Today’s edition opens with an introduction by Bert Hofman, Professor at the National University of Singapore’s East Asian Institute. Before joining NUS, Bert worked at the World Bank for 27 years, serving as Country Director for China (2014–2019), Country Economist (2004–2008) and Chief Economist for East Asia and the Pacific (2011–2014). He recently co-authored a report with Johannes Petry entitled “Internationalization of the RMB: Status, Options and Risks”. Many thanks to him for contributing to this newsletter and sharing his insights. For more of his thoughtful analysis, I highly recommend subscribing to his Substack. — Thomas
The international role of the Renminbi (RMB) has regained attention in recent years. At the Lujiazui Forum in Shanghai in June, central bank governor Pan Gongsheng reinforced the message that China is seeking a larger role in the international monetary system, including through greater use of its currency, the RMB. Sixteen years ago, former governor Zhou Xiaochuan covered very similar ground at the London G-20 summit in 2009, in the aftermath of the global financial crisis—which once again highlighted the so-called “dollar problem”. The centrality of the dollar in the international financial system has meant that, in times of financial stress, when demand for liquidity surges, a scarcity of dollars emerges. Moreover, in times of major adjustments of US monetary policy, countries indebted in USD can suddenly face much higher debt servicing costs—or even a debt crisis. Furthermore, the dollar-based system was (and remains) slow and expensive in executing international payments. Governor Zhou’s proposal was to enhance the role of the Special Drawing Right (SDR) as an international reserve currency. Failing that, a larger role of the Renminbi was desirable in his view. Since then, the RMB has made modest gains in international usage and has been included in the SDR basket of currencies since 2016, but the dollar continues to dominate the international financial system.
What is new in Pan’s speech compared to Zhou’s 2009 proposal, is the focus on sanctions. As Pan puts it: “The geopolitical rivalry has escalated. The traditional cross-border payment infrastructures can be easily politicised, weaponised and used as unilateral sanction instruments, thus undermining the international economic and financial order.” The sanctions imposed on Russia following its invasion of Ukraine have sparked a lively debate in China as to how the country can protect itself against similar measures. Lian Ping’s essay below contributes to that debate. Lian sees the risk of sanctions against China through the dollar-based international payment system (CHIPS) and the SWIFT messaging system as still small—arguing that China is “too big to sanction” and that a confiscation of China’s dollar assets might hurt the US as much as China. As Lian writes: “Following the freezing of Russia’s foreign exchange reserves by the US and Europe, there was strong international backlash and a surge in calls for de-dollarisation, serving as a clear warning against similar US actions [in the future].”
Nevertheless, it is better to be safe than sorry, and Lian offers several suggestions for how China can protect itself against potential US financial sanctions. He calls for a deeper understanding of the US sanctions regime and stronger domestic defences against it. He argues for a “blocking statute” similar to that of the European Union, designed to counter the extraterritorial application of US law. Lian also advocates more proactive measures, including further opening of its capital markets and greater internationalisation of the RMB, which would require expanding China’s own payments system (CIPS), increasing the share of the RMB in China’s overseas financing, as well as better and less cumbersome access to Chinese capital markets.
As Mulder (2025), Blustein (2025) and others have pointed out, sanctions have sparked talk of de-dollarisation before, but this time may be different, as the global geopolitical balance is shifting away from the US. Yet without the kinds of reforms that Lian proposes, and many more, it may not be the RMB that stands to benefit.
— Bert Hofman
Key points
US financial sanctions and Chinese countermeasures are poised to become a major battleground in the evolving strategic competition between China and the United States.
US sanctions are likely to focus on excluding China from the SWIFT system and freezing its foreign exchange reserves.
Although the likelihood of such a doomsday scenario remains low, Donald Trump’s penchant for “extreme and unorthodox” actions keeps it within the realm of possibility.
Even so, this outcome remains improbable because China has become “too big to exclude” from SWIFT. Its international economic and financial influence means any blanket ban would face significant legal, economic and political resistance.
Moreover, although the US dominates dollar clearing via CHIPS, SWIFT itself is a Belgian cooperative whose 25-seat board would need to vote. Securing majority support to disconnect China is unlikely without a UN-style mandate.
Removing China from SWIFT would also push business towards China’s own CIPS network, eroding SWIFT’s relevance and harming the many member banks whose revenues depend heavily on China-related trade.
A large-scale asset freeze could backfire on America by undermining confidence in US Treasuries and further accelerating the global trend towards de-dollarisation. Resistance by certain banks fearing for their reputation would probably also emerge.
Even if Washington attempted such a freeze, the sheer scale and global dispersion of China’s dollar holdings — much of it held in secondary custody outside the US — would create a "too many to punish" problem.
Taken together, the most likely US approach is incremental sanctions: targeting selected mainland or Hong Kong entities first, then gradually widening the net, rather than launching a sweeping attack on China’s entire financial system.
Against this backdrop Beijing should:
Pass an EU-style “blocking statute”, map vulnerable sectors in advance and develop credible counter-sanction options to deter escalation.
Strengthen economic ties with Europe to encourage “neutrality” — or at the very least, “strategic non-intervention” — should Washington ever impose financial sanctions on China.
Expand financial market opening to increase the dependence of foreign institutions on China and accelerate renminbi internationalisation (incl. CIPS expansion, offshore RMB hubs and larger gold reserves to strengthen monetary resilience).
Increase liabilities to the US while strategically reducing USD assets to deter asset freezes and maintain a reciprocal buffer.
Manage outbound investment carefully to reduce sanction exposure and place greater emphasis on encouraging and expanding domestic investment.
The Author
Name: Lian Ping (连平)
Born: 1956 (age: 68-69)
Position: President and Chief Economist, Guangkai Chief Industry Research Institute; Chairman, China Chief Economist Forum; Independent Director for several companies
Previously: Chief Economist for over a decade, preceded by various positions at the Bank of Communications (1998–2019); Professor and Director of several departments, East China Normal University (1987–1998); Member, China Finance 40 Forum
Part-time and honorary roles: Adjunct professor, Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University; Honorary Director and Doctoral Supervisor, School of Economics and Management, East China Normal University; Distinguished Professor, School of Management, Fudan University
Other: Frequently participates in expert symposiums hosted by senior officials and state leaders; worked as a farmer for several years during the Cultural Revolution
Research focus: Macroeconomic policy and trends; monetary and financial policy; commercial banking
Education: BA (1982), MA (1987) and PhD (1997), East China Normal University
Experience abroad: None
LIAN PING: ASSESSING THE RISKS OF US FINANCIAL SANCTIONS AGAINST CHINA
Lian Ping (连平)
Published by China Chief Economist Forum on 29 May 2025
Translated by Jan Brughmans(Illustration by OpenAI’s DALL·E 3)
