The Hormuz Conflict and the Limits of Renminbi Internationalization

What Iranian Cross-Border Transactions Tell Us About the Dollar

Since 2018, Iran’s economy has been subject to expansive U.S. economic sanctions intended to diminish the Iranian regime’s ability to finance itself. See “FinCEN Advisory on the Iranian Regime’s Illicit Oil Smuggling Activities, Shadow Banking Networks, and Weapons Procurement Efforts,” U.S. Department of the Treasury Financial Crimes Enforcement Network, June 6, 2025, ; “U.S. Sanctions on Iran,” Congressional Research Service, August 19, 2025, Against this backdrop, Chinese and Iranian authorities have embraced efforts to facilitate cross-border transactions without the use of traditional dollar channels. See, Dalga Khatinoglu, "Iran’s renewed push to bypass the dollar faces long odds," Iran International , September 4, 2025, ; Vali Kaleji, “Western Sanctions Challenge and Restrict Ruble-Rial Trade Between Iran and Russia,” The Jamestown Foundation, January 11, 2024, (citing Ayatollah Ali Khamenei during a 2022 meeting with Vladimir Putin); Xi Jinping, “Staying True to Our Founding Mission and Advancing Unity and Coordination to Realize Greater Development,” (speech, 23rd Meeting of the Council of Heads of State of the Shanghai Cooperation Organization, July 4, 2023): For example, in 2023, Xi Jinping lauded Iran joining the Shanghai Cooperation Organization, and proposed that the organization “scale up” non-dollar settlement between member economies, which include India and Russia, countries that likewise maintained meaningful cross-border trade with Iran in the years after extensive Iran-focused economic sanctions were implemented by U.S. authorities. ; SCO, “Observers and dialogue partners,” March 6, 2026, ; Top 5 Export and Import Partners in “Iran, Islamic Rep. Trade at a Glance: Most Recent Values,” World Integrated Trade Solution, . See also “India inks pact with Iran to pay crude bill in rupee,” The Hindu , December 6, 2018, ; Vali Kaleji, “Western Sanctions Challenge and Restrict Ruble-Rial Trade Between Iran and Russia,” The Jamestown Foundation, January 11, 2024,

A 2026 Congressional analysis indicated that Chinese entities have for years played a key role in facilitating non-dollar settlement for Iran’s oil exports, helping enable the vast majority of Iranian crude oil to flow to China. , March 16, 2026, Importantly, however, because U.S. economic sanctions have discouraged large financial institutions from directly facilitating Iranian oil transactions, limited-purpose non-dollar sanctions evasion channels for China-Iran oil transactions have reportedly emerged. ; James T. Areddy and Laurence Norman, “How China Secretly Pays Iran for Oil and Avoids U.S. Sanctions,” The Wall Street Journal , October 5, 2025, A recent U.S. Department of the Treasury (Treasury) announcement observed that Chinese payments for Iranian oil are “primarily” settled in renminbi. This settlement reportedly often occurs via mid-sized Chinese banks with limited connectivity to the dollar financial system.

At the same time, reports indicate that Iran-linked intermediary firms have in recent years regularly facilitated conversion of renminbi proceeds into dollars and euros and the laundering of funds through larger financial institutions. ; Björn Stritzel, “Exclusive: Docs show Iran used shell companies in China for euro oil deals,” Euractiv , March 12, 2026, ; “Inside the secret oil trade that funds Iran’s wars,” The Economist, October 17, 2024, Overall, U.S. government data indicate that billions of dollars in illicit Iranian oil transactions likely flowed through dollar correspondent bank accounts in 2024, although earlier this year U.S. authorities took measures targeting these channels. Ultimately, the Iranian regime’s efforts over the years to take elaborate steps to illicitly obtain dollars and euros—at a significant financial cost of reportedly as high as 30 to 50 percent of oil’s market price The Economist, October 17, 2024, —is illustrative of the desire to obtain currencies that are, unlike the tightly controlled renminbi, freely usable for various trade and financial payments with numerous potential counterparties.

Understanding Beijing’s Push to Grow the Renminbi’s Use in the Global Oil and Gas Trade

Indeed, the dollar dominates not only the global oil trade, but trade payments more broadly: data indicate that the dollar and dollar-pegged currencies have in recent years, through 2023, likely accounted for close to 60 percent of export invoicing from countries outside of the euro area, excluding the United States, far in excess of the share of exports from these countries that are U.S.-bound. Data on the use of the dollar in the global energy trade specifically is spotty, but a 2024 analysis by one global bank indicated that, in 2023, although use of the dollar for cross-border oil payments had declined over the course of several years, about 80 percent of the global oil trade was settled in dollars.

Amid a broader de-dollarization push, See Robert Greene, “The Difficult Realities of the BRICS’ Dedollarization Efforts—and the Renminbi’s Role,” Carnegie Endowment for International Peace, December 5, 2023, ; Robert Greene, “China's Dollar Dilemma,” Carnegie Endowment for International Peace, October 3, 2024, Xi Jinping in 2022 called for China’s oil and gas trade with the Gulf Cooperation Council (GCC) states (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE) to be settled in renminbi, Xinhua , December 9, 2022, and more recently, he endorsed the renminbi becoming “widely used” in international trade and a “global reserve currency.” Qiushi , March 2026, Chinese state media and researchers at state-owned banks and state-linked think tanks have emphasized growing the renminbi’s use in energy payments as key to expanding the currency’s global role, China Daily , May 7, 2026, ; Zhang Ming, “New opportunities and new levers for promoting RMB internationalization,” stcn.com , April 28, 2026, ; Chen Weidong et al., “Research on Global New Energy Critical Minerals and RMB Internationalization,” Applied Economics Review, No. 3, 2023, and Chinese authorities and state-owned institutions have in recent years built out renminbi payment channels across the Middle East and in other jurisdictions such as Brazil, Russia, and Malaysia that are significant energy exporters to China. See “RMB Internationalization Report (2025),” People’s Bank of China, ; Robert Greene, “The Difficult Realities of the BRICS’ Dedollarization Efforts—and the Renminbi’s Role,” Carnegie Endowment for International Peace, December 5, 2023, ; Robert Greene, “Southeast Asia’s Growing Interest in Non-dollar Financial Channels—and the Renminbi’s Potential Role,” Carnegie Endowment for International Peace, August 22, 2022,

Additionally, one important motivator for Chinese authorities to promote renminbi financial channels in energy payments, as explained in recent commentary published by the Xi Jinping Thought on Diplomacy and New Era China Diplomacy outlet, affiliated with the Chinese Ministry of Foreign Affairs, is to support China’s “energy security” by mitigating the potential threat of the dollar settlement system upon which the global energy trade generally relies from being cut off in “extreme cases.” Xi Jinping Thought on Diplomacy and New Era China Diplomacy , March 22, 2026, Similarly, recent commentary published in a prominent Chinese Communist Party-linked media outlet endorsed “financial security empowering energy security.” Guangming Online , May 9, 2026, Likewise, a May 2026 commentary published in a People’s Bank of China School of Finance research journal by a board member of the China Chief Economist Forum framed U.S. authorities’ recent use of economic sanctions as an effort to “weaponize” the dollar, and noted that one benefit of renminbi internationalization could be to “eliminate sanctions risks” facing Chinese enterprises. Tsinghua Financial Review , May 13, 2026, Yet for now, despite recent significant growth in the renminbi’s use in Chinese cross-border trade, See Rory Jones, Austin Ramzy, and Costas Paris, “How China Undercuts the U.S. in Iran,” The Wall Street Journal , June 23, 2026, the ability of Beijing to leverage renminbi payment channels to materially reduce the dollar’s role in the global energy trade is constrained.

Until recently, besides Iran, heavily-sanctioned Venezuela and Russia were seemingly the only two other major crude oil exporters with most exports not primarily settled in dollars. The former is now seemingly generally using financial channels controlled by U.S. authorities to sell oil for dollar proceeds, after former leader Nicolás Maduro’s ousting. See Elizabeth Melimopoulos, “Oil and US oversight: How is Venezuela’s interim government surviving?,” Al Jazeera , February 6, 2026 ; Spencer Kimball, “Venezuela oil sales top $1 billion, funds won’t go to Qatar account anymore, Energy secretary says,” CNBC , February 13, 2026, As for Russia, one of China’s largest suppliers of oil and gas, Reuters , May 19, 2026, data indicate that in recent years against the backdrop of extensive U.S. and European economic sanctions Russia’s oil and gas exports have heavily relied upon renminbi and Russian rubles, although the UAE dirham—which is pegged to the dollar—has also reportedly played a role. CNBC , June 7, 2024, ; Alexandra Prokopenko, “What are the Limits to Russia’s ‘Yuanization’?,” Carnegie Endowment for International Peace, May 27, 2024, ; Nidhi Verma, “Exclusive: Indian refiners pay traders in dirhams for Russian oil,” Reuters , February 3, 2023, ; “Xi’s Petroyuan Dream Gets New Life from Trump’s War in Iran,” Bloomberg , April 13, 2026, As of March 2026, however, the Russian banking system, generally cut off from dollar and euro lending markets, seemingly lacked a sufficient supply of renminbi to meet Russian businesses’ demand for foreign currency to use in cross-border trade payments. The Moscow Times , March 19, 2026,

Another major supplier of oil to China is Saudi Arabia. The dollar’s role in Saudi Arabia’s economy is quite entrenched, as it maintains a dollar-pegged currency re-endorsed in February 2026 by its central bank’s leader, Saudi Press Agency , February 9, 2026, along with significant dollar debt issuances and dollar asset holdings. ; “Table 5: Major Foreign Holders of Treasury Securities,” U.S. Department of the Treasury, accessed July 17, 2026, Certainly, in the lead-up to a late 2022 summit at which agreements signaling greater Chinese-Saudi financial cooperation were signed, Saudi policymakers and Chinese counterparts reportedly discussed using the renminbi to facilitate some oil transactions, and in 2023 and 2024, Saudi officials signaled openness to non-dollar currencies being used in the oil trade. The Wall Street Journal , March 15, 2022, ; Stephen Kalin, “China’s Xi Jinping Deepens Saudi Ties in Pivotal Trip,” The Wall Street Journal , December 8, 2022, ; Kandy Wong, “Saudi Arabia ‘open’ to petroyuan, closer China ties, minister says,” South China Morning Post , September 9, 2024, ; Manus Cranny and Abeer Abu Omar, “Saudi Arabia Says Open to Settling Trade in Other Currencies,” Bloomberg , January 17, 2023 , China has also over the years become Saudi Arabia’s largest source of imports, which provide a potential outlet for the renminbi’s use were it to be received by Saudi Arabian entities as payment for oil. See Charles Chang, Zahabia Gupta, Vishrut Rana, and Valerijs Rezvijs, “Saudi-China ties and renminbi-based oil trade,” S&P Global, August 20, 2024, Nevertheless, some speculate Saudi Arabia may have avoided joining the BRICS bloc in recent years so as not to be viewed as endorsing plans to advance de-dollarization, and it is difficult to see how recently expanded U.S.-Saudi economic and security ties, and the Strait of Hormuz conflict, would serve as a backdrop for the renminbi’s expanded use in Saudi oil sales.

After Saudi Arabia, another large oil exporter to China is Iraq In 2023, Iraq’s central bank allowed the country’s commercial banks to directly facilitate renminbi trade settlement via correspondent accounts at Chinese financial institutions, China Daily , February 24, 2023, but this initiative reportedly specifically excluded oil payments, which a prominent Hong Kong newspaper referred to as “trivializing the move.” Iraq maintains a dollar-pegged currency, and in February 2026, the Iraqi central bank head emphasized that there are no plans to change this arrangement, and that it would only change if foreign exchange reserves were depleted, which is not the case. Rudaw, February 11, 2026,

Various other Middle East countries are important suppliers of oil and gas to China. The Chinese central bank reported that in 2024 cross-border renminbi transactions between the Middle East region and China almost entirely involved Qatar and the UAE, which are home to the region’s only renminbi clearing banks. See “Agricultural Bank of China starts RMB settlement in UAE,” Xinhua , May 10, 2017, ; Amena Bakr, “Qatar launches first Chinese yuan clearing hub in Middle East,” Reuters , April 14, 2015, ; “RMB Internationalization Report (2025),” People’s Bank of China, 34, . A second renminbi clearing bank was recently launched in the UAE. Wang Shiyu, “China Expands Yuan Clearing to First Abu Dhabi Bank in UAE,” Caixin Global , October 29, 2025, These countries reportedly supply over one-quarter of China’s liquified natural gas, and about 7 percent of China’s oil, respectively. In 2024, Qatar-China and UAE-China renminbi transactions, however, were seemingly predominantly investment flows, with only 18 percent of 2024 Middle East-China renminbi-settled transactions being trade-related, accounting for about $27 billion in transactions. . ($27 billion figure is calculated using a renminbi-dollar conversion rate of 7.189.) As figure 1 indicates, these trade payments were meaningful in size relative to overall levels of bilateral UAE-China and Qatar-China trade, which equaled roughly $125 billion in 2024, although it is important to consider that a subset of Qatar-China and UAE-China payments could plausibly involve the Qatar- or UAE-based accounts of entities affiliated with organizations headquartered in other jurisdictions. Figure 1 also illustrates that in 2024, renminbi-settled trade in goods across the Middle East equaled under ten percent of the dollar-value of trade between the six GCC states and China. 53

Chinese state media–reported data indicate that UAE-China renminbi trade payments may have grown significantly between 2024 and 2025. CGTN , November 13, 2025, But while reports indicate that some renminbi-settled gas sales have been taking place for years, See, e.g., Zheng Xin, “China’s first yuan-settled LNG trade unloaded from UAE,” China Daily , May 16, 2023, . Notably, however, a large recent China-Qatar gas deal was dollar-priced with a Brent oil price indexation. Erica Downs, Robin Mills & Shangyou Nie, “Unpacking the Recent China-Qatar LNG Deals,” Columbia University Center on Global Energy Policy, July 10, 2023, there are no indications that the renminbi has been meaningfully used in oil payments by Qatari or UAE exporters. See David S. Cloud, Alexander Saeedy, and Nick Timiraos, “U.A.E. Asks U.S. About a Wartime Financial Lifeline,” The Wall Street Journal, April 19, 2026, . Qatar is reportedly not a meaningful oil exporter to China. Erica Downs, “Implications of the Conflict in the Middle East for China’s Energy Security,” Columbia University Center on Global Energy Policy, March 4, 2026, Also, late last year, Qatar’s prime minister re-endorsed the economy’s dollar-pegged currency, and likewise, the UAE central bank still pegs the country’s currency to the dollar.

Outside of the Middle East, where the renminbi’s rise has been limited, and heavily sanctioned economies, where use of the renminbi is a necessity, Beijing has grown the renminbi's role in trade with some countries important to China’s energy supply. Local currency settlement of trade payments between China and Malaysia reportedly grew to over 25 percent by late 2025, Yahoo! News , March 24, 2026, and Malaysia’s prime minister has publicly endorsed efforts aimed at reducing the dollar’s use in trade with China. Eurasia Review , April 6, 2023, There are indications that the renminbi’s use in cross-border trade settlement between China and Brazil, another major oil exporter to China, is significant, and reportedly includes oil payments. ; “The RMB has become a new safe haven for global capital,” STCN.com, April 23, 2026, ; Erica Downs, “Where China Gets Its Oil: Crude Imports in 2025 Reveal Stockpiling and Changing Fortunes of Certain Suppliers, Including Those Sanctioned,” Columbia University Center on Global Energy Policy, January 29, 2026, Chinese state-owned renminbi clearing banks were authorized in Malaysia and Brazil in 2015 and 2023, respectively, ; Jiang Xueqing, “ICBC Brazil processes first RMB settlement transaction,” China Daily, April 12, 2023, and both countries’ financial systems are directly connected to renminbi payments infrastructure through various institutions. ; Hong Kong Interbank Clearing Limited, List of RMB Clearing Members as of 26 May 2026, Notably, neither Brazil nor Malaysia have a dollar-pegged currency, and instead, each country’s central bank maintains a flexible exchange rate. ; “Foreign exchange policy,” Banco Central do Brazil,

Despite the Conflict, No Indications Yet of Lasting Changes in Renminbi Usage

Overall, despite increased attention on the renminbi’s use amid conflict in the Strait of Hormuz, and Beijing’s ambitions for the renminbi to play a much larger role in the global energy trade, it remains to be seen whether recent upticks in the currency’s use are indicative of greater sustained growth, and it is notable that these increases may be driven in part by financial transactions, while some measures of offshore renminbi usage are down relative to 2024 and 2025 levels.

Transaction volume on the Cross-border Interbank Payment System (CIPS)—renminbi payments infrastructure that can enable bank-to-bank transactions without relying upon U.S. or European financial institutions or messaging systems ; Robert Greene, “China's Dollar Dilemma,” Carnegie Endowment for International Peace, October 3, 2024, —reportedly remained relatively steady between early 2024 and late-2025. Amid the commencement of the Strait of Hormuz conflict and related financial market volatility, CIPS transactions spiked nearly 50 percent from February 2026 to a March 2026 record high average daily transaction volume of 920.5 billion renminbi, before falling to near-April 2025 levels in April 2026 and a further 13 percent by May 2026 to 673.9 billion renminbi. ; Sylvia Ma, “China’s yuan settlements hit record, and the Iran conflict is looking like a catalyst,” South China Morning Post, April 9, 2026, Between May and June 2026, a month of relatively high Chinese equity market activity, CIPS transactions rebounded 23 percent to 827.9 billion renminbi. ; Monthly Report, Shenzhen Stock Exchange, (providing monthly reports from January through June 2026); Shanghai-Hong Kong Stock Connect: Statistics: Month, Shanghai Stock Exchange, accessed July 18, 2026, (providing monthly reports from January through June 2026). In June, the Chinese securities regulator criticized speculation and “hype” in Chinese stock markets. Anniek Bao, “China securities regulator warns against speculating on ‘tech hype’ and using AI for stock picking,” CNBC.com , June 17, 2026,

The February to March and May to June increases in average daily CIPS transaction volumes were likely attributable in part to financial transactions. Notably, dollar clearing volume statistics show sizable upticks during these time periods: monthly overall transaction volume on Hong Kong’s dollar clearing infrastructure, the U.S. Dollar Clearing House Automated Transfer System (USD CHATS), grew 31 percent and 15 percent during these periods, respectively. Monthly volume on Hong Kong’s euro clearing infrastructure also grew 26 percent and 47 percent, respectively, during these time periods.

Importantly, transaction data for the corresponding infrastructure for offshore renminbi settlement—RMB CHATS, a Hong Kong-based payments infrastructure linked to CIPS with a 2025 renminbi transaction value over three times larger than that year’s total CIPS transactions—has trended downward over the past two years. ; Hong Kong Interbank Clearing Limited, Statistics of RMB Clearing Transaction Value, accessed July 23, 2026, ; Bank of China (Hong Kong) and Hong Kong Interbank Clearing Limited, Principles for Financial Market Infrastructures: Disclosure for RMB CHATS, June 26, 2026, 3, In fact, RMB CHATS volume from March 1, 2026, just after the Strait of Hormuz conflict began, through June 30, 2026, was down approximately 7 and 24 percent relative to corresponding 2025 and 2024 four-month periods, respectively (see figure 2 ).

To further put these numbers in perspective, although the dollar does not have dedicated “offshore” payments infrastructure, it is worth considering that the $350 billion average 2025 dollar-value of daily transactions on RMB CHATS was just 17 percent of that year’s $2.014 trillion in average daily transactions on CHIPS—the New York–based interbank dollar payment network used by large global banks. The Clearing House, April 7, 2026, ; “Annual Report 2025,” Hong Kong Monetary Authority, Table 3, . Dollar-value estimate of RMB CHATS average daily turnover calculated using a dollar-renminbi exchange rate of 7.129 The average 2025 daily transaction volume for USD CHATS was $93 billion.

Beijing’s Ability to Grow the Renminbi’s Global Role in the Short-Term Remains Highly Constrained

In the months ahead, regardless of whether a lasting resolution to the Strait of Hormuz conflict is reached, several factors appear set to continue to constrain any efforts by Beijing and its allies to increase the renminbi’s global use in the energy trade.

For starters, use of the renminbi as a payments currency in contexts where the payee will ultimately need to convert proceeds into its local currency is generally more inefficient and costly relative to using the dollar. Two reasons why are: First, the comparatively higher cost of converting renminbi into other non-dollar currencies relative to converting the dollar into these currencies (survey data indicate that the dollar’s share of institutional over-the-counter foreign exchange transactions far eclipses the renminbi’s). Second, the related issue of a sizable share of such renminbi foreign exchange transactions likely being exposed to settlement risk. See PIE Taskforce, FX settlement risk mitigation in (wholesale) cross-border payments, March 2025, ; Committee on Payments and Market Infrastructures, “Facilitating Increased Adoption of Payment Versus Payment (PvP),” Bank for International Settlements, March 2023, ; Robert Greene, “The Difficult Realities of the BRICS’ Dedollarization Efforts—and the Renminbi’s Role,” Carnegie Endowment for International Peace, December 5, 2023,

Putting aside the costs and frictions associated with using the renminbi as a payments currency relative to the dollar, security concerns also exist given China’s growing economic statecraft toolkit; this dynamic could result in certain governments discouraging renminbi use, as Indian authorities reportedly did in 2023. ; Nidhi Verma and Aftab Ahmed, “Exclusive: As India Frowns on Paying for Russian Oil With Yuan, Some Payments Held Up,” Reuters, October 16, 2023, Also, the geopolitical blowback from the U.S. government—which maintains important security relationships with major purchasers of Middle Eastern oil, such as India, Japan, and South Korea, as well as major sellers, like Saudi Arabia and the UAE U.S. Energy Information Administration , June 16, 2025, ; U.S. Department of State, Major Non-NATO Ally Status, January 20, 2025, ; Donald J. Trump, “Presidential Determination on Designation of the Kingdom of Saudi Arabia as a Major Non-NATO Ally,” Federal Register, January 13, 2026, ; U.S. Department of State, U.S. Security Cooperation With the United Arab Emirates, January 20, 2025, ; U.S. Department of State, U.S. Security Cooperation With India, January 20, 2025, —could be significant. The Trump administration has signaled a willingness to confront foreign governments’ embrace of non-dollar payment channels. See Donald J. Trump, “Statement by President-elect Donald J. Trump on the Use of the U.S. Dollar by ‘BRICs’ Nations,” (speech, The American Presidency Project , November 30, 2024): ; Matthew Mpoke Bigg, “Trump Threatens Extra Tariffs on BRIC-aligned Countries,” The New York Times , July 7, 2025,

Additionally, the renminbi’s use in cross-border energy trade payments is negatively affected by the state of China’s derivatives markets. Recent survey data indicate that many enterprises operating in China believe that the market’s “derivatives tools for risk hedging are insufficient,” which acts as an obstacle to greater renminbi use. www.imi.ruc.edu.cn/IMIsd/bb17e16ea4024ace9e9a531141a4e530.htm More specifically, the “extremely limited” depth of the offshore renminbi derivatives market and difficulties effectively hedging exchange rate risk associated with renminbi exposure hinder cross-border use of the renminbi, as recently explained by officials with the Shanghai Financial Association and a major Shanghai government-owned bank. . See also Clive Maguchu and Jet James, “Hedging China bond exposures: strategic considerations for investors,” State Street, August 18, 2025, In April 2026, a Chinese state media–published analysis citing several analysts at Chinese state-affiliated research institutions identified the relative illiquidity and immaturity of renminbi-denominated derivatives markets as an obstacle to greater renminbi use in the oil trade in particular. Sina.com , April 1, 2026, It quotes the honorary chairman of the Expert Committee of the China Petroleum Circulation Association, who reportedly observed that the Chinese market’s inadequate risk-hedging tools constrain use of the renminbi in oil transactions. Sina.com , April 1, 2026, (quoting Dong Xiucheng). China Petroleum Circulation Association, List of Members of the Third Expert Committee of the China Petroleum Circulation Association, March 24, 2026, Shanghai’s renminbi-denominated oil futures market is very small relative to the dollar-denominated Brent and West Texas Intermediate (WTI) crude oil futures markets, as figure 3 shows.

Limited Global Access to Renminbi-Denominated Assets Acutely Affects the Currency’s Use

Finally, what are market participants to do with renminbi balances accumulated in hypothetical frequent and sizable sales of oil or gas for renminbi? As noted above, the cost of converting these balances into local currencies relative to converting dollar balances into local currencies can often be relatively more expensive. Yet dollar dominance in global trade and finance is further enabled by the fact that there is an abundant, liquid supply of dollar-denominated financial assets that can be easily purchased by businesses around the world that receive dollars in trade payments. See Antonio Coppola, Arvind Krishnamurthy, Chenzi Xu, “Liquidity, Debt Denomination, and Currency Dominance,” Working Paper, February 2026,

Prominent state-affiliated researchers and former senior officials in China have identified increasing the supply of renminbi-denominated financial assets available to non-Chinese investors as important to growing renminbi use globally. See, e.g., Zhang Ming, “Seize the window to accelerate RMB internationalization,” Sina.com , May 3, 2026, ; Fan Zimeng and Huang Bingyu, “Global trading volume jumps to 8.5%, advancing a new window of opportunity for RMB internationalization,” Shanghai Securities News, October 24, 2025, (quoting Miao Yanliang) However, the supply of such assets available to foreign investors would have to dramatically grow for Chinese policymakers to take advantage of any increased demand for the renminbi as a payments currency to promote the renminbi’s overall global role and China’s financial power more broadly. U.S. government data indicate that in mid-2025 there were $19.84 trillion and $13.84 trillion of foreign-held U.S. equities and long-term debt securities, respectively. By contrast, in mid-2025, the total foreign holdings of onshore renminbi bonds and equities, taken together, was reportedly just about $1 trillion, (reported renminbi balances of stocks and bonds converted at a June 2025 dollar-renminbi exchange rate of 7.16) and the total 2025 supply of Hong Kong’s offshore renminbi bonds was $185 billion. (excluding certificates of deposit)

Despite China’s bond market reportedly being the second-largest in the world, South China Morning Post , August 12, 2025, the supply of renminbi assets available to foreign investors is tightly limited by China’s restrictions on financial flows in and out of mainland China. See Zhang Chun, “In the next five to ten years, the international status of the RMB is expected to rank among the world's top three,” Guancha.cn , January 29, 2026, ; “Despite economic headwinds, China’s bond market continues to grow,” The Bank of Finland Institute for Emerging Economies, January 10, 2025, The country’s top foreign exchange regulator recently committed to “explore” measures to loosen these restrictions, although state media coverage of his statement also emphasized comments by a former senior foreign exchange regulator that any such steps will likely be “prudent and gradual.” ; Zhou Lanxu, “China to deepen high-quality capital account opening,” China Daily, January 28, 2026, Notably, Chinese bonds experienced an eleven-month sell-off by foreign investors through March 2026—the longest stretch since at least April 2020—resulting in foreign holdings of bonds in the interbank market shrinking nearly 30 percent (partially motivated by China’s comparatively low interest rates). Bloomberg , April 16, 2026, Data from the Hong Kong Bond Connect, which facilitates foreign investment into mainland Chinese bonds, indicate that by May 2026 foreign holdings of mainland Chinese bonds remained near early 2023 levels.

Accordingly, even if the renminbi’s global use in cross-border energy payments were to grow significantly in the years ahead, the ability of transacting parties outside of China to maintain sizable and diversified balances of sufficiently liquid renminbi-denominated financial assets that generate competitive returns may remain quite constrained. This dynamic helps explain why, as recently articulated by former Chinese central bank governor Zhou Xiaochuan, non-Chinese parties transacting in renminbi regularly avoid holding renminbi long-term, and instead exchange other currencies for renminbi near the time of payment, underscoring the attractiveness of simply using the dollar instead. This dynamic would be further reinforced if the exporter receiving payment is in a dollar-pegged economy, as most Middle Eastern exporters are.

China’s Future Restrictiveness on Cross-Border Financial Flows Is Uncertain

Despite the aforementioned obstacles, Chinese leadership seems intent on implementing policy changes to grow the renminbi’s role globally, as indicated by the Fifteenth Five-Year Plan, as well as by numerous recent remarks by senior government officials. Xinhua News Agency , March 13, 2026, ; Pan Gongsheng, “China's high-quality development and global economic rebalancing,” BIS, March 22, 2026, ; Li Bin, Press Conference, State Council Information Office, January 15, 2026, ; Xi Jinping, “Follow the path of financial development with Chinese characteristics and build a strong financial nation,” Qiushi , March 2026, In recent months, Chinese policymakers have taken steps to expand foreign participation in China’s energy and fixed income derivatives markets. Xinhua , January 23, 2026, ; Zhang Shidong, “China opens government bond futures to select foreign investors in reform push,” South China Morning Post , April 24, 2026, Beijing has also loosened restrictions on capital flows from mainland China to Hong Kong in order to bolster demand for offshore renminbi bond issuances by major global banks and corporates, which can generally be bought and sold by non-Chinese investors regardless of restrictions on funds flowing into and out of mainland China. Financial Times , April 24, 2026, But the extent to which Chinese authorities embrace a significant loosening in restrictions on financial flows into and out of mainland China in the coming years remains to be seen.

China’s Finance 40 Forum—an important group with which many Chinese financial officials have been affiliated—recently published an article endorsing a meaningful loosening of capital account restrictions and a move from a managed floating exchange rate system to a “clean float” regime. China’s former central bank governor was quoted in April 2026 saying that Chinese authorities have a “golden window of opportunity” to promote the renminbi’s global use, including by reducing restrictions on its cross-border use. South China Morning Post , April 13, 2026, On the other hand, recent commentary published in state media quoted a prominent economist at one of China’s largest state-owned banks as saying that, although renminbi internationalization and China’s capital account opening are increasingly “two sides of the same coin,” liberalization that is not gradual could create market distortions and volatility. China Daily , January 30, 2026, (quoting Guan Tao) The recent foreign sell-off of onshore Chinese financial assets underscores that a significant loosening of China’s restrictions on cross-border financial flows could bring about more financial market participation by foreigners that some Chinese authorities may fear could ultimately become disruptive. Also, net capital outflow from mainland China in the event of fully lifted restrictions on cross-border renminbi usage could be significant. See Miao Yanliang, Several Myths About the Capital Account, Finance 40 Forum, February 26, 2026, (citing IMF research and providing an alternative estimate)

The Limitations of China’s Central Bank Swap Lines

Remarks by current and former senior Chinese officials indicate that some Chinese policymakers may believe that the proliferation of bilateral central bank swap lines can promote the renminbi’s expanded global use in payments even as China maintains significant restrictions on the currency’s convertibility. ; Pan Gongsheng, Press Conference, March 6, 2026, These swap lines have been empirically linked with some increases in cross-border renminbi payments, although the effects on renminbi use in trade payments (including for energy commodities) appear modest. ; Hector Perez-Saiz and Longmei Zhang, Renminbi Usage in Cross Border Payments: Regional Patterns and the Role of Swap Lines and Offshore Clearing Banks, IMF Working Paper 23/77, March 2023,

Indeed, while data on the terms of Chinese central bank swap lines and the extent to which these swap lines have actually been tapped is limited, available data indicate that these swap lines have reportedly been drawn on only by a few jurisdictions, mostly emerging market economies that are in the midst of or have recently confronted sovereign debt issues or severe foreign exchange depletion. GCI Working Paper 042 , April 2025, ; Benn Steil and Elizabeth Harding, China’s Central Bank is Becoming the Developing World’s “Payday Lender”, Council on Foreign Relations, October 22, 2024, ; Benn Steil et al., Central Bank Currency Swaps Tracker, Council on Foreign Relations, April 21, 2026, The use of swap lines in these circumstances helps explain why, amid economic disruptions in early 2026 linked to the Strait of Hormuz conflict, foreign central bank draws on renminbi swap lines grew dramatically, reportedly increasing 41 percent to near-2023 highs between September 2025 and March 2026, after declining dramatically in 2024 and not growing significantly for much of 2025. These draws are not necessarily reflective of increased use of the renminbi in trade payments, let alone trade payments for energy commodities.

In fact, it is worth noting that given the high concentration of reported swap line draws in Belt and Road Initiative economies, some draws may simply be a backdoor bailout by China’s central bank aimed at ensuring payment of debt balances with other Chinese entities. GCI Working Paper 042 , April 2025, 6, And to the extent that the existence of renminbi swap lines has bolstered renminbi usage outside of China, European Central Bank and Banque de France researchers have observed that such an outcome has been predicated on market participants’ ability to reliably convert offshore renminbi into dollars. Indeed, emerging market financial authorities have at times converted drawn renminbi funds into dollars. See, e.g., Vincient Arnold, "China: Central Bank Swaps to Argentina, 2014," Journal of Financial Crises, Volume 5, 2023, Also, survey data indicate that the dollar’s share of institutional over-the-counter renminbi foreign exchange transactions increased from 94 to 96 percent between 2022 and 2025, underscoring the renminbi’s continued connectivity to the dollar financial system.

Recently, Chinese central bank swap lines received attention as financial authorities in the UAE—which maintains a relatively modestly sized swap line with China’s central bank At a dollar-renminbi exchange rate of 6.8, the current value of this approximately 35 billion renminbi swap line is about $5 billion, equivalent to less than 1 percent of 2025 estimated GDP. (by contrast, Indonesia’s recently announced swap line is equivalent to almost 4 percent of 2025 estimated GDP). See Table 1; IMF, World Economic Outlook database: April 2025, —reportedly warned U.S. counterparts in April that the UAE may use renminbi for oil payments if UAE foreign exchange reserves became excessively stressed, and suggested the establishment of a dollar swap line would prevent such an outcome. Wall Street Journal, April 19, 2026, Through 2025, seemingly no Middle Eastern economies (besides Egypt and Türkiye) or advanced economies (besides Singapore and Hong Kong, for many years, and South Korea, in 2013) had tapped a Chinese central bank swap line. See AidData, “MAS makes RMB 15 billion drawdown under currency swap agreement with PBOC in 2023/24,” The College of William & Mary, June 11, 2026, ; Benn Steil et al., Central Bank Currency Swaps Tracker, Council on Foreign Relations, April 21, 2026, . For a list of advanced economies, see: IMF, Country Composition of WEO Groups, World Economic Outlook Database, April 2023, In May, negotiations between U.S. officials and UAE counterparts regarding the establishment of a dollar swap line reportedly took place.

Treasury leadership has indicated support for establishing dollar swap lines with Middle Eastern countries in order to support dollar usage, maintain smoothly functioning dollar funding markets, and prevent fire sales of U.S. government debt securities during times of market stress. Also, Treasury recently showcased its willingness to use Exchange Stabilization Fund (ESF) authorities to extend dollar funding to Argentina, the second-largest ever use of the ESF. (Argentina has reportedly been, for over ten years through 2025, by far the world’s largest user of Chinese central bank swap lines )

Table 1 presents the relative sizes of recent dollar and renminbi swap lines, and draws on these facilities, to illustrate the scale with which U.S. and Chinese authorities can deploy and have recently deployed financial firepower through swap lines. ;Benjamin Hoffner, "United States: Central Bank Swaps to 14 Countries, 2020," Journal of Financial Crises, Vol. 5, Iss. 1, 2023, ; Mark Choi, Linda Goldberg, Robert Lerman, and Fabiola Ravazzolo, “The Fed's Central Bank Swap Lines and FIMA Repo Facility,” Federal Reserve Bank of New York, Economic Policy Review , 28, No. 1, June 2022, 99-100, ; Federal Reserve announces the extension of its temporary U.S. dollar liquidity swap lines with nine central banks through December 31, 2021, Board of Governors of the Federal Reserve System, June 16, 2021, ; Congressional Research Service, Treasury’s Exchange Stabilization Fund, April 24, 2026, ; Office of the Inspector General, U.S. Department of the Treasury, Audit of the Exchange Stabilization Fund’s Financial Statements for Fiscal Year 2025, 11, ; HKMA, Enhanced Currency Swap Agreement between People's Bank of China and Hong Kong Monetary Authority, July 4, 2022, ; “China, Macao upgrade currency swap to long-term standing swap deal,” Reuters, December 5, 2025, ; “RMB Internationalization Report (2025),” People’s Bank of China, ; “Central Banks Tap Most Yuan Swap Lines With PBOC in Two Years,” Bloomberg, May 11, 2026, . Dollar-value estimates of renminbi swap lines calculated using a dollar-renminbi exchange rate of 7.189 for 2024 and 7.129 for 2025 Additionally, it is worth noting that Middle East economies could in the future tap the Foreign and International Monetary Authorities (FIMA) Repo Facility, made permanent in 2021 and administered by the Federal Reserve System (Fed), which allows central banks confronting severe market stress to access up to $60 billion in dollar funding by pledging U.S. government debt securities—with the goal of preventing fire sales of these assets. Arabian Gulf Business Insight , May 7, 2026, ; Board of Governors of the Federal Reserve System, Foreign and International Monetary Authorities (FIMA) Repo Facility, last update: March 24, 2022, ; Federal Open Market Committee, “FOMC Authorizations and Continuing Directives for Open Market Operations As amended effective January 27, 2026," Interestingly, in April 2026, the recently retired deputy head of India’s central bank called upon the Indian central bank to tap the facility to help stabilize the rupee. The Indian Express , April 1, 2026, In June 2026, the head of China’s central bank announced the establishment of a renminbi Repo Facility for Foreign and International Monetary Authorities, or “FIMA RMB Repo,” which Chinese state media framed as similar to the Fed’s FIMA Repo Facility, but also as different in that it represents a “more proactive effort” to affect foreign demand for financial assets denominated in a particular currency—the renminbi. China Daily , June 16, 2026,

Will Structural Constraints to the Renminbi’s Rise Persist?

Ultimately, Beijing’s ability to project financial power not just through swap lines but also more broadly through the renminbi’s global role is currently limited. This appears to particularly be the case in the global energy trade, and it does not appear that the recent conflict in the Strait of Hormuz has resulted in a lasting change to this dynamic. Although use of the renminbi may be on the rise in some energy-exporting economies, use of the currency in energy transactions outside of China and heavily sanctioned economies seemingly remains quite minimal, and as noted above, various prominent Chinese experts acknowledge that policy efforts to change this dynamic may be quite constrained in the short-term.

Looking further ahead, however, policymakers in Beijing indeed appear focused at the highest level on building China into a “financial power”—particularly by growing use of the renminbi in the global oil and gas trade—although the path to achieve such a lofty outcome is fraught with difficult policy trade-offs. Indeed, despite calls by some in China for meaningful near-term adjustments in restrictions on financial flows into and out of mainland China’s financial system, such an outcome is far from certain. Nevertheless, recent events may ultimately lead to some Chinese policymakers pushing—perhaps successfully—for accelerated policy changes aimed at reducing barriers to the renminbi’s global use in ways that make China less interconnected with the dollar financial system. The success of such efforts would depend in part on U.S. policy responses.