China’s two-decade effort to build an international financial system anchored by its currency, the renminbi, is gaining traction as wars and Western sanctions push U.S. adversaries to seek alternatives to the dollar, The New York Times reported Friday.

The push has gained momentum from the wars in Ukraine and Iran, with sanctions driving countries toward the Chinese system to bypass Western finance. China’s financial positioning is “meeting the demand for de-dollarization” from countries seeking to trade with restricted nations like Iran, Alisha Chhangani, an associate director at the Atlantic Council, told the newspaper.

At least two ships have paid Iran in renminbi to secure safe transit through the Strait of Hormuz, the newspaper said, citing Lloyd’s List Intelligence, a maritime information service. Payments through China’s cross-border network rose nearly 50 percent last month as countries bought Iranian oil, the Times reported, citing data from the Atlantic Council. Russia, cut off from the dollar after its 2022 invasion of Ukraine, now settles most of its trade with China in renminbi.

In March, Qiushi, the Chinese Communist Party’s ideological journal, resurfaced a 2024 speech by Chinese leader Xi Jinping calling for the renminbi to be “widely used in international trade” and to “attain reserve currency status,” according to the Times.

The dollar remains the dominant currency in international commerce, with the euro, yen, and British pound distant runners-up. The renminbi accounts for just 3 percent of global transactions, roughly the same as the Canadian dollar, according to the report, which attributed the renminbi’s limited reach to China’s tight financial controls.

Still, China does not need to displace the dollar to weaken Washington’s grip on global finance, Edward Fishman, a fellow at the Council on Foreign Relations, told the Times. Simply having an alternative system in place for emergencies is enough, he said.

Beijing has spent decades building parallel financial infrastructure. Beginning in the 2000s, China signed currency-swap agreements with dozens of central banks totaling roughly $600 billion, giving trading partners access to the renminbi without going through the dollar-based system. In 2015, the country launched the Cross-border Interbank Payment System, or CIPS, as an alternative to the Belgian-based SWIFT messaging network, from which Russian and Iranian banks have been removed under U.S. pressure, according to the report.

Since Russian banks were ejected from SWIFT after the 2022 invasion of Ukraine, the number of institutions directly participating in CIPS has nearly tripled to about 200 from 75, the Times said, citing Chinese government data.

Activity surged after the war in Iran forced the closure of the Strait of Hormuz, through which roughly 20 percent of the world’s oil flows, the newspaper reported, citing the Atlantic Council’s GeoEconomics Center. Average daily payments through the Chinese network rose to more than $131 billion in March from $86 billion in February, and average transaction size increased more than 8 percent, according to data the Times obtained from the center. 

It remains unclear whether China is on a “durable path” to becoming a major global payments currency, Eswar Prasad, a Cornell University economics professor, told the newspaper. But, he added, “There is a desperate desire in the world to escape the clutches of the dollar-denominated system.”

Read more at The New York Times