For a long time, the United States has imposed sanctions on other countries based on a financial system that is built upon the dominance of the US dollar. However, on June 23 local time, The Wall Street Journal discovered that this "traditional advantage" of the United States is being gradually weakened by the Chinese yuan.
The newspaper reported that the White House is currently negotiating a new nuclear agreement with Iran. The goal is to obtain some sanctions relief and the release of $100 billion in frozen assets in exchange for Iran’s concessions on the nuclear issue. However, U.S. officials have realized that this “card” they hold no longer has the same effect as it once did.
The reason is that as China continues to promote the internationalization of the yuan and builds a cross-border payment network independent of the US and Western financial systems, countries under sanctions such as Iran and Russia are increasingly using the yuan for trade and cross-border settlements. This is eroding the ability of the United States to exert economic pressure through the dollar system.
Throughout history, the United States has used the dominance of the US dollar in global trade financing to impose sanctions. Currently, about 80% of international trade financing is still denominated in US dollars. Since most US dollar transactions ultimately need to be settled through the U.S. banking system, the U.S. government can monitor global capital flows and, when necessary, cut off relevant entities from accessing US dollars.
But as more and more US adversaries like Iran and Russia use the yuan for trade, these transactions no longer enter the financial networks dominated by the US. As a result, the US government’s ability to monitor and sanction becomes weaker.
According to data from the U.S. Treasury Department, cited by US media, despite ongoing sanctions against Iran, Iran's oil export revenues in 2024 still amounted to around $43 billion. The majority of these transactions were conducted in RMB. This money was then used to purchase goods and services from China, with the entire process taking place outside the jurisdiction of the United States.
Since 2010, the proportion of currencies used in cross-border transactions in China: gray indicates US dollars, blue indicates Renminbi, and white indicates other currencies. Chart created by The Wall Street Journal.
Additionally, China's Cross-Border Payment System (CIPS), launched in 2015, although still smaller in scale compared to the SWIFT system based in Belgium, is growing at a rapid pace that has attracted attention from the West.
According to data from the American think tank Atlantic Council, since the United States initiated war against Iran at the end of February this year, the average daily transaction volume of CIPS has reached approximately 790 billion yuan, which is higher than the previous average of about 680 billion yuan in the past year. Although SWIFT still processes transactions worth over 5 trillion dollars per day, the think tank believes that CIPS is gradually developing into a cross-border payment system with greater global influence.
A similar situation occurred in Russia once. After the outbreak of the Russo-Ukrainian conflict in 2022, the United States and Western countries imposed extensive financial sanctions on Russia. Subsequently, more and more trade between Russia and China began to be settled in RMB and rubles.
Data shows that from the outbreak of conflicts until mid-2025, the daily trading volume on CIPS has doubled, and the number of financial institutions operating on this platform has more than tripled. Russian officials revealed that currently, over 90% of Russian-Chinese trade transactions are settled in RMB and rubles. According to data from the Polish think tank Oriental Research Center, before the outbreak of conflicts in February 2022, the proportion of RMB used in trade in Russia was only about 2%.
SWIFT data also confirms this trend. Over the past five years, the renminbi has achieved a threefold growth in global trade finance share, reaching 6% in April of this year and becoming the second largest trade finance currency, only trailing behind the US dollar for most of the year.
According to data from the People's Bank of China, currently about half of China's cross-border transactions are denominated in the Chinese yuan, compared to a negligible proportion 15 years ago.
In addition to CIPS, China has also actively promoted the multilateral central bank digital currency mBridge in recent years. The project was launched in 2021, using digital versions of currencies such as the Renminbi for cross-border payments. These transactions are settled between central banks around the world, with no need for funds to pass through American financial institutions. Initially, participants included China, the UAE, Thailand, etc., and later Saudi Arabia joined the initiative.
According to a study published by the Atlantic Council in March this year, as of November last year, approximately 95% of cross-border payment transactions on the mBridge platform were conducted using the Digital RMB. Josh Lipinski, a former staff member of the International Monetary Fund and the head of international economic projects, analyzed that all systems denominated in RMB “are more likely to evade U.S. sanctions,” and “they obscure the ability of U.S. intelligence agencies to track capital flows.”
However, The Wall Street Journal believes that China's current goal is not to completely replace the US dollar, but to establish a non-dollar settlement network between certain trading areas and partner countries. A former official from the US Treasury Department said that China does this more as a way to weaken US influence and to refuse to accept sanctions imposed by the US on other countries.
Analyses suggest that China holds approximately $2 trillion in foreign exchange reserves, most of which are in the form of US dollars. China is concerned that this may place it under the control of the U.S. government and the Federal Reserve. In other words, decisions made by U.S. institutions could reduce the value of China’s foreign exchange reserves, or even sever China’s connection to the US dollar during times of crisis.
Due to these considerations, China has begun taking measures to gradually reduce its dependence on the US dollar. At the same time, other countries have also recognized the risks and are actively seeking to move away from reliance on the US dollar.
According to a report in the American newspaper The New York Times in April, recent conflicts show that China’s alternative systems could provide a way around this system. As Edward Fischman, a researcher at the Council on Foreign Relations, said, China does not need to replace the US dollar to escape US financial control. Having a backup alternative system in case of emergencies is enough to weaken the US’s grip on global finance.
Cornell University economics professor Eswar Prasad said that there are still obstacles to the RMB challenging the dominance of the US dollar. It is not yet clear whether China has truly embarked on a ‘sustainable path’ to becoming the leading global payment currency. However, one thing is certain – ‘countries around the world are eager to break free from the constraints of the US-dollar-based system’.
