Iran Uses China’s Financial System to Bypass Sanctions
For decades, the United States has enjoyed a major strategic advantage because the U.S. dollar serves as the world’s primary reserve and trading currency. Most international transactions flow through dollar based financial networks, giving Washington extraordinary visibility into global commerce and the ability to enforce sanctions against hostile regimes. A recent Wall Street Journal investigation explains how Iran is increasingly working with China to weaken that advantage by moving key transactions into China’s financial system.
The Wall Street Journal reports that Iran has steadily shifted many of its oil transactions away from the U.S. banking system and into China’s yuan based financial network. Rather than allowing payments to pass through American institutions, Iran increasingly relies on Chinese payment systems that fall outside Washington’s oversight. This weakens one of America’s most effective economic weapons, the ability to monitor transactions and cut sanctioned nations off from the global financial system.
While this development deserves attention, it is important to keep it in perspective. Iran alone cannot seriously threaten the dollar’s dominance. The larger concern is that China is building an alternative financial architecture that many countries could eventually use.
How Iran Uses the Yuan
According to the Wall Street Journal, China now purchases more than 90 percent of Iran’s crude oil exports. Most of those purchases are paid for in Chinese yuan rather than U.S. dollars.
Instead of sending cash directly to Tehran, Chinese companies often route the money through Chinese entities. Those entities then pay Chinese engineering firms that build projects inside Iran, including airports and refineries. In other cases, special purpose financial vehicles pay Chinese exporters, who then ship goods such as automotive parts into Iran.
The result is that Iran continues earning billions of dollars in value from oil exports while avoiding much of the pressure Washington hoped sanctions would create.
Former U.S. Treasury officials also believe Iran frequently disguises the origin of its oil, giving Beijing plausible deniability while allowing Chinese buyers to continue doing business.
China Is Building an Alternative Financial System
Iran’s success depends heavily on financial infrastructure that China has spent years developing.
One important piece is the Cross Border Interbank Payment System, known as CIPS. Beijing launched CIPS in 2015 as an alternative payment network that allows international transactions in yuan. Unlike many dollar transactions that ultimately involve American financial institutions, CIPS enables participating banks to settle yuan payments through China.
China is also promoting mBridge, a blockchain based platform that allows central banks to exchange digital versions of their currencies without routing transactions through U.S. financial institutions.
According to the Atlantic Council, CIPS transaction volume has risen sharply since the latest U.S. Iran conflict, averaging roughly 790 billion yuan per day compared with about 680 billion yuan last year. As Atlantic Council researcher Alisha Chhangani observed, “For years, many countries wanted alternatives to the dollar system,” adding that China’s long investment now allows “technologies to be deployed at scale” that make dollar alternatives increasingly viable.
China insists its financial relationships with Iran operate “within the framework of international law.” Western officials remain skeptical.
China Is Not Trying to Replace the Dollar Overnight
Despite growing headlines about de dollarization, most economists do not believe China is attempting to replace the dollar as the world’s primary reserve currency anytime soon.
The dollar still finances roughly 80 percent of global trade, while the yuan remains a relatively small player in international markets. China maintains strict capital controls and tightly manages the yuan’s value. To become a true reserve currency comparable to the dollar, Beijing would likely have to abandon many of those controls, exposing itself to capital flight and financial instability.
Instead, China’s strategy appears far more gradual. Rather than replacing the dollar everywhere, Beijing seeks to build regional trade corridors where countries can conduct business outside American financial influence.
This strategy would make it more difficult for Washington to enforce sanctions against countries such as Iran, Russia, and potentially even China itself during future conflicts.
The Growing Role of BRICS
China’s effort also extends through the expanding BRICS coalition.
Originally consisting of Brazil, Russia, India, China, and South Africa, BRICS has expanded to include Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates.
Collectively, the group represents more than 40 percent of the world’s population and over one quarter of global economic output.
Within BRICS, China and Russia have promoted BRICS Pay, a payment system designed to facilitate transactions using local currencies rather than dollars. Russia and China already conduct much of their bilateral trade using yuan and rubles, while Iran now sells much of its oil to China in yuan.
However, the alliance is far from unified. India has repeatedly stated that replacing the dollar is not part of its strategic policy. External Affairs Minister S. Jaishankar bluntly remarked, “I think you have us confused with someone else. We have never actively targeted the dollar.”
That internal division limits BRICS’ ability to move quickly toward a common financial system.
Trump Warns BRICS Against Challenging the Dollar
President Donald Trump has taken an aggressive position toward any effort to undermine the dollar.
Trump warned that any BRICS nation supporting a replacement reserve currency could face 100 percent tariffs on exports to the United States.
Posting on Truth Social, Trump declared, “The idea that the BRICS Countries are trying to move away from the Dollar while we stand by and watch is OVER.”
Supporters argue that maintaining dollar dominance remains one of America’s greatest economic advantages and that strong deterrence is justified.
Why the Dollar Matters
America benefits enormously from the dollar serving as the world’s primary reserve currency.
Because governments, businesses, and investors around the globe hold large quantities of dollars, demand for the currency remains exceptionally high. That broader demand helps absorb increases in the money supply that might otherwise produce even greater inflation inside the United States. It also lowers borrowing costs and strengthens America’s financial influence.
For that reason, efforts to reduce global dollar usage deserve careful attention.
At the same time, Iran’s individual role should not be exaggerated. Iran is helping China test alternative financial systems, but the much larger challenge comes from Beijing’s long term effort to build parallel payment networks, promote yuan based trade, and gradually reduce dependence on American financial institutions.
For now, however, the dollar remains overwhelmingly dominant. Deep American capital markets, investor confidence, and the liquidity of U.S. Treasury securities continue to give the dollar advantages that no rival currency currently matches.
China’s campaign to chip away at that dominance is real. Iran is one participant in that effort. But replacing the dollar would require decades of sustained change, and Beijing still faces one obstacle it cannot easily overcome: much of the world simply does not trust China to manage a global reserve currency fairly.
