Washington's Dollar Threat May Have Backfired for China

The Trump administration's threat to cut Chinese banks off from the US dollar system may have backfired, according to analyst Peter Alexander. In a CNBC interview, Alexander argued that Beijing has spent over a decade building an escape route in case Washington ever tried to use its financial leverage against it.

Alexander noted that the power of the US dollar as a weapon relies on the target having nowhere else to go. However, every credible threat to cut off a large trading partner from the system also serves as an advertisement for alternative currencies and payment systems.

Beijing introduced its own interbank payment system, CIPS, in 2015, three years after the Obama administration cut a Chinese bank off from SWIFT in 2012. This timing suggests that China was directly responding to US pressure by building a parallel system.

Alexander also pointed out that most of Iran's trade with China already clears outside the dollar system, using renminbi settlement and other workarounds.