The dominance of the U.S. dollar has historically given Washington a major advantage in policing global business. Most international transactions denominated in dollars must be settled by American banks, giving Washington the ability to monitor them -- and cut off users' dollars through sanctions if necessary, crippling their operations.
But U.S. adversaries are increasingly turning to China's financial system and the yuan to conduct business. By bypassing the U.S.-led banking system, they weaken Washington's enforcement powers.
China is building an alternative financial system around the yuan
Beijing in 2015 launched a payments platform -- the Cross-Border Interbank Payment System, or CIPS -- that serves as an alternative to Swift, the messaging infrastructure that links the world's banks. Beijing is also promoting a platform, called mBridge, that uses blockchain technology and digital versions of existing currencies to execute transactions between central banks without the money passing through U.S. financial institutions. These and other steps by Beijing mean it is becoming easier for countries to trade and invest in yuan without relying on U.S. dollars.
Here's how CIPS works versus Swift:
Iran uses the yuan to sell oil and reap the benefits
In its latest deal with Iran signed last week, Washington agreed to temporarily waive some sanctions on Iran as the two sides hold talks over a possible long-term agreement to end Iran's nuclear program. But Iran's increasing use of the yuan in recent years has given it the ability to sidestep many U.S. restrictions, and keep earning billions of dollars a year -- mainly by selling its oil to China -- even when U.S. sanctions are tight.
China buys more than 90% of Iran's crude, according to U.S. lawmakers, with most of it paid for in China's currency. Instead of transferring yuan payments to Tehran, Chinese oil buyers often park the money with an entity that delivers funds to Chinese contractors that then perform engineering work in Iran, on projects such as airports and refineries.
In other cases, payments from Chinese refiners move through a special-purpose vehicle to Chinese exporters, who transport goods such as automotive parts to Iran, current and former Western officials say.
China's financial plumbing is used in the process
The Iranian oil proceeds often flow through CIPS, according to former officials and researchers. CIPS volume has surged since the U.S.-Iran conflict began. According to the Atlantic Council, daily volume averaged roughly 790 billion yuan, equivalent to $115 billion, in the three months following February, up from 680 billion yuan last year.
"For years, many countries wanted alternatives to the dollar system," said Alisha Chhangani at the Washington-based Atlantic Council. China's years of groundwork, she said, allows "technologies to be deployed at scale" that can make dollar alternatives more viable.
Beijing's goal isn't to replace the dollar
China doesn't intend to fully replace the dollar, which powers roughly 80% of global trade finance. Broad adoption of the yuan would require Beijing to abandon capital controls and float its currency, risking capital flight and domestic instability. Instead, economists say Beijing aims to create specific trade corridors outside U.S. influence. This effort seeks to undermine U.S. authority, support allies and insulate China from the economic pressure the U.S. has applied to Iran and Russia -- or might apply if China acted against Taiwan.
China doesn't acknowledge buying Iranian oil or helping Tehran evade sanctions
China's Foreign Ministry in a statement said it was "unaware of the situation" regarding oil trade between China and Iran. The two countries' relations "have always been conducted within the framework of international law," it said. China cooperates with countries around the world, including Russia, based on the "principles of equality and mutual benefit," it added.
Former Treasury officials, however, argue that Iran disguises the origin of its oil to give Beijing plausible deniability about helping Iran evade U.S. sanctions.
"If the United States wants to really get tough on combating Iranian sanctions evasion, it has to look to China," said Max Meizlish of U.S. think tank Foundation for Defense of Democracies.
Write to Rory Jones at Rory.Jones@wsj.com, Austin Ramzy at austin.ramzy@wsj.com and Costas Paris at costas.paris@wsj.com
(END) Dow Jones Newswires
June 26, 2026 09:00 ET (13:00 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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