China’s Dedollarisation Strategy

Asymmetric Success and What It Means for Europe

The United States is increasingly willing to weaponise the global dependence on the dollar, raising the costs of that dependence for economies around the world. China offers the most instructive case of a major economy trying to reduce that dependence. In this report we analyse China’s effort and draw lessons for Europe.

Dollar dependence is becoming costly, China is a useful case study in reducing it

The US is increasingly willing to weaponise the dollar, turning the world's dominant currency into an instrument of geopolitical pressure
China is the most instructive case of a major economy trying to loosen its dollar dependence. Its record shows what is achievable and where progress is difficult.

China achieved asymmetric success

An international currency is used for three purposes — settlement, invoicing, and investment.
China has cut dollar dependence mainly in settlement: more than half of its trade now settles in RMB, up from 10 percent in 2012. This was achieved through providing efficient payment infrastructure.
Invoicing and investment remain dollar-bound. RMB invoicing is rare, the currency is barely used between third countries, and China still holds a large stock of dollar reserves and assets.
Capital controls are the binding constraint. Without deep, open, and liquid RMB markets, FX-hedging stays costly and the deeper use-cases cannot follow settlement. Lifting these controls would force China to give up either exchange-rate management or monetary sovereignty, a trade-off Beijing has been unwilling to make.
China may nonetheless have achieved an important aim: without opening its financial system, it has largely insulated itself from US payment sanctions. Exclusion from the dollar system would no longer isolate China the way it initially did Russia or Iran.

Two Lessons for Europe

Europe is similarly, if not more, exposed to the dollar. European investors hold roughly USD 3 tn in US Treasuries and some USD 9 tn in long-term US securities, and European banks intermediate large volumes of dollar funding.
Efficient payment infrastructure can reduce reliance on dollar settlement, Europe's most exploitable dependency. This opportunity should be seized.
Reducing invoicing and investment dependence may be easier for Europe than for China: Europe has open capital markets, China does not. Increasing safe asset volumes and liquidity would be key.
But reducing invoicing and investment dependencies may be a lower priority. Sanctioning European assets imposes costs on the US Government that are difficult for the Federal Reserve to manage. This makes it a less credible threat.
Nonetheless, the July 2025 EU-US trade deal illustrated the US Government’s willingness to engage in brinkmanship. The riskiest path may be to do nothing.

Downloads

china-s-dedollarisation-strategy.pdf

pdf 2,98 MB

Why did we write this article?

The United States is increasingly willing to weaponise the world's dependence on the dollar. For Europe and for others, this increases the costs of dollar dependence. But dependence on an international currency is difficult to undo: it is anchored in payment infrastructures, invoicing conventions, and asset holdings. These create network effects, within each and across all three, and reinforce the dollar’s dominance.

To understand how dollar-dependence can realistically be reduced, we turned to the most instructive case available: China's decade-long, strategic effort to internationalise the renminbi and lessen reliance on the dollar. We wanted to see what worked and where the effort ran into limits, and draw lessons for Europe.

Was haben wir dabei gelernt?

We distinguished three use-cases of an international currency (settlement, invoicing, and investment) and learned that China's success has been asymmetric. It now settles more than half of its trade in renminbi, up from 10 percent in 2012; but invoicing in RMB remains rare, and it still holds a large stock of dollar assets. This is not accidental: settlement runs through payment infrastructure and is comparatively easy to shift by building cheap and reliable alternatives. Invoicing and investment depend on the deep, open, liquid markets that China's capital controls prevent it from building. China may nonetheless have achieved one of its aim, since, without opening its economy, it has largely insulated itself from US payment sanctions.

Two lessons follow for Europe. First, dedollarising settlement is the achievable near-term win: efficient payment infrastructure can materially reduce reliance on dollar settlement. This addresses a real vulnerability: in 2018, the Trump White House leveraged dollar payment centrality to scupper European efforts at keeping the Iran nuclear deal alive.

Second, reducing dependence in invoicing and investment is harder. Europe is better placed than China, because it already has the open, deep capital markets China lacks; increasing safe asset volumes and liquidity would be key. But reducing invoicing and investment dependencies may be a lower priority: sanctioning European assets remains unlikely. Nonetheless, given the recently demonstrated willingness of the US Government to engage in economic brinkmanship, the riskiest path may be to do nothing.

China’s Dedollarisation Strategy

Asymmetric Success and What It Means for Europe

Why did we write this article?

Was haben wir dabei gelernt?

Verwandte Artikel