China's dedollarisation strategy: Asymmetric success and what it means for Europe

The United States is increasingly willing to weaponise the global dependence on the dollar, raising the costs of that dependence for economies around the world. China offers the most instructive case of a major economy trying to reduce that dependence. In this report we analyse China's effort and draw lessons for Europe. Our findings: progress has differed markedly across the three use-cases of an international currency (settlement, invoicing, and investment). China made most progress on settlement, with more than half of its own trade now settled in RMB. It achieved this largely by providing efficient payment infrastructure, such as an offshore clearing-bank network, the CIPS payment system, a central bank digital currency (the e-CNY), and a broad network of central bank swap lines. Progress on invoicing and investment has been more limited, held back by the network effects that entrench the dollar and by the shallowness of RMB markets. Two lessons follow for Europe: first, providing more efficient payment infrastructure can meaningfully reduce reliance on dollar settlement. This reduces dependence where Europe is most vulnerable. Second, to reduce dollar dependency in invoicing and investment, too, a more thorough approach would be needed.