Financial Warfare: After the Dollar Was Weaponized, Where Does the Next War Get Fought?

Modern financial warfare has several main weapon types; understanding them is the key to mapping the risks of a Taiwan Strait scenario.

SWIFT exclusion. SWIFT (the Society for Worldwide Interbank Financial Telecommunication) is the global interbank messaging system that nearly all cross-border payments run through. Being cut off from SWIFT means a country's financial institutions can no longer move funds across borders through normal channels. The Russia case showed the impact of this measure to be swift and severe — but it also showed that a determined state can partially route around it via alternative channels (bilateral agreements, CIPS, cash settlement, barter, and the like). ^[1]

Freezing foreign-exchange assets. This is a more decisive financial weapon. The West's freezing of US$300 billion of the Russian central bank's foreign-exchange assets cut off Russia's ability to use foreign currency to intervene in FX markets and defend the ruble. For Taiwan, this specific tool is unlikely to be used against it by the West — but Beijing can study how to use it against other financial adversaries.

The threat of secondary sanctions. The United States does not only sanction its target; it also pressures third-party institutions that "continue doing business with the target," known as secondary sanctions. The relevant scenario for Taiwan: if conflict breaks out, Beijing could threaten sanctions against third-country banks that "continue transacting with Taiwanese financial institutions," attempting to sever Taiwan's international financial links.

Attacks on the foreign-exchange market. In the early stages of a conflict scenario, large-scale short-selling of the New Taiwan dollar, manufactured panic in FX markets, and induced capital flight are a financial weapon capable of doing major damage before any "formal conflict" even begins. The scale of Taiwan's central bank's annual intervention in the FX market is one gauge of this vulnerability. ^[5]

Financial blockades on the supply chain. Beijing could order its own financial institutions to stop providing financing, settlement, or insurance services to Taiwan's key export firms (such as TSMC's suppliers), or press third-country financial institutions to choose whether to keep serving Taiwan's semiconductor supply chain.

The lesson of Russia's expulsion from SWIFT accelerated two parallel projects in Beijing: the expansion of CIPS, and the internationalization of the renminbi.

CIPS (the Cross-Border Interbank Payment System) is the renminbi-denominated cross-border payment messaging system Beijing has built. It is not meant to replace SWIFT, but to build a backup rail that can complete cross-border renminbi settlement without depending on SWIFT. As of 2025, more than 1,500 international financial institutions had connected to CIPS, covering more than 160 countries; daily transaction volume remains far below SWIFT's, but the growth rate is significant. ^[4]

Bilateral renminbi swap agreements. China has signed renminbi swap agreements with the central banks of more than 40 countries, allowing bilateral trade settlement without using the US dollar. These agreements are concentrated on "China's major trading partners that also have political friction with the United States" — including Russia, Iran, Saudi Arabia, and Argentina.

Accelerated gold accumulation. After Russia's foreign-exchange assets were frozen, the People's Bank of China accelerated its gold purchases — gold cannot be "frozen," because it is a physical asset. Between 2022 and 2025, the PBOC's gold reserves grew from under 2,000 tonnes to more than 2,300 tonnes, making it the world's sixth-largest holder of gold. ^[6]

These moves are not a declaration that "the renminbi can replace the dollar." They are the construction of a systemic defense: "if the dollar weapon is ever pointed at us, we still have a backup route."

If conflict actually broke out across the Taiwan Strait, or tensions rose sharply, what would happen on the financial front?

Research institutions (including RAND, CSIS, and Brookings) have run simulations of varying depth on this question; here are several of the most likely shock pathways: ^[8][9]

Pathway one: an immediate shock to the New Taiwan dollar and the stock market. Any significant signal of a Taiwan Strait military conflict would trigger immediate foreign capital flight from Taiwan's stock market and the New Taiwan dollar. TSMC accounts for roughly 30% of the Taiwan stock market's total capitalization and is the largest holding for foreign investors; foreign investors hold more than 40% of Taiwan's total market capitalization. Once a foreign pullout is triggered, stock-market limit-downs and a sharp depreciation of the New Taiwan dollar are near-certain scenarios, and the central bank's FX-intervention capacity would face an unprecedented test. ^[5]

Pathway two: a freeze in insurance and credit markets. Once war risk rises, insurance for Taiwanese companies and vessels could be excluded under war-risk clauses, causing premiums to spike or coverage to disappear altogether. Taiwan is highly dependent on maritime trade, so a spike in cargo insurance costs would immediately hit its export cost structure.

Pathway three: a freeze in semiconductor supply-chain finance. Procurement, accounts-receivable financing, and credit insurance for Taiwan's semiconductor suppliers all depend on a network of global financial institutions. If major institutions were forced to choose between "continuing to serve Taiwan's semiconductor supply chain" and "preserving their business in China," some could suspend services early in a conflict, creating a brief vacuum in supply-chain finance.

Pathway four: proactive secondary-sanctions threats from Beijing. China could demand that third-country financial institutions stop financing designated Taiwanese companies, or see their business licenses in China affected. This tool was not used at scale in the Russia-Ukraine conflict, but it cannot be ruled out in a Taiwan Strait scenario.

Taiwan is not entirely unprepared.

Foreign-exchange reserves are Taiwan's most important financial safety cushion. Reserves of more than US$570 billion (Q1 2025) give the central bank ample ammunition to intervene in FX markets and stabilize the New Taiwan dollar. In absolute terms, this reserve is large enough to hold out for a considerable time against a fairly intense FX attack. ^[5]

Banking-sector resilience. Taiwan's banking sector overall has a capital-adequacy ratio above international standards and a low bad-debt rate. In a non-war scenario, Taiwan's financial system's resilience to shocks is strong.

The irreplaceability of tech exports. The indispensability of Taiwan's advanced chips to the global supply chain is a form of indirect financial protection — it gives policymakers in the U.S., Japan, and Europe a strong incentive to keep Taiwan's financial system stable and to not allow the shock to go too deep.

But there are also clear weaknesses:

Weakness one: the composition of foreign-exchange reserves is not transparent. The composition of the Taiwanese central bank's foreign-exchange reserves — the split between U.S.-dollar assets, U.S. Treasuries, and other-currency assets — is not fully disclosed, making it hard for outside observers to assess how much of the reserve is "liquidity that can be deployed quickly" versus assets that "could be constrained under political pressure" if U.S.-China relations deteriorate sharply.

Weakness two: heavy dependence on dollar settlement. Roughly 85% of Taiwan's exports are invoiced and settled in US dollars; if the dollar-settlement channel is disrupted in a conflict scenario — even partially — Taiwanese companies' cross-border cash flows would be hit immediately. Building a more diversified settlement-currency base is an important step to reduce this risk.

Weakness three: no systematic financial-shock stress test. Taiwan currently has no public "Taiwan Strait conflict financial scenario stress test" report, leaving outsiders — including allies — without a clear picture of how resilient Taiwan's financial system would be under various shock scenarios. This lack of transparency works against deploying the necessary defenses in advance.

Financial warfare is not only a problem for governments and central banks. Taiwanese companies — especially exporters and tech suppliers that depend on cross-border transactions — should start preparing now, including:

Building multi-currency settlement mechanisms. Assess which customers could shift to settlement in yen, euros, or bilateral New Taiwan dollar arrangements, so that a quick switch is possible when needed, reducing single-point dependence on dollar settlement.

Diversifying accounts across banks. Don't concentrate all cross-border settlement in a single banking institution; maintain primary banking relationships across different jurisdictions (the U.S., Japan, the EU, and Taiwan itself) to reduce the impact if any single institution suspends service under political pressure.

Backup plans for supply-chain receivables financing. Assess whether alternative financing sources exist if current accounts-receivable financing providers suspend service; build emergency liquidity backups to cushion cash-flow shocks during any brief financial vacuum.

Crisis-communication planning. How to communicate a company's financial condition to customers, suppliers, and investors quickly and accurately amid financial-market panic is something that needs to be rehearsed in advance, not improvised in the moment.

The next war across the Taiwan Strait will not be fought only in the strait itself. From Beijing's strategic planning to the West's sanctions toolkit, the financial dimension of this contest may be the first arena where the movement becomes visible — before a single missile leaves the ground.