China needs U.S. dollars but is building a hedge against Washington’s sanctions
The U.S. can pressure Chinese banks over Iran through access to its financial system, while Beijing is building alternatives such as CIPS.
TL;DR
- The U.S. is threatening to cut off businesses that help Iran evade sanctions from the American financial system.
- This action puts Chinese banks in a difficult position, as they need access to U.S. dollars but are also expected to protect China's interests.
- China has expressed opposition to unilateral sanctions and stated it will take necessary measures to protect itself.
- China previously bought a significant portion of Iran's oil, making it Iran's largest trading partner.
- The U.S. sanctions aim to target entities facilitating Iran's financial activities, including Chinese banks.
- China is developing its Cross-Border Interbank Payment System (CIPS) as an alternative to dollar-centered finance.
- Bilateral currency swap agreements with countries like Argentina and Australia are also part of China's strategy to diversify.
- Despite efforts to diversify, the U.S. dollar still dominates global payments and trade finance.
- The U.S. and China are preparing for a summit between Presidents Trump and Xi Jinping, which may influence the situation.
- Analysts suggest China will try to remain in the dollar system while also hedging against U.S. sanctions.