The U. S. USES IT’S DOLLAR TO DOMINATE THE WORLD?

[tanjm]

I think CNY is likely to be significant in Asian transactions

You may have missed the part where I made the example. Its not whether the trade is CNY or not. Its whether people are comfortable holding CNY denominated financial assets for arbitrary lengths of time. e.g. I sell 5 billion yuan of goods to the Chinese, what do I do with the 5 billion yuan now? Stuff under my mattress?

I sell 10 billion USD of goods, with no use for the 10 billion for the next year or so. I can go to the US treasury market and buy a 6M T-bill (intending to roll it over) with barely a blip in the market. I will have confidence that this asset will be highly liquid and easily redeemed when it matures at the right date, and with minimal admin delay. I can even use the T-bill as a security to borrow short term money in the repo markets (repo markets are short term financing markets) for any cashflow issue. Basically, my T-bill is as good as cash for my operating purposes.

Let me know if you can easily do that with renminbi ! Or that the Chinese govt would not see at least several uncomfortable issues with this scenario!

[tanjm]

Essentially, while China is not like the USSR of old, with a centrally planned economy, they still like their control a little too much.

In 2015, their money supply was 202% of its GDP in local currency terms. The US money supply was 90% of their GDP. (Source: World Bank). China has been pump priming their local economy for a very long time. That's why their investment rates are so high, they have bubble issues in various asset markets locally and they dare not loosen monetary controls - at least not until they get back to more normal levels (whenever that is). Not only is the US money supply smaller relative to GDP, it is also internationalized.

While the Chinese inflation rate may look small - it is only because the Chinese govt keeps a tight lid on the core basket of goods. It has over investment and asset inflation in multiple areas.