Treasury Bills (T-bills): RBI Cuts Holdings in US Treasury Securities

Treasury Bills (T-bills) are short-term government securities issued at a discount, offering safe investment options with assured returns and liquidity.

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Context: The Reserve Bank of India (RBI) has reduced its holdings of US Treasury Bills from $242 billion in June 2024 to around $227 billion in June 2025.

What are Treasury Bills (T-bills)?

Treasury Bills are short-term debt instruments issued by the government to raise funds for meeting short-term obligations.
Maturity is always less than 1 year.
- Types of T-Bills issued in India: 91-days, 182-days, and 364-days.
T-Bills are issued at a discount on face value & redeemed at par/face value on maturity.
- The difference = investor’s return (implied interest).
- They do not carry coupon/interest payments.

Why do Central banks and Sovereign Wealth Funds invest in US Treasuries?

Safety → negligible default risk; backed by the US government.
Liquidity → the largest and deepest bond market in the world (~$26 trillion market).
Reserve Currency Role → ~60% of global reserves are held in USD (IMF, 2024).
Crisis buffer → Can be liquidated instantly to meet balance of payments or currency stabilisation needs.
Benchmark role → US Treasuries act as the “risk-free rate” for global finance.
Key Investors in US Treasuries: (1) Japan: $1,147 billion (largest holder), (2) UK (3) China.
- India: $227 billion (10th largest).

Can USA freeze or restrict access to the Treasury securities that RBI is holding ?

U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) has the power to block, freeze, or restrict transactions involving U.S. financial assets if sanctions are imposed.
If the U.S. government decides, it can restrict the Reserve Bank of India’s access to these securities (e.g., prohibiting sale, blocking coupon payments, or freezing transactions).
Precedents: Russia (2022) – After Ukraine invasion, the U.S. and allies froze Russia’s ~$300 bn in forex reserves held abroad (including U.S. Treasuries).

India’s Forex Reserves

Total Reserve: US$694.23 billion.
Major Components of India’s Forex Reserves:
- Foreign Currency Assets (FCA): The largest component of India’s forex reserves. Includes currencies like the US Dollar, Euro, and British Pound.
- Gold Reserves: Serve as a hedge against inflation and provide security during crises.
- Special Drawing Rights (SDRs): An international reserve asset created by the International Monetary Fund (IMF) in 1969.
  - They are not a currency, but a potential claim on freely usable currencies of IMF member countries.
- Reserve Tranche Position (RTP): It is the portion of a country’s quota with the IMF that it can access without conditions or borrowing arrangements.