In a recent interview, U.STreasury Secretary Janet Yellen hinted at potential sanctions against Chinese banks involved in trade settlements with Russia and ChinaThis statement from Yellen reverberated across the global financial landscape, sparking widespread discussion and concern among economists, policymakers, and international businessesThe assertion is shaking the foundations of international finance and highlighting the escalating economic rivalry between the United States and China.

The core question arises: Is the United States truly willing to impose tough sanctions on Chinese banks? If such steps are taken, what kind of repercussions would follow? To understand the complexities surrounding these sanctions, we first need to examine the rationale behind them and the factors that might constrain U.Sactions.

When Yellen suggests sanctions, she references a strategy that has been previously employed against Russia

The U.Smight consider leveraging its control over global finance, particularly through the dollar-based settlement system, to target Chinese banks, effectively severing their access to the international trading system and isolating them from global marketsThe primary strength here is the United States’ dominance over the dollar, which still constitutes a staggering 56.7% of global reserves.

Moreover, the U.Shas the capability to utilize the SWIFT system, stripping certain banks of their cross-border payment abilitiesThis tactic was employed in 2022 against Russian banks and proved effective in the short termHowever, despite the formidable financial weapons at its disposal, using them against Chinese banks is a different matter altogether.

China is not only the world’s second-largest economy but also intricately linked to various global economiesIn 2023, trade between the U.S

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and China exceeded $690 billionIf Chinese banks were to face sanctions, numerous American businesses could find themselves unable to operate normally, disrupting economic ties that benefit both nationsThe fallout could be extensive, making U.S.-China relations even more strained.

The sanctions against Russia have already dealt a blow to several European nations, indicating that applying the same measures to China could further fracture unity among Western allies and potentially undermine the dollar's reliability as a global currency.

Recent years have indicated a shifting landscape in global finance, with the tools of financial sanctions inadvertently accelerating the world’s movement away from dollar dependency—a phenomenon increasingly dubbed "de-dollarization." For instance, the World Gold Council reported that central bank gold purchases reached an all-time high in 2023, with 1,227 tons bought overall, China alone contributing over 540 tons to this total.

The importance of local currencies is becoming evident in international trade

In transactions between China and Russia, settlements in yuan and rubles comprise over 60%, while agreements with ASEAN nations saw similar patterns, with over 40% of transactions conducted in yuan due to the Belt and Road Initiative’s influenceAdditionally, BRICS nations are moving towards developing a multilateral payment platform to reduce reliance on the dollar, a proposal that is gradually gaining traction.

Ultimately, the more the U.Sresorts to financial sanctions as a means of foreign policy, the more it risks eroding the dollar’s portrayal as a stable and fair currencyEmerging economies, such as India and Saudi Arabia, have begun diversifying their reserves away from the dollar in favor of yuan and euros.

Experts increasingly warn that if the United States continues to weaponize the dollar for geopolitical ends, it may be met with a fundamental challenge to its dominance in the international monetary system.

In response to these pressures, China is vigorously pursuing initiatives to strengthen its financial autonomy

As the world’s first major economy to issue a central bank digital currency, China is at the forefront of devising digital financial solutionsThe digital yuan piloted in several regions is already used by around 300 million users and is seeing limited use in cross-border transactions.

The Cross-Border Interbank Payment System (CIPS), a nascent alternative to SWIFT, has seen a 30% increase in transaction volumes in 2023 and is now accessible in over 100 countries and regionsBy reinforcing financial collaboration with regional partners, including ASEAN and Middle Eastern nations, China is decreasing its reliance on the dollar-centric settlement framework.

As the financial confrontation between China and the U.Sintensifies, cooperation with emerging economies and allies becomes crucial for ChinaPropositions by BRICS to establish mechanisms for shared reserves utilize local currencies for trading, thus mitigating the risks of dollar dominance

Additionally, recently enhanced agreements for trading oil in yuan with countries like Saudi Arabia and Iran further entrench the yuan’s role in international energy markets.

While U.Sthreats of sanctions may evoke apprehension, practical realities complicate their implementation and pose significant risksThe financial hegemony of the United States is not infallible, and China's pursuit of both financial independence and international prominence is gradually reshaping the global economic narrative.

As one economist aptly put it, “There are no eternal hegemons, only a constantly evolving world.” The developments in the ongoing financial rivalry between China and the United States may not only reshape the two countries’ economic futures but could also have deep impacts on the pathway of global finance as a whole.

These reflections are my personal insights, and I understand that opinions may vary, reflecting diverse perspectives on this evolving issue.