Strategic De-Dollarization in Energy Trade

Why China and Russia Are Using Local Currencies and National Payment Networks

Executive Summary

Recent developments in global energy markets—particularly the use of local currencies

and national payment networks by China and Russia in oil and gas transactions—are often misinterpreted as an imminent collapse of the petrodollar system. This view is analytically incorrect.

What is unfolding is not a frontal challenge to dollar hegemony, but a selective, risk-driven form of de-dollarization aimed at increasing resilience against geopolitical disruption.
China and Russia are not attempting to replace the US dollar as the global pricing and settlement currency for energy. Instead, they are building parallel mechanisms to ensure that critical trade can continue under sanctions or financial fragmentation.

This report explains the logic, limits, and implications of this strategy.

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1. What Is Actually Happening?

In recent years:

• China and Russia have conducted a portion of their bilateral oil and gas trade in local currencies (primarily the renminbi and the ruble).
• These transactions increasingly rely on non-Western payment infrastructure, such as
  • CIPS (China’s Cross-Border Interbank Payment System), and
  • SPFS (Russia’s System for Transfer of Financial Messages).
• The US dollar and SWIFT are not eliminated, but deliberately avoided in transactions exposed to sanctions or political risk.

The key point is that this shift is partial, targeted, and conditional—not comprehensive.

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2. Core Motivation: Sanctions and Financial Sovereignty

2.1 The Weaponization of Financial Infrastructure

Russia’s experience with large-scale asset freezes and payment restrictions demonstrated a structural reality:

Dependence on dollar-centric financial infrastructure creates a vulnerability that can be activated politically.

For China, this lesson is anticipatory rather than historical.
Reducing exposure before a crisis emerges is a rational form of macro-financial risk management.

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2.2 Energy Trade as the Natural Testing Ground

Energy trade is uniquely suited to this strategy because it is:

• Large in volume
• Recurrent and contractual
• Often conducted between state-linked entities

Even partial non-dollar settlement in energy trade can materially reduce exposure to dollar liquidity and Western clearing systems.

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3. Why National Payment Networks Matter

3.1 Not Replacements, but Redundant Systems

CIPS and SPFS are frequently portrayed as alternatives to SWIFT.
In practice, their function is different:

• SWIFT: unmatched scale, efficiency, and global acceptance
• CIPS / SPFS: operational continuity under sanctions

These systems are best understood as redundancy mechanisms, not competitors in normal conditions.

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3.2 Resilience Over Efficiency

From an economist’s perspective, this reflects a trade-off:

• Efficiency maximization → dollar + SWIFT
• Survivability under stress → local currencies + national networks

China and Russia are explicitly prioritizing the latter for sensitive transactions.

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4. Is This a Real Threat to the Petrodollar System?

Short Answer: No—at least not in the short to medium term.

4.1 Pricing Power Remains Dollar-Based

• Global benchmarks (Brent, WTI)
• Futures markets
• Shipping insurance and derivatives

remain overwhelmingly dollar-denominated.

4.2 Limited Reinvestment Options

A core feature of the petrodollar system is recycling—the ability to reinvest surplus dollars in deep, liquid markets (especially US Treasuries).
No equivalent destination exists for large-scale renminbi surpluses.

4.3 Institutional Trust and Legal Depth

Currency hegemony is not transactional alone; it rests on:

• Legal predictability
• Market depth
• Crisis liquidity

These conditions are not yet replicable outside the dollar system.

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5. Why This Still Matters Strategically

The importance of these developments lies not in scale, but in precedent.

5.1 Proof of Concept

China and Russia have demonstrated that:

• Energy trade without the dollar is technically feasible
• Legal and operational frameworks can be established
• Settlement can occur outside Western infrastructure

This knowledge accumulates strategic optionality.

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5.2 A Signal of Structural Change

Even if the dollar remains dominant, the fact that major economies actively design systems to bypass it indicates a shift in behavior:

The dollar is no longer assumed to be universally usable under all circumstances.

That assumption was a defining feature of 20th-century monetary hegemony.

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6. The Link to Gold Accumulation

This strategy aligns closely with rising central-bank gold holdings:

• Non-dollar settlement → diversification of transaction flows
• Gold accumulation → diversification of reserve stocks

Together, they form a dual hedge against:

• Sanctions risk
• Counterparty risk
• Systemic fragmentation

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7. Conclusion: Strategic De-Dollarization, Not Systemic Overthrow

The current trend should be interpreted as:

• Not the collapse of the petrodollar
• Not the end of dollar dominance
• But the emergence of a multi-layered resilience strategy

China and Russia are not trying to replace the dollar; they are ensuring they can function without it if necessary.

The most important change in 21st-century currency hegemony is not the loss of dollar dominance, but the loss of the assumption that the dollar will always be accessible.

That shift in expectations—quiet, technical, and incremental—is the true signal economists should be watching.