China Builds CIPS to Hedge Sanctions Risk, but Still Can't Break Free from the Dollar System
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U.S. Treasury Secretary Bessent launched "Operation Economic Outcast" against Iran, warning that Chinese banks helping Tehran evade sanctions will be cut off from the dollar system; Beijing has built CIPS as a hedge, but the dollar still commands over 50% of global payments — and Chinese banks' room to maneuver is shrinking.
Who does "Operation Economic Outcast" actually target?
Treasury Secretary Scott Bessent announced "Operation Economic Outcast" against Iran, with one blunt rule: any entity that helps Iran convert oil into money gets cut off from the dollar financial system.
Asked specifically about Chinese banks, Bessent was direct: "If they are involved in the ecosystem that turns Iranian oil into funds, they will be targets."
This means → This is not a vague diplomatic warning — it names China's banking sector directly, because China is Iran's largest oil buyer, taking roughly 90% of Iran's oil exports before the war.
Why is Beijing caught in a bind?
Beijing has declared it will "take all necessary measures" to protect its interests and opposes unilateral sanctions with no basis in international law. Yet China's biggest banks still depend heavily on dollar funding channels.
In plain terms = Beijing can talk tough, but the books need dollars — China's trade engine runs on dollar settlement.
Economist Intelligence Unit senior economist Tianchen Xu put it bluntly: China does want to stay inside the dollar system because it serves its trade engine, but that does not mean it will do anything and everything to comply with expanding U.S. sanctions. He expects Beijing to counter with measures such as rare-earth controls.
What is CIPS — and can it replace the dollar?
CIPS — the Cross-Border Interbank Payment System, China's own renminbi settlement network — began construction in 2012, the same year the U.S. Treasury sanctioned China's Kunlun Bank over illicit Iran-linked transactions.
CIPS now has 210 direct participants globally, mostly affiliates of Chinese state-owned banks. Transaction volume rose markedly after the 2022 Russia-Ukraine war and has continued to grow this year.
But Peter Alexander, managing director of Shanghai consultancy Z-Ben, cut to the core: "The emerging financial system is not necessarily one where countries abandon the dollar — it is a geopolitical hedging tool."
This means → CIPS is positioned as a spare tire, not a replacement — Beijing is diversifying without fully leaving the dollar behind.
How dominant is the dollar, really?
SWIFT data show the dollar still accounted for over 50% of global payments as of July this year. The renminbi ranked fifth at just 3.1% — down from over 4% at the start of 2025.
In trade finance the gap is starker: the dollar commands nearly 80%, with the renminbi second at 8.4%.
In plain terms = the renminbi's share of global payments is roughly one-sixteenth of the dollar's — that is not a gap that closes quickly.
Where is the room to maneuver?
Argentina and Australia both renewed bilateral currency-swap agreements with China this month, allowing their central banks to exchange tens of billions of dollars' worth of renminbi. This reflects a slow but steady expansion of the renminbi's network.
But the more pressing variable: Trump and Xi Jinping are expected to meet next month in the U.S., and Eurasia Group China director Dan Wang believes Washington does not want the summit derailed.
This means → Escalating sanctions and an approaching summit create a dual squeeze — Chinese banks can neither openly process Iran-linked flows and anger Washington, nor fully comply with sanctions and undermine Beijing's stance.
Content is for reference only, not financial advice.