# West v. East

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US–China De-Dollarisation Tensions: An Analytical Overview Executive Summary "De-dollarisation" describes efforts, mainly by China, to reduce reliance on the US dollar in reserves, trade settlement, and cross-border payments while building parallel financial infrastructure. For China this is chiefly defensive—hedging sanctions exposure—rather than a bid to replace the dollar outright. For the US, dollar dominance underpins cheap borrowing, sanctions leverage, and financial centrality, making erosion a strategic concern. Change is real but gradual: the dollar's reserve share fell from ~71% (2000) to ~56% (2025), while the renminbi (RMB) remains a minor reserve/payments currency, though likely undercounted due to growth in China's own clearing system, CIPS. What "De-Dollarisation" Means Here: It covers: (1) reserve diversification into gold, euros, and other currencies; (2) trade settlement in RMB via bilateral swap lines and China's Cross-Border Interbank Payment System (CIPS); (3) reduced dependence on SWIFT/dollar-clearing infrastructure that gives Washington sanctions leverage; and (4) RMB internationalisation ambitions, including digital currency and non-dollar commodity pricing. It does not currently mean dollar displacement—rather slow, partial diversification at the margins. Why It Is a Point of Bilateral Tension Sanctions leverage: Dollar centrality lets Washington restrict adversaries' financial access, demonstrated against Russia after 2022. Beijing sees this as a vulnerability given Taiwan tensions and trade friction, spurring investment in sanctions-resilient payment channels. Treasury holdings: China's US Treasury holdings fell from a 2013 peak above $1.3 trillion to roughly $650–760 billion in 2025–26, alongside sustained PBoC gold buying—diversification that analysts attribute to yield/currency management as much as strategic intent. Technology-financial linkage: US semiconductor export controls and Chinese countermeasures (rare-earth restrictions) have bled into financial-policy debate, with both sides treating payment-system independence as part of broader strategic competition. Divergent incentives: Washington benefits from dollar dominance and resists structural change; Beijing wants reduced sanctions exposure and monetary autonomy but is constrained by capital controls and an underdeveloped bond market, limiting RMB internationalisation absent liberalisation it is reluctant to pursue. Bilateral Implications Diplomatic: Features in strategic-competition framing, including US scrutiny of BRICS currency initiatives, though no formal BRICS currency exists. Trade/finance: Bilateral trade increasingly offers RMB invoicing and swap-line options, but the dollar still dominates Sino-US and most Chinese trade documentation. Sanctions/technology: CIPS direct participants grew from 139 to ~193 banks since 2024 (CFR analysis), shifting RMB messaging away from SWIFT and prompting US concern about eroding sanctions enforceability. Security spillovers: Financial-infrastructure competition intersects with Taiwan-contingency planning; discussion of a sanctions toolkit in a crisis itself incentivises Chinese hedging. Global Impacts International monetary system: IMF COFER data show the dollar's allocated reserve share at ~56.3% in 2025Q2, down from ~71% in 2000, with much recent decline attributable to exchange-rate valuation effects rather than active selling (IMF; CEPR/NBER, Goldberg and Hannaoui 2026). Trade settlement: RMB was ~3% of SWIFT-tracked global payments in mid-2025 versus ~48% for the dollar and ~24% for the euro; CFR and IMF researchers argue this understates RMB's true role since growing volumes clear directly via CIPS, outside SWIFT visibility. Capital flows/emerging markets: China has RMB swap lines with roughly 40 countries, and CIPS links participants across ~180 countries, giving emerging and Belt-and-Road partners incremental non-dollar options—evident in Russia-China trade (~90% ruble/RMB settled). Commodities/energy: Dollar invoicing remains dominant globally, though China has expanded yuan-denominated oil contracts and some Gulf/Russia energy deals partly bypass the dollar—still a small overall share. Financial stability: Fragmentation between CIPS and SWIFT/CHIPS raises longer-run concerns about transparency and illicit-finance monitoring if major economies operate on less-interoperable clearing systems, a concern flagged in BIS and IMF financial-stability work. Scenario Analysis (3–5 Year Horizon) Scenario 1 – Gradual, Contained Diversification (most consistent with current trends). The dollar's reserve share continues a slow decline; RMB internationalisation advances modestly via CIPS and swap lines, but the dollar retains overwhelming dominance in reserves and invoicing. Consequence: manageable adjustment, limited disruption to US borrowing costs, a growing "shadow" RMB network mainly serving sanctions-sensitive counterparties (Russia, Iran, parts of the Global South). Scenario 2 – Accelerated Fragmentation (higher-tension pathway). A Taiwan crisis, expanded sanctions, or tariff escalation prompts China and aligned partners to sharply accelerate RMB settlement, gold accumulation, and CIPS-first routing, while the US tightens financial and technology controls further. Consequence: faster bifurcation of payment infrastructure, higher hedging costs for emerging markets caught between systems, rising demand for gold and alternative reserves, and gradual—not sudden—erosion of dollar centrality over 5–10 years. This is a projection, not a confirmed trajectory. Conclusion: Key Takeaways De-dollarisation is real but gradual; the dollar still dominates reserves (~56%), invoicing, and safe assets by a wide margin. China's motives are chiefly defensive (sanctions-proofing), constrained by capital controls and shallow bond markets. SWIFT metrics likely understate RMB's actual role given growing CIPS-direct settlement, complicating measurement. Financial-infrastructure tension is increasingly intertwined with technology controls and Taiwan-related security competition. The likeliest near-term path is incremental diversification, though a geopolitical shock could accelerate fragmentation. Sources IMF COFER: https://data.imf.org/en/datasets/IMF.STA:COFER IMF Blog (Oct. 2025): https://www.imf.org/en/blogs/articles/2025/10/01/dollars-share-of-reserves-held-steady-in-second-quarter-when-adjusted-for-fx-moves CEPR/VoxEU, Goldberg & Hannaoui (2026): https://cepr.org/voxeu/columns/dollars-status-through-lens-foreign-exchange-reserves US Treasury TIC, Major Foreign Holders: https://ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/slt_table5.html CRS, Foreign Holdings of Federal Debt (2026): https://www.congress.gov/crs-product/RS22331 CFR, "How Cross-Border Chinese RMB Flows May Weaken U.S. Sanctions": https://www.cfr.org/articles/how-cross-border-chinese-rmb-flows-may-weaken-u-s-sanctions CFR, "Finding China in the U.S. TIC Data": https://www.cfr.org/articles/finding-china-and-the-u-s-tic-data CSIS, "Sanctions, SWIFT, and China's CIPS": https://www.csis.org/analysis/sanctions-swift-and-chinas-cross-border-interbank-payments-system Atlantic Council, Euro/RMB payments share: https://www.atlanticcouncil.org/blogs/econographics/the-euros-share-of-international-transactions-is-likely-smaller-than-it-looks/ CIPS overview (PBoC data via Wikipedia): https://en.wikipedia.org/wiki/Cross-Border_Interbank_Payment_System IMF WP, RMB Usage in Cross-Border Payments: https://www.imf.org/-/media/Files/Publications/WP/2023/English/wpiea2023077-print-pdf.ashx