Paul Gambles is back to help us unpack China's recent issuance of US dollar-denominated sovereign bonds in Saudi Arabia. 

Paul begins by setting up the historical context. He takes us back to the end of the second World War and the Bretton Woods agreement, designed to bring a new world order, putting the US dollar as the global funding currency. China’s move signals a challenge to the petrodollar system – providing nations with new avenues for financing as an alternative to dollar dependency. 

Paul looks at the Global South in light of China’s behavior, including the Belt and Road initiative. Its infrastructure projects in Asia or in Africa enable local countries to reduce their potential dollar exposure and instead have either equity or other exposures to China. According to Paul, this is already having effects in terms of U.S. policy and the U.S. economy. 

Putting the bond issuance in perspective, Paul says: 

I think China has indicated that it plans to issue about $300 billion of sovereign bonds during 2024. So, you know, you can see $2 billion (of US dollar-denominated) out of almost $300. It's, you know, it's a relatively small proportion. 

He suggests it’s a warning shot across the bow. 

That's a very clear signal about how the potential power that China holds going forward if the U.S. government gets too stupid about things like tariffs or other anti-Chinese policies or even geo-politically. I mean, it might not be appreciated by listeners outside Asia, but American involvement in Taiwanese politics is a real sore point to the Chinese Government. And so I think this is a warning shot on a lot of different points. 

 Paul Gambles is the Co-Founder of MBMG GROUP and a Director and Chief Investment Officer of MBMG Investment Advisory, a SEC regulated investment advisor. Find Paul’s articles on https://mbmg.substack.com/ 

 @PaulGambles2 on Twitter