Washington Just Handed China the One Thing Beijing Spent a Decade Preparing For
The Trump administration threatened to cut Chinese banks off from the dollar system, but one analyst says Beijing spent the last decade building exactly the escape route Washington just gave it a reason to use.
Treasury Secretary Scott Bessent raised the possibility of targeting Chinese banks as part of Iran sanctions enforcement. Peter Alexander, founder and managing director of Z-Ben Advisors, argued on CNBC that the threat had already backfired before it was implemented.
His argument: the dollar’s power as a weapon rests on the target having nowhere else to go. Every credible threat to cut a large trading partner off from that system is also an advertisement to build the alternative faster.
Alexander said the Trump administration had “turbocharged global adoption for the Chinese currency, for the renminbi.”
Beijing has spent more than a decade preparing for exactly this scenario, which is why the mechanics, Washington’s likely follow-through, and the gap between the real story and the dollar-collapse narrative sold to retail investors all deserve a closer look.
How the Dollar Weapon Works
Most cross-border payments in dollars route through New York. A bank in Frankfurt or Dubai settling a dollar transaction does so through a correspondent relationship with a U.S. bank, coordinated over SWIFT.
Access to that infrastructure makes the dollar useful for global trade. Losing access is what makes sanctions bite.
Alexander described the current posture this way. “Usage of the US dollars, usage of the rail system, the New York correspondent banks, SWIFT, you name it, is now very conditional. It’s conditioned on whatever the Treasury Department determines it needs to do.”
Conditionality is the whole point of the tool. It is also why the tool degrades every time it is used against a large economy with resources to build a parallel system.
China introduced its own interbank payment system, CIPS, in 2015, three years after the Obama administration cut a Chinese bank off from SWIFT in 2012. That timing signals the project was a direct response.
Iran Trade Already Runs Outside the Dollar
China is Iran’s largest commercial partner, buying its oil and providing other support. Most of that trade already clears outside the dollar system.
Alexander put it this way. “The biggest commercial partner with Iran is China. Whether it’s buying their oil or providing support in other ways. And that is done through a series of different architectures that go outside the US dollar system.”
Those architectures include renminbi settlement, barter arrangements, and channels routed through smaller banks with limited U.S. exposure. They are less efficient than the dollar system, and they function.
Threatening large Chinese banks for facilitating trade with Iran lands in an economy that has already built workarounds. The marginal cost of another sanction is lower than Washington seems to assume.
The more Treasury signals it will use bank access as leverage, the more incentive every third party has to route future trade through the workaround Beijing already built.
Why the Threat Is Probably a Bluff
Alexander laid out two paths: follow through and target Chinese banks, triggering retaliation from a country with real leverage over U.S. supply chains, or back down and confirm that future threats can be discounted.
His read was that this looks like a bluff. “Either Secretary Bessent follows through on Chinese banks or they don’t at Treasury follow through and they don’t target Chinese banks. And all of this looks as though it was a complete bluff, which further erodes whatever future threats that may come out of the Treasury Department.”
He added a likely middle path. “I would handicap that it would be technically a bluff. But what I suspect is some form of behind the scenes conversations in which Beijing would be able to maybe pay back in.”
A live sanction against a major Chinese bank would invite retaliation on rare earths, pharmaceutical inputs, and export controls that Beijing has spent years staging.
A quiet negotiation producing some visible Chinese concessions on Iran, without the sanctions ever being imposed, is the outcome both sides can live with and is roughly what usually happens in these standoffs.
What Long-Term Investors Should Watch
De-dollarization is real and slow. The dollar still dominates global reserves and trade settlement, and no serious analyst expects that to change inside a decade.
A 10-year Treasury yield at 4.66% and a VIX at 15.21 tell you the market is not pricing a dollar crisis right now. Anyone managing fiduciary money is behaving the same way.
This is an erosion story measured in decades. Investors sold on a dollar apocalypse by newsletter marketers are buying a story that pays the marketer.
A reasonable response is a modest tilt toward international diversification, some tolerance for non-dollar currency exposure inside an equity sleeve, and skepticism of anyone promising that gold or crypto will replace the reserve system next quarter.
Watch whether Treasury actually names a Chinese bank, whether CIPS transaction volumes accelerate, and whether more third-country trade begins settling in renminbi. Those are the signals that slow erosion is accelerating.
Contact [email protected] for any questions or corrections.
Omor Ibne Ehsan is a writer at 24/7 Wall St. He is a self-taught investor with a focus on growth and cyclical stocks that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as cryptocurrencies and penny stocks.
