$SPDR S&P 500 ETF Trust(SPY)$ $China A50 Index - main 2503(CNmain)$
Dollar System Great Escape
We've often heard the familiar narrative that China is on the brink of economic collapse, but is that really the case? Despite these claims, we've seen a wave of innovation and industrial disruptions emerging from Beijing. China’s dominance in electric vehicles is undeniable, and then came the shock from DeepSeek, which sent tremors through U.S. Big Tech. Let’s not forget that either.
On the financial front, Beijing is making strides to catch up, with its top priority being the creation of an independent financial system, decoupled from the West. And from China’s perspective, the risks of remaining tied to Western financial infrastructure are becoming increasingly apparent.
Even as the U.S. moves to de-escalate tensions with Russia, financial aggression from the West continues. The European Union (EU) is ramping up its economic war efforts, pushing forward with plans to permanently seize $200 billion in frozen Russian reserves. The justification? France suggests holding these funds hostage, only to be released if Russia violates a future ceasefire agreement. But regardless of the reasoning, the fact remains—Russia's assets are stuck in EU institutions, inaccessible and unusable.
For any nation, especially China, this raises major red flags. It underscores the risk of keeping assets within Western financial systems, where they can be weaponized during a crisis, regardless of the stated rationale. Since sanctions began, the West has been tracking Russian funds, and a large portion was found within the settlement infrastructure of Euroclear Bank. By the end of 2024, over $180 billion in Russian assets had been frozen by the West, with some estimates suggesting an even higher amount.
To understand the significance of this, we need to grasp what Euroclear is. It serves as a settlement hub for financial transactions, acting as the underlying infrastructure for major asset transfers, such as stocks and bonds. Essentially, it operates like a stockbroker with a built-in banking system. Euroclear performs three key functions: settlement, safekeeping, and servicing of securities transactions.
China's main concern lies in asset custody and security. When the G7 froze Russia’s assets, they became immobilized, trapped in a clearinghouse. With the EU continuing to escalate tensions with Putin, those assets remain locked away.
From Beijing’s perspective, this is a wake-up call. The need for an alternative financial system isn’t just about safeguarding China’s own wealth—it’s about offering the world a viable option amid growing instability.
Creation Of RMB System
China is making a strategic move, viewing this as a golden opportunity to further divide the world from the unipolar Western financial system. Through Hong Kong, China is working to establish an Asian alternative to the Euroclear system, which is currently based in the West.
As an international financial hub, Hong Kong already handles massive flows of wealth on a daily basis. There are two key motivations behind this initiative. First, China aims to boost global adoption of the renminbi (RMB). However, the more pressing concern is safeguarding its vast wealth. By creating its own version of Euroclear in Hong Kong, China will complete the full financial transaction infrastructure, ensuring greater control over settlements.
Settlement houses play a crucial role in securing assets and facilitating their transfer between buyers and sellers. With its own system in place, China can offer an alternative hub, particularly for BRICS nations, providing them with a way to conduct transactions outside of Western influence. The more countries that utilize this hub, the higher the likelihood that major financial players will increase their use of the RMB—whether for purchasing Chinese bonds or investing in Chinese stocks.
Since the start of the war, China has been aggressively expanding its financial infrastructure. This includes the mBridge system, which enables digital currencies (CBDCs), particularly the digital yuan, to be used in transactions. This system operates as a “black box,” keeping transactions discreet—so much so that even external analysts cannot trace buyers or sellers, making it highly effective in bypassing sanctions.
Furthermore, in 2023, HSBC—a G7 banking giant—joined China’s Cross-Border Interbank Payment System (CIPS). HSBC cited growing demand for trade in RMB, and as China continues to deepen its trade relationships, banks worldwide are recognizing the necessity of joining the Chinese payment network to remain competitive. Ignoring the Chinese financial market is no longer an option for global banks.
Establishing its own version of Euroclear is simply the next step in China’s broader strategy: building a separate financial ecosystem beyond Western control. Western countries, including the U.S., will still have the option to participate, but they won’t have the unilateral power to impose sanctions or freeze assets at will.
Just as semiconductors are vital to China’s technological ambitions, creating an independent financial hub is essential for securing its economic future in a multipolar world.
Securing Assets & Freedom From US Control
The Chinese government is eager to move its wealth out of Western financial systems. Ever since Trump initiated the trade war, continuing to buy U.S. Treasury bonds has become increasingly illogical for China. Holding these assets essentially means funding its own economic containment—so the time has come to withdraw.
As of 2024, China holds a significant amount of U.S. assets beyond just Treasury bonds. When factoring in U.S. stocks, agency bonds, and government debt, China’s total exposure exceeds $1.5 trillion—five times larger than Russia’s. Even more concerning, over $300 billion of these assets are held in Belgium, meaning they are tied up in EU-based settlement houses like Euroclear. The majority of China’s U.S. bonds are currently held by the Federal Reserve and major U.S. custodian banks like JPMorgan, all of which ultimately answer to the U.S. government.
The challenge for China is figuring out where to move these funds. Liquidating $1.5 trillion into physical gold is not a viable option—it would send prices skyrocketing and create global alarm. Instead, by establishing its own financial depository, China can channel its wealth back home while ensuring greater security and control. While this system could still be linked to the Federal Reserve or EU banks, ultimate control would rest with China as the true owner of the assets.
Beijing is also preparing for a future where trade with the U.S. declines further. Since 2022, China’s exports to the U.S. have been shrinking, and U.S. imports of Chinese goods have stagnated. The slight uptick in 2024 was largely due to front-loading of trade, which should not be mistaken for a long-term recovery. In reality, China’s trade surplus with the U.S. is expected to continue decreasing, meaning it will earn fewer dollars and reduce its U.S. currency reserves. Consequently, China will no longer recycle these dollars into U.S. Treasury bonds to fund Washington.
The World De-Dollarizing Global Economy
This shift means China must strategically manage its dollar holdings while transitioning its economy and trade relationships away from the U.S. dollar. China’s Commerce Minister has made this clear, stating that over 50% of China’s total trade now comes from Belt and Road Initiative (BRI) partners. Beijing’s strategy to diversify trade relationships isn’t slowing down—it’s accelerating.
The global trade landscape has been evolving over the past 7 to 10 years. Economic blocs like BRICS and the G7 are increasingly trading within their own networks. Recent data confirms this trend:
-
China’s exports to BRICS nations increased by 2%, while U.S. trade within the G7 also rose by 2%.
-
Meanwhile, China’s exports to the G7 dropped by 5.2%, and Russia and Brazil’s exports to the West declined by over 3%.
-
Western countries are also trading less with BRICS nations, particularly China.
This fragmentation of global trade is not ideal, but it reflects the reality of today’s world—countries prefer to trade with allies rather than adversaries. China recognizes this shift and is seizing the opportunity to accelerate the creation of its own independent financial system.
A key part of this strategy is promoting bilateral currency trade. In the first seven months of last year, cross-border RMB transactions surged by 21% year-over-year, reaching nearly $6 trillion (41.6 trillion yuan). This rapid growth signals China’s determination to reduce reliance on the U.S. dollar.
The trade war initiated by Trump has only intensified this process. Higher tariffs make U.S. dollars harder to obtain, as exporters receive fewer dollars when selling goods to American companies. Regardless of who absorbs the tariffs, fewer U.S. dollars will flow from American consumers to foreign exporters.
At the same time, the U.S. dollar has surged against other currencies since early 2024, rising by 10%. While this may benefit the U.S. in certain ways, it creates serious challenges for global economies, especially those experiencing a shortage of U.S. dollars.
In the past, this would have been a major problem, but in today’s multipolar world, China is stepping in. With a trillion-dollar trade surplus every year, Beijing has the financial resources to lend to struggling countries. However, a more strategic move is to provide nations with direct access to the Chinese yuan—bypassing the U.S. dollar entirely in global trade.
In January, China took a major step in this direction...
New Financial System Rising
This development flew under the radar, but it’s a game-changer—China has established a 100 billion RMB trade financing facility to help exporters and importers gain easier access to Chinese currency. Additionally, countries can now use RMB-denominated debt as collateral to secure cash, much like how U.S. Treasuries are used as a financial pledge. By making it simpler to leverage its own bonds, China is reinforcing its financial ecosystem.
This is precisely why creating its own clearinghouse is a top priority. China wants to redirect global capital flows away from Western-controlled financial systems and into its own. This move is particularly critical for BRICS nations, offering them an alternative hub for financial transactions—one that is independent of Western influence.
This shift is crucial because U.S. and EU sanctions are far from over—in fact, they’re likely to escalate. Meanwhile, Trump’s aggressive stance on BRICS isn’t doing the U.S. dollar any favors. He has openly threatened that any BRICS nation even discussing alternatives to the dollar will face a 150% tariff and be cut off from U.S. trade entirely.
Trump's remarks suggest a deep concern over the future of the dollar:
"They said BRICS is going to replace the dollar. I said no, they’re not. They said yes, they are. I said no, they’re not. Tell them 150% tariff plus we’re not doing business with them—including China. And suddenly, we haven’t heard much from BRICS anymore.”
This is the same old playbook—tariffs as a form of economic pressure. But it highlights how desperate the U.S. is to maintain the dollar’s dominance. The problem? The shift is already underway, and China isn’t stopping.
Like it or not, this process is now irreversible.
What do you think? Can China truly challenge Euroclear, and how much of a threat does this pose to the Western financial system? Let me know your thoughts in the comments below.
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub
Comments