China calculated a measure to ensure financial security to prevent the US from disconnecting from SWIFT
Chinese financial experts
have begun to actively discuss the possibility that the world's second-largest
economy will be disconnected from SWIFT (Global Telecommunication Association,
specializing in money transfer and payment). After US President Donald Trump
signed the Hong Kong Autonomous Act, creating money to impose sanctions on
Chinese officials and financial entities.
Most experts believe that
the prospect of US SWIFT embargo against China is less likely, but there is a
growing voice in the country calling for the government to prepare contingency
measures to connect key finance to the rest of the world without having to rely
on SWIFT.
Washington has not
disclosed in detail which sanctions will be used against Chinese officials and
financial institutions. But right now, China does not rule out the worst
case. Some Chinese officials have begun to talk about the need to end
their dependence on the dollar as soon as possible, along with promoting the
internationalization of the renminbi.
Fang Xinghai, vice chairman
of the China Securities Supervisory Commission, was the first to warn about the
risk of China being disconnected from the US dollar system and international
payment network via SWIFT in case of US-China escalation.
Next, Director of the
Supervisory Commission of the China Insurance Bank Guo Shuqing and former
Chairman of the Chinese Communist Party Central Committee's External Relations
Committee Zhou Li voiced his request to end the dependence on the USD.
Today, most of China's
international transactions are in USD. The yuan accounts for only 19% of
China's total international payments in 2019. However, the use of China
Inter-bank Interbank Payment System (CIPS) is still not very popular. For
example, CIPS only handled about US $ 19.4 billion of transactions per day last
year, while SWIFT's figure was $ 5,000 billion per day.
In such a context, China
would certainly have to take into account the potential consequences of
disconnecting from the SWIFT system. Moreover, there is a precedent in the
world. North Korea and Iran have been excluded from SWIFT, causing a major
impact in the process of processing international trade and payment
transactions with these two countries.
Technically, SWIFT is a
multilateral institution, headquartered in Belgium. But in fact, the
United States shows a growing power of jurisdiction over SWIFT and uses this
mechanism as a tool to enforce sanctions. That's why SWIFT is heavily
influenced by the United States and that's why China is concerned about this
system, said Xu Xuemei, a researcher at the Center for Economic and Development
Studies at the China International Research Institute.
According to this expert,
the US has repeatedly forced SWIFT to enforce sanctions against North Korea and
Iran. As the most important part of international financial
infrastructure, SWIFT cannot ignore the political and hegemonic elements of the
USD.
SWIFT will therefore still
be a mechanism for the US Salon to come to carry out financial
sanctions. He analyzed that the SWIFT Chairman is a US representative,
while the CEO is a European, such a mechanism cannot guarantee fairness and
neutrality for SWIFT.
However, from an
institutional framework perspective, SWIFT is officially subject to European
law, not the US. The problem is that the dollar is still too large in the
global financial system. That is why SWIFT, like many other multilateral
organizations, cannot ignore US ideas.
According to Shi Jiayou, a
professor at the People's University of China Law School, the key task is to
reduce the dependence on the US dollar and enhance the diversity of the global
financial system.
“Because most international
transactions are tied to the dollar, SWIFT will not be able to escape its
dependence on the United States. It is difficult to expect any real
reforms for SWIFT in the current situation. We need to proactively promote
the diversification of the global financial system, end the US dollar hegemony
as soon as possible, along with promoting the internationalization of the yuan.”
Said Shi Jiayou.
This expert acknowledged
that China needs to develop CIPS further and promote the system in the
world. Combine this process with the implementation of the Belt and Road
Initiative (BRI), which encourages the use of the RMB in pricing and trading,
at least with the countries participating in BRI.
To end the dollar's
hegemony in the global financial system, the most important thing is to set up
new mechanisms for international payments. One of those mechanisms could
be digital currency (a digital currency), a tool that enables instant
cross-border payment transactions, without the need for a complex financial
infrastructure along with corresponding banking system.
The Central Bank of China
(PBC) has over the years researched and developed the digital yuan. This
cryptocurrency has been tested on a limited scale in four provinces and cities
and is ready for large-scale circulation and circulation.
According to PBC, the
digital yuan will replace cash transactions and is also a constitutional
currency like ordinary yuan. If this project is successful, China will be
the first major financial power in the world to bring the national digital
currency into circulation. It will open a new horizon for RMB
internationalization.
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