Increasingly intensifying U.S. economic sanctions targeting Russia’s financial system have deepened concerns in China over its extensive dollar asset holdings and the Chinese financial system’s reliance on dollars. Worries that a similar sanctions regime may one day be implemented against the Chinese financial system—and reports indicating that some Chinese financial firms involved in Russia-related transactions could soon be targeted by U.S. economic sanctions—help explain why prominent voices in China are calling to reduce the Chinese financial system’s exposure to the dollar.
Yet despite significant recent growth in China’s use of the renminbi in cross-border payments, the Chinese financial system is still highly reliant on dollars and its largest state-owned financial institutions are deeply interconnected with the U.S. financial system. Beijing will face significant obstacles trying to “sanctions proof” its…
