Why does China prefer to settle trade with RMB?

Q:  Why does China prefer to settle such a large portion of its trade in yuan, and how does this affect its global trade strategies?

A: 

First, dollars have limited usage for China because the US does not have freedom of capital flow. The US has export control banning the US firm from selling many products to China, and sanctions thousands of Chinese firms. So there is no incentive for China to accumulate the useless dollars.

Second, if two countries trade with each other, they have no reason to use the currency of a third country. That makes no sense.

Third, oil used to be settled with dollars. If you did not have dollars, you could not buy oil in the international market. Now things have changed. Since the shale revolution, the US has been a net oil exporter, competing with other oil-producing countries. So other oil-producing countries are gradually using other currencies to settle their export.

Fourth, China is the largest trading country in the world. China is the largest trade partners with the majority of countries in the world. The global economy can lower transaction costs by using the RMB.

Fifth, China is the country upholding globalization, while the US is going towards deglobalization and isolationism. Holding dollars has no benefit of accessing the global market, but only empowers the US to sanction them. For many countries, it is their national interest and national security to use fewer dollars and more RMB.

Sixth, the US debt is rising at an alarming rate. The purchasing power of the dollar decreases accordingly. The gold price was $35 in 1971, and now $3600. The dollar value diminished to 1% of its original value. And in the last decade or so, the US has had a zero-interest policy. Holding dollars has no interest but diminishing purchasing power. Countries are freaking out to escape the dollar. When the US raises the budget ceiling every year, it is subtly defaulting on its debt. The dollar today is a poison asset.

Seventh, the US weaponized the dollar as its geopolitical tool, assassinating the economies of other countries. For example, it attacked the Thai Baht in 1998, and hit the economies of Asia badly. Avoiding dollars can reduce risk. Businessmen hate risk.

Eighth, the US periodically tightens the liquidity of the dollar, forcing many businesses of other countries into bankruptcy, then it floods the world with dollars to acquire high-quality assets of other countries at the bottom-picking price, making many countries in the “middle-income trap”. If China wants to avoid the middle-income trap, it must settle a large part of its trade in RMB, to prevent the tide of dollars from washing out its wealth.