A sharp escalation in tensions with the United States has stoked fears in China of a deepening financial war that could result in it being shut out of the global dollar system - a devastating prospect once considered far-fetched but now not impossible
FILE PHOTO: Chinese Yuan and U.S. dollar banknotes are seen behind illuminated stock graph in this illustration taken February 10, 2020. REUTERS/Dado Ruvic/Illustration
Some economists even float the idea of settling exports of China-made COVID-19 vaccines in yuan, and are looking to bypass dollar settlement with a digital version of the currency. “A broad financial war has already started ... the most lethal tactics have yet to be used,” Yu Yongding, an economist at the state-backed Chinese Academy of Social Sciences who previously advised the PBOC, told Reuters.
Fang Xinghai, a senior securities regulator, said China is vulnerable to U.S. sanctions and should make “early” and “real” preparations. “Such things have already happened to many Russian businesses and financial institutions,” Fang told a June forum organised by Chinese media outlet Caixin. In a report he co-authored last month, Guan called for increased use of China’s yuan settlement system, Cross-Border Interbank Payment System, in global trade. Most of China’s cross-border transactions are settled in dollars via the SWIFT system, which some say leaves it vulnerable.The PBOC’s Shanghai head office last month urged financial institutions to expand yuan trade and prioritise local currency use in direct investment.
The yuan’s share of global foreign exchange reserves surpassed 2% in the first quarter, Yi said. It also beat the Swiss franc in June to be the fifth most-used currency for international payments, with a share of 1.76%, according to SWIFT.
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