China Moves Away From the Dollar as Bitcoin Rises as an Alternative

The internationalization of the Chinese currency is no longer a fantasy. The growth of international payments in yuan is skyrocketing. Bitcoin is lurking.

Dollar vs Yuan

We wrote recently that China is getting rid of U.S. debt. This week, The Economist headlines that China is also abandoning payments in dollars.

The article is reminiscent of a speech given in June by the governor of the Chinese central bank. Pan Gongsheng stated that the global financial system was becoming “multipolar” and that the dollar would henceforth be in competition with other currencies.

According to the Chinese central bank, more than 30% of Chinese trade in goods and services is now conducted in yuan. The figure even rises to 50% when financial flows are added. These financial flows include foreign investments in China, and vice versa (funding of the new Silk Roads).

“Multipolarity” is the buzzword of the BRICS alliance recently reinforced by six new members (Iran, Egypt, United Arab Emirates, Saudi Arabia, and Ethiopia). The waiting room is also well stocked. The club accounts for more than 30% of the global GDP. It’s nearly 50% if you add the countries queuing up at the gate.

Their ambition is clearly to dedollarize trade, a strategy that is already bearing fruit. The greenback now represents only 42% of global foreign exchange reserves (gold is rising sharply).

Furthermore, as we said in the introduction, the dollar’s share in international payments is also declining.

SWIFT vs CIPS

Reports such as those from FXC Intelligence or Grand View Research estimate global cross-border payments at around $200 trillion per year (excluding derivatives, FX, etc.).

The SWIFT system still processes the majority of these payments, but perhaps not for long. Systems such as CIPS (yuan), Fedwire (dollar), TARGET2 (euro), and smaller networks (Russian SPFS) are gaining ground.

The volumes of the Chinese international payment system CIPS (Cross-Border International Payment System) show extraordinary growth. Over 175 trillion yuan ($24.47 trillion) in 2024, a 43% increase compared to 2023! And the current trend suggests a further increase of 35 to 45% in 2025.

Altogether, over 1,700 banks based in 119 countries have already connected to the network. In other words, China can easily trade with other countries without going through the SWIFT system and the dollar. Moscow and Beijing, for example, conduct more than 95% of their exchanges in yuan and rubles, bypassing the SWIFT system.

And while it’s true that 80% of CIPS payments go through the SWIFT system, a complete abandonment is possible in case of a total trade war.

In short, while the yuan’s share in international payments remains well below that of the dollar, things could be very different in a few years.

A blessing in disguise?

The dollar dropped about 11% during the first half of the year, ending a 15-year bull run. It was the strongest drop in 50 years. And despite a rebound during the summer, Morgan Stanley anticipates a further 10% drop by the end of next year.

“We’re likely at the intermission rather than the finale,” said David Adams, FX head at Morgan Stanley. “The second act for the dollar’s weakening should come over the next 12 months, as U.S. interest rates and growth converge with those of the rest of the world.”

Indeed, markets expect the Fed to cut its key interest rate for the first time in a year this Thursday, which will weigh on the dollar.

It will be more expensive for Americans to travel abroad, and imports will be more expensive, not to mention customs duties. This will result in more inflation and/or less imports.

A drop in imports would be welcome. Donald Trump also hopes that the dollar’s devaluation will revive exports. It will have to, since the rest of the world no longer wants to finance their gargantuan debt. Reducing the trade deficit is now a national priority.

Which brings us to the topic we are interested in: Bitcoin.

The Bitcoin compromise

Why are the United States suddenly showing kindness towards bitcoin? Isn’t it a direct threat to the dollar’s status as an international reserve currency? Absolutely.

But let’s not overcomplicate things. Washington simply realized that the so-called “exorbitant privilege” of the dollar is no longer one.

So what is this privilege? It’s very simple. Exporting nations hold the international currency (the dollar) in reserve. More precisely, they place these dollars in U.S. public debt to earn interest.

This system (known as the petrodollar) allows the United States to show a chronic trade deficit without the dollar collapsing. Why? Because the money returns home since foreign central banks place their reserves in Treasury bonds.

Problem is, China no longer wants to finance U.S. debt, nor does Russia. Many nations are turning to gold, now the second reserve currency ahead of the euro. A quarter of international reserves is now invested in gold.

Of course, it is unlikely Americans will accept the yuan for payment… They will only agree to trade on a level playing field.

Hence the interest in bitcoin. Selling gold stocks to buy a stateless reserve currency that exists in absolutely finite quantities would weaken Russia and China, who have been betting on gold for nearly two decades.

Michael Saylor went to the White House this Tuesday to advance the strategic bitcoin reserve dossier. It would be very surprising if the United States ultimately turned its back on bitcoin.

If all goes as planned, we are at the dawn of the longest Bull Run in bitcoin’s history. Don’t miss our article: Bitcoin: Towards new highs before the end of the year?