The United States is threatening to disconnect entities facilitating Iranian sanctions evasion from the American financial system, specifically targeting Chinese banks. China, which bought about 90% of Iran’s exported oil before the war, finds itself in an uncomfortable position: its major banks have strong incentives to preserve access to the U.S. dollar, but Beijing has promised to take all necessary measures to protect itself. The Chinese yuan represents only 3.1% of global payments and 8.4% of trade finance, compared to over 50% and nearly 80% for the U.S. dollar. To reduce its dollar dependence, China is developing the CIPS (Cross-Border Interbank Payment System), which now has 210 participating institutions worldwide, and has renewed currency swap agreements with Argentina and Australia. A meeting between Trump and Xi Jinping is scheduled for next month.
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