I appreciate the effort post. There are a few things that I would like to question.
RE 1,2 The purpose of China's bond issuance is to attack the ability of the US to spend dollars by decreasing the supply dollars available to the US government.
As you said correctly this is nonsense, the purpose of an American Bond is to remove excess dollars from circulation and to prop up the value of the of the US dollar.
This however is not the purpose of a Chinese issued dollar denominated bond. For the Chinese there is no incentive for them to maintain the value of the US dollar by not spending it. For them a bond is a short against the American dollar. The less valuable the dollar is the less valuable the interest they have to pay on the bond is.
Thus the avenue of attack is on the US is an attack on their currency like the 1997 Asian Financial crisis. The Chinese bonds would deprive the US an avenue to soak up dollars in circulation and cause their currency to devalue. Addressing point 2, how much of an effect can they have. The extent they are able to do this depends not on their dollar reserve but other dollar holders willingness to buy their bond.
While dedollarization is necessary to weaken US hegemony, it is not something that China can achieve unilaterally. While paying off the debts of other nations may allow them the material conditions to dedollarize, China would have to bet that they have the productive/ideological forces to do so, which they might not. If they were to lose this bet, this would mean they have lost their dollar reserve and their ability to do this at a more ripe time, which had taken them decades to build.
Chinese policy making has historically been risk adverse. Expectations that they take drastic actions as opposed to laying foundations are unrealistic. For China laying foundations means weakening the US Dollar, increasing the productive forces in prospective nations and building a shared community for a multipolar world.
Thanks for the quick response.
I don't disagree that dedollarization is a necessity, I do disagree that this does nothing towards that end.
I tried to be precise in the language I used to make a distinction between inflation and the value of currency. While the two are correlated, that correlation is not exact, if they were purchasing power parity would not be a thing and we could be able to directly compare economies using nominal gdp.
While the forces that drive inflation are relevant for Americans, the forces that drive currency exchange are what is relevant for the rest of the world. I brought up the Asian Financial Crisis, because I felt that was the closest analogy to the effect of these actions would be. While the US would may have mechanisms to contain the fallout it would not be without consequence.
Dedollarization is difficult. There is groundwork that needs to be laid and it will not be in a single step nor in a single agreement. For those of us who look at this action and see promise; it is because this moves ultimately signals that the Chinese are committed to a long term devaluation of the US dollar. Short term yes there are more dollars floating around, but the move long term makes the move away from the dollar more palatable to countries beyond those who are already committed.