aichengreen176_Andrey SuslovGetty Images_digitalbank Andrey Suslov/Getty Images

Will Geopolitics or Technology Reshape the Global Monetary Order?

China was supposed to be the main beneficiary of a shift away from the dollar by countries fearing its "weaponization" by US authorities. So why isn't diversification toward the renminbi visible in data on foreign reserves and international payments?

BERKELEY – When the United States and its G7 partners imposed sanctions on Russia’s central bank and barred Western financial institutions from doing business with Russian counterparties, commentators warned of far-reaching changes in the global monetary and financial order. Other countries would see those sanctions as yet another step in the West’s “weaponization” of finance. Fearing that they, too, might one day be on the receiving end of sanctions, governments and central banks would reduce their dependence on the dollar, US banks, and the US-dominated Society for Worldwide Interbank Financial Telecommunication (SWIFT).

China would be the principal beneficiary, these predictions continued. So far, China has sought to remain above the fray in the dispute between Russia and the West. It has a large banking system. It has created a Cross-Border Interbank Payment System to facilitate renminbi settlement and provide an alternative to Fedwire and the Clearing House Interbank Payments System (CHIPS) through which dollar payments are made.

Russia already accepts renminbi in payment for fully 14% of its exports. Its sovereign wealth fund holds $45 billion worth of renminbi securities and deposits, and Russian companies issued $7 billion worth of renminbi-denominated bonds last year.