China is creating parallel financial systems to bypass the U.S. dollar by developing alternative payment infrastructures and promoting the international use of its own currency, the yuan.

The U.S. dollar has dominated global finance since the end of the Bretton Woods system, but China is actively challenging this dominance by leveraging its economic power and technological advancements.

The Cross-Border Interbank Payment System (CIPS) 

The dollar's dominance is underpinned by a global financial messaging system called SWIFT, which facilitates cross-border payments. The U.S. and its allies have used control over SWIFT as a powerful tool to enforce sanctions against rivals, as seen with Russia. In response, China created its own alternative.

• A Parallel to SWIFT: China's Cross-Border Interbank Payment System (CIPS) was launched in 2015 to provide an alternative for clearing and settling cross-border transactions in yuan. The goal is to reduce reliance on Western financial institutions and the dollar, particularly for countries that are under or fear U.S. sanctions.

• Growing, but Not a Replacement (Yet): While CIPS is growing rapidly, it is not a direct replacement for SWIFT. CIPS processed around $24.47 trillion in 2024, a significant number, but SWIFT's network remains far more extensive, with over 11,000 financial institutions globally. CIPS still relies on SWIFT messaging for a large portion of its transactions.

The Digital Yuan (e-CNY) 

The digital yuan, or e-CNY, is perhaps the most ambitious part of China's strategy. It is a Central Bank Digital Currency (CBDC) that could fundamentally reshape global finance by bypassing traditional banking and payment systems.

• Bypassing Intermediaries: The digital yuan allows for real-time, peer-to-peer cross-border transactions without the need for a bank or a currency exchange. By bypassing traditional dollar-based systems, it offers a way for countries to trade with China and other partners without ever touching the U.S. financial system.

• The Belt and Road Initiative: China is actively promoting the use of the digital yuan for transactions along its Belt and Road Initiative (BRI). This is a way to create an entire economic ecosystem tied to the yuan, where countries can use the digital currency to pay for Chinese goods, services, and infrastructure projects, further entrenching its use.

• A Tool for Influence: The digital yuan also allows China to offer a financial lifeline to countries that are under or threatened by U.S. sanctions, as seen in its efforts to facilitate trade with Russia and Iran in yuan. This gives China a new form of geopolitical leverage.

The Petroyuan and Commodity Trade 

The petrodollar system, where oil is priced in U.S. dollars, is a key pillar of the dollar's global dominance. China is working to create a rival system, the petroyuan, to chip away at this foundation.

• The World's Largest Oil Importer: As the world's largest importer of crude oil, China has significant leverage over its energy suppliers. It has been actively encouraging countries like Russia and Iran to accept yuan for oil and gas shipments, and it has set up yuan-denominated oil futures contracts.

• A Gradual Shift: While a complete overthrow of the petrodollar is unlikely in the near future, the rise of the petroyuan represents a shift in global trade dynamics. This creates a multipolar system where countries can choose to trade in currencies other than the dollar, which gradually erodes its central role.