Standard Bank Throws Down Gauntlet in China's Challenge to US Global Hegemony

Standard Bank has become the first African bank to offer transactions through China’s Cross-Border Interbank Payment System (CIPS) – a move which raises fresh questions about the future of the United States (US) dollar as the global reserve currency.

Standard Bank was granted permission by South African authorities to begin using the CIPS in June, enabling its clients to settle transactions in Chinese renminbi, bypassing the need for multiple currencies.

Banks have traditionally used the Western-aligned “Swift” system to regulate and manage global payments.Swift is an acronym for the Society for Worldwide Interbank Financial Telecommunications and it enables banks and financial institutions to securely exchange information and money across borders. Being excluded from Swift makes it virtually impossible for banks and businesses to transact.

Following the Russian invasion of Ukraine in 2022 exactly that happened when Western governments moved to cut Russia off from the Swift system. This excluded Russian companies and individuals off from much of the global economy as a means of weakening the Russian economy, in order to force the Kremlin to abandon its war in Ukraine.

Russia's removal from Swift also made it difficult for non-Russian banks and organisations to transact, if they had interests in Russia.

Cutting Russia off from Swift raised fears that the system would increasingly be used as a political weapon by Western governments and mitigating that risk has seen rising global interest in the Chinese alternative.

The use of the CIPS has been growing in recent years. In 2022 the CIPS processed transactions worth about $17 trillion, growing to $24 trillion in 2024.

More of that growth may now come from Africa. According to Standard Bank’s Trade Barometer 2024, 34% of businesses surveyed in August 2024, in ten African countries, sourced imports from China, an increase from 23% in May 2023. This reflects China’s status as Africa’s largest trading partner.

But the CIPS is much more than a means to enable more efficient global trade.

The formation of CIPS is part of a broader Chinese strategy to replace the dollar as the global reserve currency and thereby reduce American global influence (and Western influence more broadly). Challenging the US's global reserve currency status is arguably the single most important pillar in Beijing’s strategy to challenge American global hegemony.

Successfully challenging the dollars reserve status requires two things. The first is shoring up a vast stockpile of gold against which to anchor an alternative currency. The second is a global payments system built around that currency.

That first step is well in train and Chinese gold reserves have risen very quickly over the past 20 years. Informed estimates are that actual Chinese gold holdings are far in excess of the declared figure. The expansion of the CIPS is the second step.

The danger to America is twofold.

If the dollar loses its position as the global reserve currency, or if other currencies (such as the renminbi) start getting used to a far greater extent than they are now and displace the dollar to some degree, the US will be less able to rely on dollar printing to service its domestic debt. This would trigger a domestic economic meltdown and political crisis.

The US would in addition be less able to employ dollar-based lending to other countries as a foreign policy leverage and influence tool. This would see its global influence sink.

On both counts the strength of the US would be much reduced and global power balances would move decisively from West to East.