The idea was that they could bypass Western financial infrastructure (no need for SWIFT or US intermediary banks). They'd still use dollars, but effectively use "their" dollars. They would trade with their counterparties (who all owe dollars), but allow for the convertibility to yuan… at their choosing. This would wean their trading partners off of dollars and reduce reliance on the US Western monetary system while simultaneously allowing China to use dollars to usurp the dollar system. My focus at the time was around crypto and how the use of Tether has already forged forward proving the theory for them. After all, copying is easier than creating, and they've all the incentives aligned.

Well, guess what? I just came across an excellent tweet from Arnaud Bertrand (great follow on X, by the way.)

Pasted below is entirely from Arnaud.

"The story around China issuing USD-denominated sovereign bonds in Saudi Arabia is generating an enormous amount of buzz in China, and could potentially be immensely important.

I strongly suspect it's a message to the upcoming Trump administration.

Let me explain what seems to be going on. On the face of it, it's not a major story: China issued $2 billion in USD-denominated sovereign bonds in Saudi Arabia, which means that investors lent USD to the Chinese government that they promised to pay back. That's what a bond is. So far, relatively boring.

The first somewhat interesting aspect of it is that the bonds were oversubscribed by almost 20x (meaning $40+ billion in demand for $2 billion worth of bonds), which is far more demand than usual for USD sovereign bonds. Typically US Treasury auctions see oversubscription rate between 2x to 3x so there obviously seems to be very strong market appeal for China's dollar-denominated debt.

The second interesting aspect is that the interest rate on the bonds was remarkably close to US Treasury rates (just 1-3 basis points higher, i.e. 0.01-0.03%), which means that China is now able to borrow money – in US dollars (!) – at virtually the same rate as the US government itself. That's the case for no other country in the world. As a benchmark, countries with the highest credit ratings (AAA) typically pay at least 10-20 basis points over US Treasuries in the rare instances when they issue USD bonds.