As the United States-Israel war on Iran \u2014 paused for two weeks on Wednesday amid fresh diplomatic talks \u2014 has\u00a0roiled the global economy<\/a> for more than a month, Iran and China have seized the opportunity to address a shared gripe about the global financial system.<\/p>\n Their common cause: ending the hegemony of the US dollar.<\/p>\n list of 4 items<\/span>end of list<\/span><\/section>\n For years, they say, Washington has leveraged the dominance of the dollar in international trade to exert influence and inflict pain on enemies and competitors, Iran and China included.<\/p>\n The supremacy of the dollar is especially apparent in the global oil market, where about 80 percent of transactions are settled in the currency, according to a 2023 estimate by JP Morgan Chase.<\/p>\n In Iran\u2019s control of the Strait of Hormuz<\/a>, a conduit from the Gulf for about one-fifth of global oil and liquefied natural gas supplies, Tehran and Beijing have found a tool to boost the Chinese yuan as an alternative to the greenback.<\/p>\n Under Iranian officials\u2019 de facto toll booth regime<\/a>, commercial vessels are being charged transit fees in yuan, according to multiple reports, the latest example of deepening Chinese-Iranian economic cooperation facilitated by China\u2019s currency.<\/p>\n While it is unclear how many vessels have made payments in yuan, at least two had done so as of March 25, according to Lloyd\u2019s List.<\/p>\n China\u2019s Ministry of Commerce last week acknowledged the Lloyd\u2019s List reporting in a social media post that appeared to confirm the use of yuan to settle payments.<\/p>\n On Saturday, Iran\u2019s embassy in Zimbabwe said in a social media post that it was time to add the \u201cpetroyuan\u201d to the global oil market.<\/p>\n Tehran, which on Wednesday said it would guarantee safe passage in the strait for two weeks under a ceasefire deal reached with the US, and Beijing did not respond to requests for comment.<\/p>\n \u201cAt one level, Iran is aiming to poke its thumb in the United States\u2019s eye, adding insult to injury,\u201d Kenneth Rogoff, an economics professor at Harvard University and former chief economist at the International Monetary Fund (IMF), told Al Jazeera.<\/p>\n \u201cAt another level, Iran is dead serious about preferring yuan to avoid US sanctions and to cultivate its ally, China, which has been moving steadily to redenominate its own trade, and that of the BRICS nations into yuan,\u201d Rogoff said.<\/p>\n For Tehran and Beijing, elevating the yuan is a win-win.<\/p>\n The use of\u00a0the\u00a0currency\u00a0allows\u00a0China and Iran\u00a0to skirt US sanctions\u00a0imposed via the dollar-dominated financial system.<\/p>\n It also simplifies and reduces the cost of trade between the sides, which has boomed under a 25-year \u201cstrategic partnership\u201d signed in 2021.<\/p>\n \u201cIran clearly understands the importance of this challenge to US financial dominance as well as the vital role of the dollar system and petrodollars,\u201d Bulent Gokay, a professor of international relations at Keele University in the United Kingdom, told Al Jazeera.<\/p>\n For China, Gokay said, the move aligns with Beijing\u2019s aims of creating a \u201cmultipolar financial world where the US dollar\u2019s central role is counterbalanced by the growing influence of emerging powers\u201d.<\/p>\n China buys more than 80 percent of Iran\u2019s oil exports, enjoying discounted rates in purchases widely believed to be facilitated in yuan.<\/p>\n Iran in turn imports large quantities of Chinese machinery, electronic equipment, chemicals and industrial components.<\/p>\n The war has done little to disrupt oil flows between the two countries, which remain similar to pre-conflict levels, according to analyses by data and analytics firms.<\/p>\n In the first two weeks of the conflict, Iran exported 12 million to 13.7 million barrels of crude, most of it to China, according to Kpler and TankerTrackers.<\/p>\n China has long harboured ambitions of challenging the primacy of the dollar.<\/p>\n In a speech to officials in 2024, Chinese President Xi Jinping expressed his hope that the yuan would become a common currency in international commerce and achieve \u201cglobal reserve currency status\u201d.<\/p>\n The yuan has\u00a0made steady inroads\u00a0in recent years\u00a0amid the\u00a0growing\u00a0influence of\u00a0Global South\u00a0economies, many of which have\u00a0strained relations with Washington.<\/p>\n But the Chinese currency still has a steep mountain to climb if it is to pose a serious challenge to the greenback.<\/p>\n Unlike the dollar, the yuan is not freely convertible due to Beijing\u2019s strict capital controls, meaning that businesses and institutions cannot exchange it for other currencies or move it across borders at will.<\/p>\n The Chinese government\u2019s control over financial institutions, including the central bank, has further hampered adoption as it cements perceptions that China\u2019s markets lack transparency or a predictable regulatory footing.<\/p>\n While the proportion of central banks\u2019\u00a0foreign exchange reserves held in dollars has been in steady decline for decades,\u00a0the US currency\u00a0is still by far the dominant reserve currency\u00a0globally.<\/p>\n The dollar accounted for 57 percent of holdings worldwide last year, compared with about 20 percent for the euro and 2 percent for the yuan, according to the IMF.<\/p>\n Meanwhile, only 3.7 percent of cross-border trade was settled in yuan in 2024, up from less than 1 percent in 2012, according to S&P Global.<\/p>\n \u201cThis is not really what is going to \u2018de-dollarise\u2019 the world,\u201d Alicia Garcia-Herrero, chief economist for the Asia Pacific at Natixis in Hong Kong, told Al Jazeera, adding that the use of yuan in the Strait of Hormuz only \u201cadds incremental pressure and normalises alternatives in energy flows\u201d.<\/p>\n Far-reaching \u201cde-dollarisation\u201d would require the participation of Gulf states, Garcia-Herrero said, all of which have priced their oil in dollars since the 1970s when Saudi Arabia agreed to exclusively use the currency in exchange for US security guarantees.<\/p>\n Even if China struggles to match the internationalisation of the dollar, it may not matter much to Tehran, said Hosuk Lee-Makiyama, director of the European Centre for International Political Economy in Brussels.<\/p>\n \u201cChina\u00a0purchases\u00a0nearly all\u00a0of Iran\u2019s oil, and their trade is\u00a0actually in\u00a0balance since Iran can get all the machinery and industrial goods that it cannot get elsewhere,\u201d\u00a0Lee-Makiyama\u00a0told Al Jazeera.<\/p>\n Europe\u2019s and Japan\u2019s currencies could not displace the dollar in the past because neither power could supply oil-producing countries with all of their import needs, Lee-Makiyama said.<\/p>\n But China, he said, is \u201cperhaps the closest the world has seen to a manufacturing one-stop shop\u201d as the biggest manufacturer globally by far.<\/p>\n Dan Steinbock, the founder of the consultancy Difference Group, said that while the supremacy of the US dollar would not change in the short-term, the growing use of yuan could \u201cchip away\u201d at US dominance in specific sectors over time.<\/p>\n \u201cOverall, it is a question of gradual erosion rather than an abrupt substitution,\u201d Steinbock told Al Jazeera.<\/p>\n Rogoff, the Harvard economist, said much would depend on the endgame of the war and ensuing fallout in the coming years.<\/p>\n \u201cIf Iran and China prevail, under most scenarios, it will encourage countries to diversify away from the dollar financial system so as to protect themselves from being held hostage to US financial sanctions,\u201d said Rogoff, who has argued that the dominance of the dollar has already peaked.<\/p>\n \u201cBut if the United States were to achieve its stated objective of defanging and normalising the radical regime in Iran \u2013 which right now seems possible but extremely costly and challenging \u2013 it would support the United States and dollar hegemony for a while longer.\u201d<\/p>\n<\/div>\nRecommended Stories <\/h2>\n
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