View attachment 139549
So my understanding is:
1. There are countries that hold a lot of USD that would like to spend all that USD to buy things like infrastructure development, but is unable to because US doesn't export that. Saudi Arabia in this case is like that because of their oil trade.
2. China is seen as more reliable than even the US itself, so people buy up Dollar Bond from China in preference to US treasuries, hence why China's Dollar Bond has a lower yield (people willing to accept lower return, because they feel China is more likely to pay back at maturity compared to US itself).
3. China uses the dollars raised this way, plus that trillion dollar trade surplus and lend USD to countries having trouble getting enough USD to pay back loans to the US, instead of them going to IMF and asking for bail out. Meaning even during the previous high interest period US could not harvest anyone because no one was going "bankrupt" at a national level.
4. To pay back China for the USD loan, countries instead send their resources to China directly, denominated in USD but without any USD actually changing hand. Aside from USD loan countries may also borrow "USD" from China to finance infrastructure development, something that China very much exports.
End result:
1. Rich countries has somewhere reliable they can deposit their excess USD, instead of buying treasuries from US
2. Poor countries can payback USD loan even during times of high USD interest and low liquidity, they can further borrow against their resource export from China for infrastructure development
3. China uses up some of the USD surplus to buy needed resources, don't need to buy more US treasuries since USD is no longer piling up
4. America gets ALL the dollars from countries not defaulting and paying back loan on time with USD from China
