🔍 Deep Dive #32
Redbacks vs. Greenbacks: Why the Dollar Is Here To Stay
📝 The TL;DR
Renminbi (RMB): China’s official currency, issued by the People’s Bank of China, and the fifth-most traded currency in the world. The Chinese yuan is the basic unit of RMB; as of late February 2026, one yuan is equivalent to 0.15 U.S. dollars.
The expansion of U.S. sanctions in 2014 and 2022 accelerated China’s efforts to internationalize the RMB and promote de-dollarization.
China’s promotion of RMB-based alternative financial systems and increased trade in RMB points to the potential slow erosion of dollar dominance and the rise of a more multipolar monetary order.
RMB adoption faces many barriers. The dollar is still by far the most popular currency for sovereign debt and international settlements, and China’s capital controls limit its ability to attract investors.
The RMB’s threats to dollar dominance challenge a system that allows the United States to sanction and surveil adversaries, finance its debt cheaply, and keep borrowing costs low.
📍Redbacks vs. Greenbacks: Why the Dollar Is Here To Stay
Locked out of Western capital markets for nearly four years, a shackled Russia issued its first RMB-denominated bonds in December 2025. Russia’s Ministry of Finance announced a 20 billion yuan ($2.8 billion) bond placement, deepening economic and financial ties between the two countries. Although limited in scope, these bonds provided Russia with access to alternative financing. China’s interest rates remain over ten percentage points lower than Russia’s, offering a lifeline for Moscow as the country remains incapable of reliably or cheaply financing its ballooning wartime debt amid harsh Western restrictions on Russia’s access to the global financial system.
Moscow’s issuance was the latest and largest in a string of RMB-denominated financing: Russia’s bonds added to a record 13 billion yuan raised in 2025 by foreign governments, including Hungary, Indonesia, Kenya, and Angola.
Aside from the implications for Russia’s financing of its war in Ukraine, the issuance of these bonds marks another incremental step by China to undermine the dollar’s ubiquity. The nation has also increasingly promoted its own alternative payment systems and encouraged partners to settle trade in local currencies rather than dollars. Beyond the economic benefits for China, internationalizing the yuan is also a means to mitigate the effects of U.S. sanctions, whose power largely rests on the dollar’s longstanding dominance.
Biting the Gold Dust
As the dust settled after World War II, leaders of 44 states from around the globe convened in New Hampshire to establish a new global monetary order known as the Bretton Woods system. This new system established a network of exchange rates in which each country pegged its currency to the U.S. dollar, which in turn was pegged to gold in order to provide stability to the system. The Bretton Woods system ingrained the dollar into global institutions, setting a precedent for decades to come.
By the end of the 1960s, the United States struggled to hold enough gold to match the surging volume of dollars in circulation. Additionally, the greenback became damagingly overvalued, harming the competitiveness of U.S. exports. As troubles mounted, President Richard Nixon ended the gold standard in 1971, allowing the dollar’s value to float. The so-called “Nixon shock” marked the end of the Bretton Woods system. Nonetheless, the dollar prevailed as the global reserve currency. Due to trust in U.S. institutions, the large and liquid Treasury market, and the rise of petrodollars, the dollar strengthened its dominance worldwide.
The U.S. dollar remains king in the present day—it currently accounts for 88% of foreign exchange transactions and 58% of global foreign exchange reserves—demonstrating the high level of trust in the greenback worldwide. The dollar is also used in 54% of global trade, highlighting its role in bilateral trade worldwide, even in transactions between foreign entities. The dollar’s hegemony has afforded the United States “exorbitant privilege,” allowing it to pay its debt in dollars, borrow at very low rates, and sanction and surveil foreign entities. However, as the United States has expanded the scope of its sanctions and financial surveillance, some states have become increasingly mistrustful of the dollar’s dominance.
Financial Flexing
In 2014, Russia annexed the Crimean Peninsula of Ukraine, leading to strong international backlash, especially from the West. In response, President Barack Obama announced sanctions against a long list of Russian entities in targeted sectors, including financial services, energy, and defense. This list primarily included individuals and specific entities involved in the annexation of Crimea or the financing of oil and gas projects. These sanctions prohibited the use of U.S. assets in transactions with these firms and individuals.
U.S. dollar-based sanctions on Russia in 2014 demonstrated that the United States had the capability to wield its dollar dominance as a weapon to punish adversaries, but it did not weaponize it to its fullest.
Russia’s full-scale invasion of Ukraine in 2022 brought about renewed waves of U.S. sanctions. Western powers acted to almost entirely cut Russia off from international financial systems. In addition to trade embargoes and service and travel restrictions, the new sanctions broadly expanded the 2014 prohibitions to weaken the defense sector, designate additional individuals, and isolate financial institutions.
The United States significantly lengthened the list of sanctioned individuals to include Russian elites, government officials, and supporters of Putin, crippling their ability to access funds or conduct business beyond Russia’s borders. Additionally, the sanctions extended to include these individuals’ most valuable possessions, such as yachts and aircraft.
Most importantly, the measures isolated a number of Russia’s key financial institutions, including the Central Bank, the Finance Ministry, the National Wealth Fund, and others. Sanctions prohibited these entities from doing business with the rest of the world. The West effectively froze roughly $300 billion in Russian sovereign assets held by European and U.S. banks, amounting to nearly half of Russia’s foreign exchange reserves. Additionally, nearly $60 billion of private assets were frozen abroad.
However, the West took a bold decision to completely exclude Russian entities from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a secure financial communication platform used by financial institutions worldwide. Access to SWIFT is critical for sending payments across borders. Alongside asset freezes, the exclusion led to massive capital flight, with the Russian financial sector reporting a 90% year-on-year decline in net profits in 2022.
U.S. sanctions in 2022 demonstrated the capability and the conviction to weaponize dollar dominance and entirely lock adversaries out of the global financial system. Such an escalation in dollar-based sanctions revealed to the rest of the world the vulnerabilities that come with reliance on the dollar. Perhaps no country took that to heart as much as China.
Battered Benjamins
The broad expansion of U.S. sanctions following Russia’s invasion in 2022 accelerated China’s efforts to reduce reliance on the dollar. Chinese policymakers and leaders recognized that de-dollarization remains both economically and strategically important to the nation’s future, especially as global competition with the United States continues to intensify.
Since 2022, countries in Central Asia, the Middle East, and Africa have increasingly called for alternatives to dollar-based systems, particularly China’s RMB. These nations give China a larger “market” as it tries to promote a substitute. Between its own strategic and economic goals and the willingness of other nations to follow, China has accelerated its challenge to the dollar’s global hegemony.
After recognizing the vulnerabilities of dollar dominance, China is calling for and attempting to subvert it by promoting the yuan as an alternative. Broadly, China has done this in two ways: expanding yuan-based payment systems and increasing yuan settlement in bilateral trade.
In 2015—one year after Russia’s annexation of Crimea—the People’s Bank of China launched the Cross-Border Interbank Payment System (CIPS). CIPS offers clearing and payment services for cross-border RMB-based transactions. CIPS offers an alternative to Western payment systems, which the People’s Bank of China claimed are “prone to being politicized and weaponized as a unilateral sanctions tool,” likely referring to Russia’s exclusion from SWIFT.
The payment system has gained significant traction as countries in the Global South have increasingly flirted with yuan-based settlement since 2022. In 2024, the total annual volume passing through CIPS rose 43% alongside a 24% increase in the total number of transactions. Both the volume and number of transactions have grown over 300% since 2020. In April 2025, China rolled out an action plan to further expand CIPS participation. The plan seeks to “enhance the functionality” of the system, especially in Chinese trade with the Global South. Although CIPS remains small compared to Western payment and clearing systems, it signals China’s intent to promote yuan-based systems as alternatives to traditional dollar-based options.
Furthermore, China continues to reduce dollar-based trade transactions, pushing partners to settle trade in their own national currencies instead. For instance, in 2023, the yuan replaced the dollar as Russia’s most traded currency, and by November 2025, over 99% of trade between the two nations was conducted in either yuan or Russian rubles. Similarly, in 2023, China and Brazil agreed to increasingly trade in yuan and Brazilian real. By now, around half of trade within the BRICS bloc is settled in yuan, an astounding leap from just 2% three years ago.
Despite these attempts to internationalize the yuan through trade and payments, significant and broad barriers remain to the renminbi’s rise as a global currency. First, Chinese capital controls make it very hard for foreign actors to access Chinese markets and convert yuan due to restrictions on inflow and outflow. Second, China still lacks a deep, solid, and stable asset system, especially compared to the well-established U.S. Treasury market. Third, there is a broad lack of trust in Chinese institutions and their independence from state control. Unless China is willing to loosen control over its markets, the RMB remains a less attractive option on the global stage.
Although significant barriers remain to the yuan’s rise, it should not be taken lightly, especially given the possibility of a multipolar monetary system based in part on enhanced yuan usage. Such an order would erode the dollar’s dominance, eating away at the “exorbitant privilege” that the United States and its citizens enjoy.
China’s moves to subvert the dollar’s dominance suggest the possible rise of a multipolar international monetary system, running counter to the U.S.’s grip on global currency reserves and the “exorbitant privilege” it receives from that status. Dollar dominance serves as a powerful tool for U.S. statecraft, allowing it to monitor transactions worldwide and impose powerful sanctions on adversaries when necessary. The rise of alternative systems like CIPS challenges the United States and its allies’ ability to enforce sanctions in the long run. For now, these capabilities afford the United States a uniquely powerful global economic power. If the global financial system is no longer run in line with U.S. goals and values, power will be more widely dispersed among the rest of the world, including our adversaries.
Additionally, dollar dominance is an economic asset for the United States. The dominance of the greenback allows the United States to cheaply and reliably finance its debt. Because global reliance on the dollar keeps demand high, government debt is relatively cheap to maintain. If demand weakens, drastic shifts in government spending and borrowing would be required, with strong ripple effects across the U.S. economy: higher government borrowing rates result in higher interest rates across the board. These shifts would translate into higher federal and private loan rates, credit card rates, and mortgage rates. Higher borrowing rates simply make life more expensive.
The dollar isn’t going anywhere soon. However, for the first time in decades, the U.S. faces sustained attacks as China promotes practical alternatives that are gaining incremental traction. Although de-dollarization seems unlikely at the scale and pace some pessimists fear, the slow erosion of dollar dominance seems more likely than ever before, eating away at a core facet of U.S. global power and destabilizing forces that depress Americans’ cost of living.
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Great read!