Tom Paine 1949
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- Mar 15, 2020
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Chinese leaders have for the first time been discussing openly the possibility that the U.S. will pursue a full Cold War decoupling policy toward them, perhaps cutting off all use of the (supposedly neutral) SWIFT inter-banking dollar payment system. This was at one time considered something only madmen would attempt. As a result the Chinese state bank and gov’t and private institutions are rushing their own preparations to build a “digital yuan” domestic economy, and China is struggling to build its own SWIFT-like infrastructure and further internationalize the Yuan.
Such a full decoupling is still not expected, as it is the economic equivalent of all out war. It would have tremendous worldwide ramifications on markets, trade, credit and politics. Indeed, it could easily lead to shooting wars. But the fact that Chinese leaders now feel they must plan for and openly speak of the possibility of such a measure ... is itself very worrying.
Here is an excerpt from a Reuter’s article published last week:
SHANGHAI/BEIJING (Reuters) - 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.
Chinese officials and economists have in recent months been unusually public in discussing worst-case scenarios under which China is blocked from dollar settlements, or Washington freezes or confiscates a portion of China’s huge U.S. debt holdings.
Those concerns have galvanised some in Beijing to revive calls to bolster the yuan’s global clout as it looks to decrease reliance on the greenback... “Yuan internationalisation was a good-to-have. It’s now becoming a must-have,” said Shuang Ding, head of Greater China economic research at Standard Chartered and a former economist at the People’s Bank of China (PBOC).
The threat of Sino-U.S. financial “decoupling” is becoming “clear and present”, Ding said. Although a complete separation of the world’s two largest economies is unlikely, the Trump administration has been pushing for a partial decoupling in key areas related to trade, technology and financial activity. Washington has unleashed a barrage of actions penalising China ... and bans on the Chinese-owned TikTok and WeChat apps. Further tension is expected in the run-up to U.S. elections on Nov. 3.
“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 (CASS) who previously advised the PBOC, told Reuters. Yu said the ultimate sanction would involve U.S. seizures of China’s U.S. assets - Beijing holds over $1 trillion yuan in U.S. government debt - which would be difficult to implement and a self-inflicted wound for Washington. But calling U.S. leaders “extremists”, Yu said a decoupling is not impossible, so China should make preparations....
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.
Guan Tao, former director of the international payments department of China’s State Administration of Foreign Exchange and now chief global economist at BOC International (China), also said Beijing should ready itself for decoupling. “We have to mentally prepare that the United States could expel China from the dollar settlement system,” he told Reuters.... Shuang Ding of Standard Chartered said Beijing has no choice but to prepare for Washington’s “nuclear option” of kicking China out of the dollar system. “Beijing cannot afford to be thrown into disarray when sanctions indeed befall China,” he said.
In China, fears of financial Iron Curtain as U.S. tensions rise
Such a full decoupling is still not expected, as it is the economic equivalent of all out war. It would have tremendous worldwide ramifications on markets, trade, credit and politics. Indeed, it could easily lead to shooting wars. But the fact that Chinese leaders now feel they must plan for and openly speak of the possibility of such a measure ... is itself very worrying.
Here is an excerpt from a Reuter’s article published last week:
SHANGHAI/BEIJING (Reuters) - 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.
Chinese officials and economists have in recent months been unusually public in discussing worst-case scenarios under which China is blocked from dollar settlements, or Washington freezes or confiscates a portion of China’s huge U.S. debt holdings.
Those concerns have galvanised some in Beijing to revive calls to bolster the yuan’s global clout as it looks to decrease reliance on the greenback... “Yuan internationalisation was a good-to-have. It’s now becoming a must-have,” said Shuang Ding, head of Greater China economic research at Standard Chartered and a former economist at the People’s Bank of China (PBOC).
The threat of Sino-U.S. financial “decoupling” is becoming “clear and present”, Ding said. Although a complete separation of the world’s two largest economies is unlikely, the Trump administration has been pushing for a partial decoupling in key areas related to trade, technology and financial activity. Washington has unleashed a barrage of actions penalising China ... and bans on the Chinese-owned TikTok and WeChat apps. Further tension is expected in the run-up to U.S. elections on Nov. 3.
“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 (CASS) who previously advised the PBOC, told Reuters. Yu said the ultimate sanction would involve U.S. seizures of China’s U.S. assets - Beijing holds over $1 trillion yuan in U.S. government debt - which would be difficult to implement and a self-inflicted wound for Washington. But calling U.S. leaders “extremists”, Yu said a decoupling is not impossible, so China should make preparations....
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.
Guan Tao, former director of the international payments department of China’s State Administration of Foreign Exchange and now chief global economist at BOC International (China), also said Beijing should ready itself for decoupling. “We have to mentally prepare that the United States could expel China from the dollar settlement system,” he told Reuters.... Shuang Ding of Standard Chartered said Beijing has no choice but to prepare for Washington’s “nuclear option” of kicking China out of the dollar system. “Beijing cannot afford to be thrown into disarray when sanctions indeed befall China,” he said.
In China, fears of financial Iron Curtain as U.S. tensions rise
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