China Likely to Use Yuan Internationalization as Tool Against Russia's SWIFT Sanctions

Global Companies Seek Currencies Other Than Dollar
SWIFT Sanctions Act as Catalyst Accelerating De-dollarization

[Asia Economy Beijing=Special Correspondent Jo Young-shin] China appears to be using the exclusion of Russia from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) payment network by the United States and the European Union (EU) as a stepping stone for the internationalization of the yuan. China has revealed its intention to leverage Russia's invasion of Ukraine as a tool for yuan internationalization, claiming that the recent SWIFT sanctions will lead to the dismantling of dollar hegemony.

[Image source=Reuters Yonhap News]

Chinese state media such as Xinhua News Agency and Global Times reported in detail on the 28th that the US and EU have imposed strong financial sanctions by excluding some Russian banks from SWIFT, discussing the significance and impact of these measures.

SWIFT is a financial payment system used by over 11,000 financial companies and institutions worldwide. Being excluded from SWIFT makes Russia's trade impossible. SWIFT exclusion is considered a financial nuclear weapon-level sanction and has previously been applied to countries like Iran and North Korea.

Professor Xi Junyang of Shanghai University of Finance and Economics predicted, "If SWIFT exclusion measures are applied to the entire Russian financial sector, 70% of Russia's overseas transaction payments could be halted."

Tan Yaling, director of the China Foreign Exchange Investment Research Institute, said, "The EU excluding Russia from SWIFT is like shooting itself in the foot," adding, "Once the Ukraine situation calms down, it will be difficult to bear the economic consequences of SWIFT exclusion."

Chinese media also forecast that the recent SWIFT sanctions could act as a catalyst accelerating de-dollarization. Global companies will have no choice but to seek alternatives to the dollar for transactions with Russia, which could mark the beginning of the collapse of dollar hegemony.

Last month, the yuan accounted for 3.2% of international payments, ranking fourth globally after the dollar (39.93%), euro (36.56%), and pound (6.30%). Although the Chinese government has promoted yuan internationalization for over a decade, it has never surpassed the 3.2% threshold due to issues such as national and currency credit.

The Global Times emphasized that Russia's own payment system, the Russian Financial Messaging System (SPFS), is connected with China's own international payment network (CIPS), suggesting that CIPS could be an alternative to SWIFT. The Global Times also predicted that through increased use of CIPS by Russian companies, barter trade, and SWIFT circumvention via correspondent banks, Russia could recover about 50% of its trade losses.

China, which dreams of yuan internationalization, views the Ukraine crisis as an opportunity to increase yuan international transactions.

This content was produced with the assistance of AI translation services.