The death of the dollar is greatly exaggerated; China dollar bulls edition

Many analysts and pundits see news of the Chinese settling trade in the yuan and think the end of the dollar is near, but they couldn't be more wrong. What's going on is bullish for the U.S. dollar!

In Rmb internationalisation: a myth?, FT Alphaville quotes from a paper by Yu Yongding:

The true motivation behind the PRC importers to use the yuan for settlement is the existence of opportunities for exchange rate arbitrage.

Chinese exporters are settling their trades in yuan in order to purchase U.S. dollars in Hong Kong, where the exchange rate is more favorable. They are not paying for imports with yuan, nor are they charging their customers in yuan, they are only settling in yuan because they can earn a little extra from arbitrage.

The yuan continues to reform, but it requires financial sector reform, the same as the rest of the Chinese economy.

Yu Yongding's paper: Revisiting the Internationalization of the Yuan.