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  • America has dominated global finance...

  • ...since the end of the second world war...

  • ...when the current system was built

  • Designed to establish the economic foundations of peace...

  • ...on the bedrock of genuine international cooperation

  • But the economic disaster caused by the coronavirus pandemic...

  • ...could signal a new chapter in financial history...

  • ...with America's leadership called into question

  • Covid-19 has shown that America is failing to...

  • ...sort out its own affairs at home, let alone provide global leadership

  • $484bn for loans, after the first round of funding ran out

  • Another huge spike in unemployment claims

  • With a vacuum emerging at the top of the financial order...

  • ...China is vying to compete for greater control

  • This is not a case of China becoming Wall Street overnight

  • The crisis has provided China with an opportunity to show...

  • ...what it's capable of doing, which in the long run will tip the balance of power

  • In global finance, America is king

  • It controls the world's financial plumbing

  • And accounts for almost a quarter of the world economy

  • The dollar makes up most central-bank reserves...

  • ...and is the currency of international trade

  • 80% of global supply chains use dollars...

  • ...which gives America significant power

  • Whoever controls the flows of money at the end of the day...

  • ...controls a lot of things in the economy...

  • ...and ends up being the puppet master of a lot of...

  • ...things that go on around the world

  • China hopes to correct this imbalance

  • There is a growing call from the international community...

  • ...for reforming the global-economic-governance system...

  • ...which is a pressing task for us

  • It already has the world's second-largest economy

  • Its banks are enormous

  • The banking sector has been growing fairly steadily for the past ten years

  • While in America, bank assets have remained relatively stable

  • And with European banks' assets falling...

  • ...Chinese banks now have more assets than those in Europe or America

  • But most of their business is within China

  • Chinese banks account for only 7% of cross-border lending

  • So the banks' vast size hasn't translated...

  • ...into influence within the world's financial system...

  • ...yet

  • Its banks are becoming more active overseas

  • They are lending to companies, in particular...

  • ...Chinese companies that are globalising

  • China is also giving its own currency a more prominent role

  • In commodities markets, it has convinced...

  • ...a few companies to use the currency

  • Rio Tinto, which is one of the largest iron-ore miners in the world...

  • ...issued its first contracts in yuan last year

  • The covid-19 pandemic could increase China's financial influence

  • China is now sharing its experience with the rest of the world...

  • ...and providing much-needed supplies

  • 30 tonnes of equipment to Italy, 500,000 surgical masks to Spain

  • Following the outbreak in Wuhan...

  • ...China has positioned itself as a global leader...

  • ...containing the outbreak...

  • ...agreeing to deals to suspend repayment some of its loans...

  • ...and charging ahead with vaccine development

  • The covid crisis, at least so far, has cast a negative shadow...

  • ...on the capacity for leadership of America

  • It did not try or even show interest in...

  • ...marshalling a global response to this crisis

  • It's going to disappear one day, it's like a miracle, it will disappear

  • This could offer an opportunity for China because...

  • ...it's tried to fill the vacuum that America has left in terms of global leadership

  • China's tough response to the crisis...

  • ...and the growing size and depth of its financial markets...

  • ...have helped convince investors it's a safe bet...

  • ...even as covid sent other markets crashing

  • While emerging markets saw the value of bonds plummet earlier this year

  • China's government bonds remained stable...

  • ...which is a good gauge of trust in a country's economy

  • So, China has the second-biggest bond market in the world

  • Covid provided the first tests that this bond market could resist a crisis...

  • ...in a way that typically emerging-market bonds don't

  • It shows investors trust China as an economy...

  • ...that they don't think it's going to collapse overnight

  • As well as improving its reputation with international investors...

  • ...China hopes to increase its hold over how money moves around the world

  • America has huge influence over the current system, thanks to SWIFT...

  • ...the world's largest network for transferring money

  • It's a messaging system that allows financial institutions to communicate

  • It's meant to be geopolitically neutral

  • But because a majority of SWIFT transactions are in dollars...

  • ...and these are routed through New York...

  • ...America has used the system to choke its adversaries

  • Russia feared being excluded after its invasion of Crimea...

  • ...and some Iranian banks were blocked from using the system in 2018...

  • ...to enforce US sanctions

  • So, SWIFT is based in Belgium

  • So, it's supposed to be neutral. However, America has a strong influence over it

  • America can also threaten SWIFT with sanctions...

  • ...if SWIFT does not do what America wants

  • This is very upsetting for its allies...

  • ...which would rather the system stays neutral...

  • ...and for the benefit of everyone

  • For now China can't hope to challenge America's dominance of SWIFT

  • Instead, Chinese companies are targeting...

  • ...a different part of the financial system...

  • ...the way in which consumers spend their money

  • Most consumer payments rely on American giants Visa and Mastercard

  • But Chinese tech companies have developed a series of apps...

  • ...that disrupt this system

  • Rather than using bank accounts or credit cards for transactions...

  • ...consumers load money intodigital wallets

  • Consumers can then do almost anything...

  • ...from paying parking fines to making investments or ordering taxis...

  • ...without any of this money flowing through the banks

  • Creating a parallel financial ecosystem

  • This is potentially very disruptive to the financial system

  • It changes the way the money moves around the world

  • It empowers a new set of companies...

  • ...which are so big that even the Chinese government is scared of them

  • Last year Chinese customers made mobile payments...

  • ...worth a total of $49trn

  • And the two main Chinese companies offering this tech...

  • ...Tencent and Ant Financial are enormous, with a billion users each

  • Covid-19 may increase their reach

  • People are doing more shopping online...

  • ...trying to stay away from cash, which is seen as a potential contaminant

  • And this is all to the benefit of electronic-payment firms

  • Ant Financial and Tencent are already expanding overseas

  • Ant Financial's app Alipay is accepted in 56 countries and regions

  • And other digital-wallet firms are buying into their tech

  • Alipay's QR format has already been adopted by six European mobile wallets

  • America has reasons to be worried about the Chinese giants

  • They are getting bigger in the region because they are investing...

  • ...their wallets in South-East Asia and beyond

  • And in effect it creates a system that is not reliant on...

  • ...American companies, American standards, American norms

  • But China faces a major obstacle

  • Much of the world distrusts its intentions

  • China denying a cover-up

  • The top Chinese officials kept it quiet

  • After all, Chinese leaders initially denied and covered up the spread of covid-19

  • There's always a doubt about what is the ultimate objective...

  • ...that China is pursuing in being so collaborative at the present time

  • It's not always transparent about the truth...

  • ...and what happens in its own country

  • In a global financial system, you need transparency

  • You need to know the facts, what's going on...

  • ...to make sure the system is in good health

  • As China's financial sphere of influence grows...

  • ...it is unclear whether it will complement America's...

  • ...by creating more competition, or undermine the existing system

  • In the end, what we could see is...

  • ...the fragmentation of the global financial system in...

  • ...an America-dominated sphere and a China-dominated sphere

  • These two systems don't have to be mutually exclusive

  • They could actually collaborate with each other

  • If they do, great. If they don't, then it will be harder...

  • ...to move money around the world

  • It will be a costlier, more dangerous financial system

  • And in the end, most people will lose out

  • China may not become the dominant force in global finance any time soon

  • But covid-19 is helping to fast-track its progress

  • And as the world recovers from the virus...

  • ...and economies begin to open up...

  • ...China will be well placed to make significant gains

  • Thanks for watching

  • I'm Matthieu Favas, finance correspondent at The Economist

  • And if you want to read more about how...

  • ...the covid crisis is going to change the financial system...

  • ...please click the link opposite

America has dominated global finance...

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How covid-19 could change the financial world order | The Economist

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    鄒利玲 posted on 2020/07/13
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