China Expands Yuan Payment Network, Weakening Reach of US Sanctions

Most Iranian Oil Sale Proceeds Settled in Yuan

Payment Network Emerges as Tool to Evade Sanctions on Russia and Iran

China Seeks Trade Channels That Operate Outside the Dollar

China is expanding a yuan-based financial network that is giving Iran and Russia broader channels to bypass Western sanctions. The shift could weaken Washington’s ability to police global commerce through the dollar-centered financial system.

Yuan Blunts the Effectiveness of Iran Sanctions

The Wall Street Journal reported on June 26 that the White House is discussing a new nuclear agreement with Iran, using sanctions relief and access to about $100 billion in frozen assets as bargaining chips. Iran, however, has spent the past several years using a yuan-based financial architecture built by China to reduce the impact of US sanctions. That system operates outside Washington’s reach.

The change came into sharper view in late April, when the US intensified what it called an “economic fury” campaign against Iran. Washington sanctioned Hengli Petrochemical, a major Chinese refiner it accused of buying billions of dollars of Iranian crude. Hengli said its suppliers had guaranteed the oil was not from Iran and indicated future crude purchases would be settled in yuan rather than dollars.

That makes the flow of funds harder for outside authorities to trace.

The US dollar is used in about 80% of global trade finance. Because most international dollar transactions are cleared through American banks, the US can monitor those payments and, when needed, cut off access to the currency to pressure counterparties.

If US adversaries conduct business in yuan, those transactions do not pass through the US-led banking system. That reduces the force of American sanctions.

Most Iranian Oil Sale Proceeds Are Paid in Yuan

Most proceeds from Iranian oil sales were paid in yuan, according to the US Treasury Department. Iran uses that money to buy Chinese auto parts, solar panels, and a range of other goods and services. The purchases also include dual-use items labeled as civilian goods that could be used for weapons. Those transactions take place outside US control.

Ships passing through the Strait of Hormuz were also asked during the conflict to pay transit fees to Iran in yuan or cryptocurrency, according to the report. Crypto is likewise difficult for the US to control as a payment channel. Treasury officials believe Iran and its Chinese partners have set up covert brokers and shell companies in places including Hong Kong to facilitate yuan-denominated trade.

Some transactions are processed through CIPS, China’s Cross-Border Interbank Payment System. China launched CIPS in 2015 as a yuan-based settlement network designed as an alternative to SWIFT, the Society for Worldwide Interbank Financial Telecommunication. A key feature is that it is harder for the US to monitor.

According to the Atlantic Council, CIPS transaction volume increased after the US-Iran conflict. Over the three months since late February, daily turnover averaged about 790 billion yuan, or about $115 billion. That compares with a daily average of about 680 billion yuan, or about $100 billion, last year.

SWIFT is estimated to handle more than $5 trillion a day, making it far larger than CIPS. Even so, rapid growth in CIPS activity has fueled the view that it is becoming a more international cross-border payment network. A similar trend has emerged in Russia. After the war in Ukraine began in February 2022 and the US tightened sanctions, yuan use increased in Russia’s oil exports to China and in other trade settlements.

Trade on Yuan Payment Network Has Doubled

Data from the People’s Bank of China and CIPS show the platform’s daily transaction volume doubled from the start of the Ukraine war to mid-2025. The number of participating financial institutions more than doubled over the same period. Russian officials say more than 90% of trade between Russia and China is now settled in yuan and rubles. According to the Centre for Eastern Studies, a Polish think tank, the yuan accounted for 2% of Russian trade in February 2022.

The yuan’s share of global trade finance is also rising. SWIFT data show that share has tripled over the past five years to 6% in April. For most of this year, the yuan was the second-most used trade finance currency after the dollar, ahead of the euro. Data from China’s central bank show that roughly half of China’s cross-border transactions are now denominated in its own currency. Fifteen years ago, that figure was near zero.

China is also rapidly expanding mBridge, which it launched in 2021. The platform uses digital versions of the yuan and other currencies to handle cross-border payments through settlements among central banks. The structure means funds do not pass through US financial institutions. Josh Lipsky, an Atlantic Council fellow and former International Monetary Fund official, said such yuan-based systems make it easier to bypass US sanctions and blur the ability of US intelligence agencies to track financial flows.

China’s Foreign Ministry said it was unaware of the details of oil trade between China and Iran. It said relations between the two countries have always operated within the framework of international law. China also cooperates with countries around the world, including Russia, on the basis of equality and mutual benefit, it added.

China Wants Trade Channels That Work Outside the Dollar

China is not trying to replace the dollar completely with the yuan across the global economy. For yuan use to rise much more sharply, Beijing would need to undertake painful economic reforms, including abandoning capital controls and allowing the currency to float freely. That could trigger capital flight and financial instability. China’s goal is closer to building specific trade channels that can operate outside the dollar.

Former US Treasury officials view the effort as part of a broader aim to weaken American authority and support China’s partners. China opposes what it calls unilateral US sanctions. At the same time, it is also seeking to shield itself against the possibility that the economic pressure the US and the West applied to Iran and Russia could one day be directed at China over Taiwan.

Hwang Jung-su, Hankyung.com reporter hjs@hankyung.com