China's yuan-based financial network is reportedly being used by Iran and Russia to circumvent Western sanctions, thereby diminishing the impact of U.S. financial restrictions.
The Wall Street Journal reported on June 24 that as China expands the use of the yuan in the oil market and international trade, Iran and Russia are securing financial pathways to evade Western sanctions.
A notable example is Iran's oil exports. According to the U.S. Energy Information Administration (EIA), Iran is estimated to have generated up to $43 billion from oil exports last year despite U.S. sanctions. The U.S. Treasury Department has indicated that a significant portion of payments for Iranian oil transactions has been made in yuan rather than dollars.
Iran is using these funds to purchase various goods, including automotive parts and solar panels from China. The Journal noted that transactions involving dual-use goods, which could be repurposed for military use, are also occurring outside U.S. jurisdiction.
The backbone of the yuan's expanded trading is China's Cross-Border Interbank Payment System (CIPS). Launched in 2015 to internationalize the yuan, CIPS is viewed as an alternative to the U.S.-influenced Society for Worldwide Interbank Financial Telecommunication (SWIFT) network.
According to the Atlantic Council, the average daily transaction volume of CIPS has surged to approximately 790 billion yuan (about $179 billion) over the past three months, significantly exceeding last year's average of 680 billion yuan (about $154 billion).
Russia is experiencing a similar trend. Following the escalation of U.S. and Western sanctions after the Ukraine war in 2022, Russia's oil exports and trade with China have rapidly shifted to yuan-based transactions. Russian authorities have stated that over 90% of trade between Russia and China is now settled in yuan and rubles.
The yuan's share in global trade finance is also increasing. Data from SWIFT indicates that the yuan's share in trade finance has tripled over the past five years, reaching 6% as of April this year. The yuan has become the second most used currency in trade finance, following the dollar for most of this year.
China is also expanding the use of its digital payment platform, mBridge. Launched in 2021, mBridge enables direct interbank payments using digital versions of various currencies, including the digital yuan, without going through U.S. financial institutions.
Josh Lipsky, a researcher at the Atlantic Council, stated, "The yuan-based financial system makes it easier to circumvent U.S. sanctions and also weakens the ability of U.S. intelligence agencies to track global money flows."
However, some experts caution that the yuan is unlikely to completely replace the dollar. As long as China maintains strict capital controls and does not allow for free-floating yuan, the currency's expansion as an international currency will face limitations.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.