Building a Parallel Financial Order: China’s Quiet Recalibration of Global Finance

• China is recalibrating strategy from dollar dominance to building a parallel, sanctions-resistant financial system.

• RMB internationalisation is gradual, avoiding full convertibility to limit volatility and risk.

• Dependence on the dollar is reduced through lower US Treasury holdings and higher gold reserves.

• Opening equity and bond markets increases foreign dependence on China.

• India can draw lessons on currency risk management and bond index inclusion.

For much of the past decade, Beijing has wrestled with a difficult ambition: elevating the renminbi (RMB) to a position that could meaningfully challenge the dominance of the US dollar. Progress has been cautious. Chinese leaders have consistently resisted full capital account convertibility and a freely floating exchange rate, concerned that sharp swings could destabilise the financial system and spill over into social and political unrest. Instead of abrupt liberalisation, authorities have opted for gradual, tightly managed reforms that expand the RMB’s global use while retaining firm domestic control.

Over the last five years, a series of policy steps has encouraged the currency’s role in cross-border trade, finance and settlement. At the same time, China has sought deeper—though selective—integration with international financial markets. The strategic motivation is clear: to shield the Chinese economy from the risk of asset seizures or exclusion from dollar-centric financial infrastructure, particularly systems such as the US-based Clearing House Interbank Payments System (CHIPS) and the Brussels-headquartered Society for Worldwide Interbank Financial Telecommunications (SWIFT).

The scale of these systems highlights the vulnerability Beijing is trying to avoid. CHIPS processes roughly $1.8–2 trillion in transactions each day, while SWIFT transmits between 44 and 48 million messages daily, representing bank transfers estimated at around $10 trillion. Being cut off from this financial backbone—as Iran was previously and Russia more recently—can be economically crippling. China’s response has been to methodically reduce reliance on dollar-denominated assets. Its holdings of US Treasuries have fallen sharply, from $1,072 billion in 2020 to $713 billion by November 2025. In parallel, Beijing has accelerated gold accumulation, buying 2,306 tonnes in 2025 alone, lifting gold to an estimated 8.5 per cent of its foreign exchange reserves.

Another pillar of this strategy has been the development of domestic alternatives. China has promoted the China International Payments System (CIPS), along with its associated messaging platform, CIPS Connect, which mirrors some of SWIFT’s functions. While CIPS remains far smaller than CHIPS in daily volume, its growth has been striking. In 2025, it processed payments worth $25 trillion, a 43 per cent increase over the previous year.

Trade settlement patterns reinforce this shift. China’s annual trade now stands at about $6 trillion, with roughly 40 per cent settled in RMB, up from just 25 per cent a decade earlier. This expansion has been central to Beijing’s effort to embed its currency more deeply in global commerce.

Perhaps the most innovative initiative is mBridge, a cross-border payments platform enabling near-instant settlement using participating central bank digital currencies. By design, it bypasses both the US dollar and traditional dollar-based payment rails, offering what Chinese policymakers view as a sanctions-resistant mechanism. The project currently includes the People’s Bank of China, the Hong Kong Monetary Authority, and the central banks of the UAE, Thailand and Saudi Arabia. As of January 2026, mBridge was estimated to have processed $55 billion in cross-border transactions.

mBridge has also been linked to the Shanghai International Energy Exchange, home to the emerging “petro-yuan” market. This connection allows oil trades to be settled in Chinese currency. Notably, around 15 per cent of Saudi oil transactions are now cleared in Shanghai—a significant departure from decades of near-total reliance on the so-called petro-dollar. China has since announced plans to position Shanghai as the global hub for its digital yuan, fully integrated with the mBridge platform.

A decade ago, Beijing openly aspired to turn the RMB into a global peer of the US dollar. That goal has since been recalibrated. Given China’s reluctance to embrace full convertibility and the volatility that would accompany it, outright rivalry with the dollar has proven unrealistic. The emphasis has shifted toward constructing a parallel financial architecture—one that allows China and its partners to operate outside the dollar-based system when necessary. As People’s Bank of China governor Pan Gongsheng has framed it, the aim is “multipolar co-existence,” where several sovereign currencies coexist, compete and act as checks on one another. In this framing, the RMB is positioned not as a replacement for the dollar, but as a credible fallback if the dollar is “weaponised.”

Running alongside this currency strategy is a seemingly paradoxical push for greater engagement with global capital markets. In practice, the two tracks are complementary. Beijing is following President Xi Jinping’s directive to reduce China’s dependence on other economies while increasing their dependence on China. This approach is familiar from China’s dominance in rare earths and critical minerals. In finance, it takes the form of opening China’s vast equity and bond markets to foreign investors.

In recent years, Chinese securities and bonds have been added to major international indices, triggering large and relatively stable passive inflows from global institutional investors such as pension funds and sovereign wealth funds. Passive investments in China’s A-share equity market alone now total about $1.5 trillion.

China’s bond market, valued at $26 trillion, is another focal point. The central interbank bond market—largely composed of high-quality government securities worth $22.5 trillion—is now accessible to foreign investors and included in global bond indices. This has generated approximately $450 billion in passive inflows. Although foreign ownership of Chinese government bonds remains modest at around 6 per cent, it is steadily rising as these instruments gain safe-haven appeal amid global uncertainty. The deeper the exposure of major global asset managers to Chinese markets, the greater Beijing’s financial leverage—a dual-track strategy that warrants close attention.

For India, the idea of a multi-currency global system should not be contentious. China’s efforts to protect itself against dollar-based sanctions offer useful lessons in risk management. India, too, could benefit from accelerating its inclusion in major international bond indices, which would attract large pools of stable, long-term capital rather than volatile equity flows.

The global pool of passive bond funds is estimated at $18 trillion. India’s inclusion in key emerging market bond indices has already drawn around $20 billion, but far larger inflows would be possible through entry into global aggregate indices. India came close to joining the Bloomberg Global Aggregate Index, but the process was paused in January over issues related to registration complexity and post-trade tax settlement. These are procedural hurdles that could be addressed in the February 1 Budget. In contrast, China has moved with far greater agility—underscoring how financial strategy, when executed decisively, can reshape a country’s position in the global economic order.