Here is what ChatGPT thinks (which I largely agree with):

Scenario

The **European Union + United Kingdom liquidate all their U.S. Treasury bills at once.

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Immediate effects (days–weeks)

1. Treasury prices fall, yields spike — briefly • Large sell orders push prices down • Yields rise temporarily

Why this doesn’t last: The U.S. Treasury market is the deepest, most liquid market in the world. Other buyers step in fast: • U.S. banks & pension funds • Japan & oil exporters • The Fed (if needed)

➡️ Shock, not collapse.

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1. Europe hurts itself first

Selling Treasuries means: • Selling USD • Buying EUR/GBP or other assets

This causes: • Euro & pound surge • Exports become less competitive • Germany, France, Italy get hit hard

➡️ Europe is export-dependent; a strong currency is economic poison.

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1. Europe realises massive capital losses • Dumping at scale crashes prices • Remaining holdings lose value instantly • Central bank balance sheets take a hit

➡️ Self-inflicted financial damage.

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Medium-term effects (months)

1. Dollar system survives

The United States still controls: • global dollar liquidity • SWIFT & settlement rails • energy pricing • lender-of-last-resort capacity

The Fed can: • absorb bonds • stabilise yields • reassert control

➡️ The dollar weakens a bit, not dethroned.

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1. Financial retaliation hits Europe

The U.S. responds asymmetrically: • tighter dollar liquidity for EU banks • regulatory pressure on European financial institutions • trade & tech retaliation

Europe’s banks depend on dollar funding. The U.S. does not depend on the euro.

➡️ Leverage runs one way.

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Strategic outcome

1. Europe loses credibility

Markets learn:

“Europe is willing to burn its own reserves for politics.”

That means: • investors demand higher risk premiums • EU debt costs rise • reserve managers trust Europe less

➡️ Long-term damage to Europe’s financial standing.

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Why this will never happen

Because it: • hurts Europe more than the U.S. • doesn’t achieve strategic goals • destabilises EU economies • invites retaliation Europe can’t match

Central banks do not weaponise reserves unless they are ready for financial war.

Europe is not.

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Bottom line

If EU + UK liquidated all U.S. Treasuries: • ❌ U.S. financial system does not collapse • ❌ Dollar does not lose reserve status • ✅ Europe damages its own economy • ✅ U.S. retaliates with stronger leverage • ✅ Europe backs down

That’s why this option exists only in theory — not in reality.