Debunking Dedollarisation
Refuting the Latest Propaganda Meme
I will get onto introducing the new blog and my intentions for it later. I have a number of essays and frameworks which I will be sharing in the coming weeks and months ahead, as well as trade ideas and analyses when the opportunity set presents.
However, today, the latest Chinese propaganda meme — let us call it *macro bullshit* — got my goat and inspired me to write.
Tl;Dr
China issuing USD bonds indicates dollar funding needs, placing more pressure on the RMB. It's not a strategic challenge to US financial dominance.
Instead of signaling strength, it highlights vulnerabilities in China's financial system and reliance on the dollar.
If scaled up, this issuance would likely exacerbate pressures on the RMB, erode China’s reserves, and make the country more dependent on dollar in flows.
1) Issuing USD-denominated bonds indicates a USD shortage, not a surplus.
When China issues bonds denominated in USD, it signals a need for dollars. If China were "awash with dollars," there would be no reason to borrow in dollars, especially at rates comparable to US Treasuries.
Instead:
Issuing dollar bonds is often a sign that a country or institution requires dollar liquidity to meet obligations or finance projects.
It suggests pressure on China’s foreign exchange reserves, particularly as the RMB faces downward pressure from capital outflows or reduced trade surpluses.
2) Increased Dollar Demand Exerts Pressure on the RMB.
When China borrows in USD:
It implicitly increases demand for USD while supplying more RMB to the domestic system.
If the bonds are oversubscribed, it's due to market confidence in dollar repayment, not RMB strength.
Over time, this reliance on dollars for sovereign borrowing could erode confidence in the RMB, especially if China's dollar debt grows without corresponding dollar inflows.
3) Misinterprets Oversubscription.
The 20x oversubscription reflects strong demand for higher-yielding, dollar-denominated bonds — not a competitive challenge to US Treasuries.
Consider:
Saudis will see this as diversification.
Such oversubscription is common for new issuances, particularly for EM sovereigns, and is NOT an indicator of a structural shift in global dollar liquidity preferences.
4) China Ain't "Competing" with the USD System.
The narrative assumes China can create a parallel dollar system, which misunderstands:
Issuance of USD bonds does not give China control over dollar flows — it increases China’s dependency on the dollar system.
Any expansion in dollar bond issuance would further bind China to the very system it seeks to challenge.
A "parallel" dollar system would require China to act as a net supplier of dollars globally. However, China's issuance of USD bonds shows it is a dollar borrower, not a lender.
5) Pressure on belt and road countries.
The argument that China can recycle USD reserves to help BRI countries escape dollar dependency misses the mechanics of sovereign lending:
Lending dollars to B&R countries in exchange for repayment in yuan would only add risk — accumulating non-convertible illiquid assets in exchange for the USD it needs.
It would amplify credit risk, as many B&R countries face debt instability, potentially worsening China’s financial vulnerabilities — why do you think they call it *debt-trap diplomacy*.
6) Broader Implications for RMB.
If China significantly increases its issuance of USD bonds:
It signals a structural weakness in the RMB & an inability to finance its activities in local currency.
The RMB’s credibility as a reserve currency hinges on reducing dependence on the USD system, not increasing it. Issuing USD-denominated debt does the opposite.
7) No impact on the USD system.
The idea that China could meaningfully challenge US Treasuries as the primary vehicle for global dollar recycling is overstated:
Treasuries are deeply liquid, risk-free, and embedded within the global financial system, making them irreplaceable for most institutional investors.
Even if China offered competitive rates, the perceived risks of Chinese bonds — due to political factors, transparency concerns, and geopol tensions — will prevent them from competing directly with Treasuries at scale.
Thanks for reading,
CHT
Reports of the death of the dollar are greatly exaggerated, as Mark Twain didn't say.
Nobody says dollar will be gone completely. (Tho that might happen if the US continues to rack up unsustainable debts and others will not want to part of that.)
But the dollar is no longer going to be as strong as it used to be as the world is becoming more multilateral as it's inevitable that global south will get increasingly stronger and want more multilateralism.
It's a change that's already occuring and too late to stop that horse.