameworks for over accumulated fictitious claims, using central banks as restructuring agents, will become necessary.
The U.S. Treasuries market, as it currently exists, is not just malfunctioning. It has become ontologically misaligned with the productive and energetic base of the economy that supposedly anchors it. This is the systemic condition of over-accumulation of fictitious c capital with the UST market as its keystone.
Where to for the Global South?
As the foundational pillar of global finance teeters under its own contradictions, Global South economies must seize the moment to decouple from a regime of fictitious capital and reimagine sovereign financial autonomy. The U.S. Treasuries market, long heralded as the most stable and liquid financial market in the world, no longer functions as advertised. Over the last decade or more, this pillar of global finance has grown into a bloated, brittle and dangerously fragile system.
For decades, developing nations were taught to view U.S. Treasuries as the safest store of value and the anchor of monetary prudence. In truth, they have become ensnared in a game of financial subordination, recycling real goods, services and energy into paper claims on an overleveraged and underproductive system. The time has come for the Global South to stop playing this game.
At the heart of the global financial system sits the U.S. Treasury bond. Once a modest instrument to finance public goods, the Treasury market has metastasised into a global collateral engine, powering dollar-based liquidity across borders. But this transformation has come at a price. Today, Treasuries are no longer claims on future U.S. productivity; they provide holders with rights to make claims on a hollowing economy, backed by central bank alchemy and speculative belief.
Why should the Global South care?
These dynamics are not just domestic U.S. issues. They are the structural vulnerability of every country holding dollars and Treasuries as reserves, every country pegging their exchange rate or policy framework to the Fed, and every development plan exposed to dollar funding cycles. Historic dollar dominance means U.S. policy becomes the world’s problem - the Triffin Dilemma. The Fed tightens to fight its own inflation; everyone else’s currencies collapse. The Treasury floods markets with new issuance; everyone else’s reserves are diluted. Wall Street deleverages; everyone else’s capital flows reverse.
Meanwhile, hard-earned surpluses in Asia, Africa and Latin America are parked in assets that yield little and offer no strategic control. These are not savings; they are involuntary support for a system that will not hesitate to penalise the periphery when crisis hits. Holding Treasuries is not a sign of strength. It is a sign of dependence and exposure to risks of impairment or worse - weaponisation.
The coming fracture in the UST market is verging on an inevitability. No real economy, not even that of the United States, can support the scale and centrality the Treasuries market has assumed. The current structure is based not on intermediation or productive surplus but on inertia and myth. For Global South nations, the logical move is to reduce exposure, diversify reserves, and build parallel frameworks for liquidity, savings, and credit.
The practical implications are straightforward. It means decelerating or halting UST accumulation. Let these assets roll off. Avoid reinvestment unless absolutely necessary. Stop hoarding synthetic wealth. Moving to alternative, productive reserves, seems both inevitable and sensible. Gold, strategic commodities, and partnerships with real returns (such as energy infrastructure or regional development institutions) make more sense today than they have for many decades past. Furthermore, there is an imperative to strengthen south-south trade and payment systems. BRICS Clear, the Pan-African Payment and Settlement System (PAPSS) and similar platforms offer the basis for regional autonomy. Last but not least, there is a need for the Global South to develop its own safe assets. This may include national and regional bonds backed by real infrastructure, resource flows or tax capacity, insulated from speculative volatility.
If these are the practical issues, the deeper or strategic point here is not about what to hold in reserves but about who gets to shape the rules of finance, and what and whom those rules serve. The UST regime is built on the premise that money is neutral, that markets are efficient, and that safe assets are determined by legacy status. But for the Global South, money is not neutral. Markets are not efficient. And safety is not about what New York or London deems stable. Rather, it is about what supports development, livelihoods and energetic resilience (counter-entropy).
To reclaim financial sovereignty, the South must leave behind the logic of fictitious capital in which assets promise wealth without production, returns without risk and liquidity without commitment. Instead, a new financial architecture must find its ballast in real systems of energetic production and circulation.
Waiting for Godot?
Waiting for the U.S. to address these issues is akin to Samuel Beckett’s Waiting for Godot. While Vladimir and Estragon engage in idle discussion and chatter, Godot never arrives. They wait, and they wait. Similarly, the United States is unlikely to voluntarily reform a system from which it benefits; the politics of reform - such as breaking the nexus - make it almost impossible for the foreseeable future. When its policies fail, it brings back the same architects who caused the problem. The Treasury market is already too large for any set of regulations to fix. Patching up dealer rules or changing clearing mandates will do nothing to realign finance with reality.
The Global South cannot wait to be collateral damage in another Western financial crisis. These nations must build the future directly. The era of passive dependence is over. It’s time to walk away from the Treasuries trap.
The U.S. Treasuries market today functions as a textbook example of what Jean Baudrillard called the simulacrum. It has become a system of signs that no longer bears any relation to the real. Bonds are no longer instruments tied to future productive capacity or public investment. They have become floating signifiers: self-referential claims on liquidity, used as collateral to back further claims, recursively feeding on themselves. What we are left with is a hyperreal market that pretends to represent security and stability, but in actuality is detached from any underlying sacramental order of reality.
Financialisation is the simulacrum par excellence. The UST market, in turnover terms, now dwarfs the real economy several times over, not because real surplus or capital formation has expanded, but because layers of abstraction - derivatives, rehypothecation and margin finance - have turned fictitious capital into the dominant economic terrain. In this world, liquidity is not a property of substance, but a mirage of trust. When that trust evaporates, the collapse is not of debt alone, but of the entire symbolic order that holds the system together.
Add to this the global value of FX trades in which daily turnover as of 2022 was in the order of $7.5 trillion per day, providing an annual turnover of over $1.875 quadrillion - that’s 20X global GDP (https://www.bis.org/publ/qtrpdf/r_qt2212f.htm). By way of contrast, global trade value is in the order of $34 trillion. The global derivatives market is valued at over $1 quadrillion. The point is simply to say that the value of fictitious capital far exceeds the value of global trade and global output.