How Chinese RMB flows risk weakening US sanctions 

Back in 2014, The Economist declared that “the globalisation of” the Chinese renminbi or RMB “seems remorseless and unstoppable.” Notwithstanding hurdles in tracking remorse, we begged to differ – and were right.

But a dozen years on, its internationalization is showing renewed signs of life. The International Monetary Fund’s annual staff report on China’s economy identified several metrics along which the RMB’s use in trade and finance has been rising modestly. 

These include the share of trade invoicing settled in the Chinese currency, offshore RMB lending, and issuance of “panda bonds. These are RMB-denominated bonds issued in China by foreign entities. Yet on one metric, the data, on the surface, seem anomalous. 

As shown by the red line in the graphic below, the RMB share of payments over SWIFT – the main messaging network for international financial transactions – has been in fairly steep decline since 2024. This has suggested a reduced global role for the Chinese currency.

Global role

Remarkably, this is not the case. As we show in the accompanying vertical green bars, there has, since 2023, been an offsetting rise in RMB transactions over CIPS – China’s system for interbank payments and messaging. 

Historically, these payments have been accompanied by necessary SWIFT messages containing payment instructions. As recently as 2022, an estimated 80% of CIPS payments were accompanied by SWIFT messages. 

Since 2024, however, direct participants in CIPS – the only participants able to make payments accompanied by CIPS messages – have grown by nearly 40% from 139 banks to 193.

RMB Payments in CIPS and SWIFT

Direct participation has grown not only in absolute terms but as a proportion of total CIPS membership. This means that large volumes of payments messages that would in the past have gone through SWIFT now go through CIPS. 

It follows, then, that the decline in the share of RMB payments on SWIFT is not an indicator of a reduced global role for the RMB. Rather, it is that Chinese currency payments are becoming less dependent, and therefore less visible, on the SWIFT messaging network.

Why should we care? The United States has long relied on the threat of cutting off foreign banks from SWIFT in order to pursue foreign-policy objectives, such as pushing Russia to end its war against Ukraine. 

Sanctions tool

Although RMB transactions are still a tiny percentage of total international settlements, a continued shift to RMB – and the accompanying messaging from SWIFT to CIPS – will weaken the role of the US dollar as a sanctions tool.

Benn Steil is a senior fellow and director of international economics at the Council on Foreign Relations in New York. 

This edited article was published by the Council on Foreign Relations under a Creative Commons license. Read the original here.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of China Factor.