How U.S. Sanctions Are Accidentally Powering China’s Yuan Into a Global Alternative to the Dollar

For decades, the U.S. dollar has stood as the uncontested backbone of global trade and finance. Its dominance allowed Washington to shape international policies, impose sanctions, and control the movement of capital across borders. But in recent years, a quiet transformation has been underway — one largely fueled by the very tool that made the dollar so powerful: economic sanctions. By using the dollar as a political weapon, the United States has inadvertently pushed countries toward China’s yuan, turning it into an increasingly viable alternative currency for international trade.

The Weaponization of the Dollar

Washington’s use of the dollar as a geopolitical instrument accelerated after 2014, when sanctions against Russia were expanded following the annexation of Crimea. Since then, the U.S. has used its control over the dollar-based global payment system — particularly the SWIFT network — to isolate adversaries and pressure governments. These moves, while effective in the short term, have sparked long-term resentment among affected nations who see the policy as an attack on their sovereignty.

The message was clear: countries that opposed U.S. foreign policy could be cut off from global trade, their assets frozen, and their economies crippled. But for many of these nations, survival required adaptation — and that adaptation increasingly involved bypassing the dollar altogether.

The Rise of the Yuan in Global Trade

China saw the opportunity early. By promoting its currency, the yuan (or renminbi), as a politically neutral trade medium, Beijing began to position itself as an alternative hub for nations seeking economic independence from the dollar. With the People’s Bank of China opening currency swap lines across Asia, Africa, and the Middle East, and with the Cross-Border Interbank Payment System (CIPS) serving as a yuan-based alternative to SWIFT, the foundation for a new trade ecosystem quietly took shape.

In just the past few years, several key economies — under U.S. or Western sanctions — have turned to the yuan for critical energy and commodity transactions:

• Russia: Following Western sanctions after the 2022 Ukraine invasion, Russia began settling a majority of its oil and gas trade with China in yuan. Over 80% of Russia-China trade is now conducted in yuan or rubles.

• Iran: Cut off from the dollar system since 2018, Iran now uses yuan for oil exports and imports with China, accounting for billions in annual trade.

• Venezuela: Facing crippling U.S. sanctions, Venezuela shifted much of its crude exports to yuan-based contracts with Chinese buyers.

• Ethiopia: As Western sanctions tightened over human rights concerns, Ethiopia began settling part of its Chinese infrastructure debts and trade invoices in yuan.

• Kenya: In 2024, Kenya started using the yuan for bilateral trade and debt payments with China, its largest trading partner.

• Pakistan, Bangladesh, and the UAE have also increased yuan-denominated transactions to hedge against U.S. financial restrictions and currency volatility.

Collectively, these countries represent over $1.2 trillion in annual trade volume that now partially or fully bypasses the dollar.

The Unintended Consequence of Sanctions

Every new round of U.S. sanctions — whether against Russia, Iran, Venezuela, or China itself — sends a clear signal to the rest of the world: reliance on the dollar carries political risk. Even neutral or non-aligned countries are quietly exploring ways to de-dollarize their trade portfolios. The BRICS alliance, for example, is promoting local currency settlements, with the yuan taking the lead as the most liquid and stable non-dollar option.

In this sense, Washington’s sanction-heavy foreign policy has created a paradox. The more the U.S. weaponizes the dollar, the more it encourages other nations to seek refuge in competing systems — effectively undermining the very dominance it seeks to preserve.

Sanctions and Tariffs Are Backfiring on the Dollar

Beyond sanctions, America’s growing use of tariffs and trade restrictions has also eroded global trust in the U.S. financial system. Countries that were once close partners — including Brazil, India, and Canada — have increasingly diversified their reserves and trade settlements away from the dollar to reduce exposure to American policy shifts. Brazil now trades energy with China in yuan, India has settled oil purchases from Russia in rupees and dirhams, and Canada has expanded its use of alternative currencies in Asia-Pacific trade. These shifts reflect a broader recognition that the U.S., by combining sanctions with tariff wars, has made the dollar appear less of a global public good and more of a political instrument, pushing both allies and adversaries to gradually move away from it.

The Yuan’s Slow but Steady March

China’s approach is subtle but strategic. Unlike the U.S., Beijing does not demand political alignment from trading partners in exchange for access to its financial systems. Through projects like the Belt and Road Initiative (BRI), China is offering yuan loans, building infrastructure, and expanding its currency’s acceptance in regions once dominated by the dollar.

According to data from the International Monetary Fund (IMF), the yuan now accounts for nearly 5% of global foreign exchange reserves — a small share compared to the dollar’s 58%, but the fastest-growing among major currencies. In energy markets, yuan-denominated oil and gas trade through the Shanghai Petroleum and Natural Gas Exchange is also expanding, further embedding the currency in global commodity pricing.

U.S. Sanctions Begin to Backfire, Weakening the Dollar’s Global Dominance

Ironically, Washington’s growing reliance on sanctions and financial pressure has started to backfire on the U.S. dollar itself. Each time the U.S. blocks nations from the global banking system, seizes assets, or imposes trade restrictions, it reinforces the idea that the dollar is not merely a global currency but a political instrument. This perception has eroded international trust and pushed countries to diversify their reserves and trade in alternative currencies such as the yuan, ruble, euro, rupees, and local units. As a result, global demand for the dollar is gradually declining, and its role as the default medium for international trade is weakening. In attempting to project power through financial dominance, the United States has inadvertently undermined the neutrality and reliability of its own currency, paving the way for a more multipolar global financial system where the dollar’s supremacy is no longer absolute.

A Shift in the Global Order

While the yuan is still far from dethroning the dollar, the shift is undeniable. The United States, in its attempt to maintain global control through financial pressure, has effectively paved the way for a multipolar currency system. What began as isolated responses to sanctions has evolved into a structural trend reshaping global finance.

As more countries diversify their reserves, strengthen regional payment systems, and sign currency swap agreements with China, the yuan’s legitimacy as an international currency grows stronger — not through confrontation, but through necessity.

In short, America’s overreliance on sanctions and tariffs has done what decades of Chinese diplomacy could not: make the yuan a symbol of economic resistance and independence.