What if China caps its dollar reserves?
A formal PBOC cap on USD reserves removes the largest price-insensitive UST bid: long-end term premium jumps ~20bp, DXY sinks and gold/BTC catch the reserve-diversification flow. China holds ~$0.75-0.8tn USTs, so the flow channel is real but slow. Forward angle vs. the 2018 'China sells Treasuries' scare (which fizzled): a formal target makes it policy rather than tactical, but Beijing still needs USD assets to manage CNY, capping how fast it can actually exit.
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The butterfly cascade
How this trigger trickles across markets, left → right — the root shock, its first‑order moves, then the ripple effects. Drag any node; tap a market for its real price history.
Resolution timeline — how this probability is moving
Our model's odds (electric blue) over time vs the market's (Polymarket, amber), from the past toward the 1–3 years horizon. Each dot is a real macro event that nudged the probability — green pushed it up, red pushed it down. Tap a dot for the source. Loading the probability audit trail…
What it would mean
If this plays out, it is a risk-off shock. Beijing formally announces a hard ceiling on USD reserves and a non-dollar target, lifting term premium and pressuring the US long end. The trigger decomposes into signed root‑shocks — Dollar/reserve confidence ▼ · Real yields ▲ — which propagate through our causal graph to the markets below.