For more than a decade, China and Russia have sought connection programs that denominate some trade and reduce their use of the U.S. dollar, or “de-dollarize” their investments in RMB.

The United States is a top export market for China. This limits the RMB’s use across China requiring payment in dollars for most exports and border transactions and has constrained China’s broader de-One Belt, One Road projects. The PBOC controls the dollarization efforts.

2% of Central banks’ global holdings are in dollars. However, if de-dollarization efforts gain traction, there could be implications for the U.S. economy. China is also seeking influence in dollar-centered global and U.S. global economic leadership. In January 2021, China’s central bank, the People’s Bank of China (PBOC),announced a joint venture (JV) with the Belgium-based financial. 

The dollar serves as the world’s dominant reserve messaging service, the Society for Worldwide Interbank currency, since World War II. A reserve currency is a Financial Telecommunications (SWIFT). SWIFT is relied currency held by central banks in significant quantities. It is used globally to send messages that facilitate cross-border also widely used in international trade and investment financial transactions.

The JV plans to create a data center. Today, the dollar remains the primary currency and localized network in China and is used in cross-border transactions, held by central banks in SWIFT network and traded in foreign exchange markets. 

The dollar‘s global role also reflects continued U.S. global economic and financial leadership. The dominance of the U.S. dollar allows the United States unique visibility.

De-Dollarization Efforts in China and Russia 

 Russia has expanded the use of Mir and SFPS and national security concerns in other countries. Over abroad: Mir has been introduced in Armenia, Turkey, and time, however, a Chinese central bank digital currency and Uzbekistan, and 23 banks outside of Russia are connected accompanying global payments network could offer China to SFPS. Russia’s central bank is also exploring the creation alternatives to the U.S. dollar and workarounds to the U.S. currency, which would further reduce Russia’s sanctions, at least in certain instances.

China’s payments network could give China greater understanding and control of certain global financial flows.

The Russian government accelerated its de-dollarization in 2014, when the United States imposed sanctions on Russia in response to Russia’s invasion of Ukraine. Over the next several years, the United States expanded sanctions on Russia for a variety of malign actions, including U.S. election interference. 

Russian President Vladimir Putin called for de-dollarization to insulate the Russian economy from existing and potential future U.S. sanctions.