Abstract: China has been systematically developing renminbi-based financial infrastructures for nearly a decade. Initially, these measures aimed to facilitate a smoother international use of the renminbi, but recent events have promoted Chinese policymakers to accelerate such efforts despite that they have been cautiously against the idea of hastily internationalizing the renminbi. Deteriorating U.S.-China relations since the U.S.-China trade war and the West’s unprecedented collective sanctions against Russia following Putin’s war against Ukraine have driven China to hedge against the risk of U.S. sanctions by accelerating the development of a renminbi-based international financial system. President Xi has expressed China’s interests in expanding the use of the renminbi in international energy trade at the SCO Summit and China-GCC Summit in 2022. Ensuring China has the capacity to mitigate U.S. sanctions is also an indispensable prerequisite if President Xi Jinping were to use military force to reunite Taiwan with the mainland. This paper provides a deep dive into China’s de-dollarization initiatives through various Chinese financial institutions, regional blocs, and multilateral partnerships. It presents evidence that China has been making progress to hedge against U.S. sanctions without the intent to de-throne the U.S. dollar. Even if President Xi aspired to de-throne the dollar, the renminbi and renminbi-based system face significant constraints to achieve such aspiration. However, the rise of alternative non-dollar based financial system does accelerate the diversification of the international financial system and dilute the dollar’s dominance.
Zongyuan Zoe Liu is Maurice R. Greenberg fellow for China studies at the Council on Foreign Relations (CFR). Her work focuses on international political economy, global financial markets, sovereign wealth funds, supply chains of critical minerals, development finance, emerging markets, energy and climate change policy, and East Asia-Middle East relations. Dr. Liu’s regional expertise is in East Asia, specifically China and Japan, and the Middle East, specifically Gulf Cooperation Council countries. Dr. Liu is the author of Can BRICS De-dollarize the Global Financial System? (Cambridge University Press) and Sovereign Funds: How the Communist Party of China Finances its Global Ambitions (Harvard University Press).
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