US threatens Chinese banks with restrictions over transactions with Iran
The United States said it could restrict access to the US financial system for companies and banks that facilitate money laundering or Iran’s evasion of sanctions. US Treasury Secretary Scott Bessent said Chinese banks could become targets of restrictions if they help conduct transactions related to converting revenue from Iranian oil into funds.
China responded that it would take “all necessary measures” to protect its interests. A Chinese Foreign Ministry spokesperson reiterated Beijing’s position on the unacceptability of unilateral sanctions which, in China’s view, have no basis in international law or approval from the UN Security Council.
Risks for Chinese banks
According to CNBC Top News, before the war China bought about 90% of the oil exported by Iran. This accounted for approximately 12% of China’s total crude oil imports, and China was Tehran’s largest trading partner.
Expanded US sanctions under Operation “Economic Outcast” identified a number of Chinese companies and individuals whom Washington accuses of assisting the Iranian military. US authorities said they would give countries timeframes to cease the specified activities, but did not publicly name specific dates.
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Analysts note that China’s largest lenders have compelling reasons to retain access to the dollar financial system. Eurasia Group’s China director Dan Wang said that disconnecting a major Chinese bank from the SWIFT system would significantly increase pressure on the yuan toward devaluation, which is unacceptable for Beijing.
CIPS as a diversification tool
At the same time, China is developing its own Cross-Border Interbank Payment System, CIPS, to diversify its dependence on dollar-centered financial infrastructure. The People’s Bank of China began creating CIPS in 2012 — the same year the US Treasury imposed sanctions on China’s Bank of Kunlun over alleged illicit activity related to Iran.
CIPS currently has 210 direct participants in various countries, mostly entities of Chinese state-owned banks. Peter Alexander, managing director of consulting firm Z-Ben, called the system a tool for geopolitical hedging rather than countries’ abandonment of the dollar.
According to SWIFT, in July the dollar accounted for more than half of global payments, while the yuan’s share was 3.1%, placing it fifth. In trade finance, the dollar’s share reached nearly 80%, while the yuan ranked second with 8.4%.
