Interview
How covid-19 could change the financial world order
- The US post-WWII financial hegemony is being challenged by the pandemic's economic disruption, with 484 billion USD in loans exhausted and high unemployment claims exposing a leadership vacuum.
- The crisis has prompted a reevaluation of the global economic governance system, with international calls for reform accelerating as China positions itself to fill the void left by American inaction.
- While the US retains control of "financial plumbing" (the dollar accounts for most central bank reserves and 80% of global supply chains), China's banking sector now holds more assets than European or US banks combined.
- Despite China's massive banking asset size, its influence remains limited as Chinese banks account for only 7% of cross-border lending, with most business conducted domestically.
- China is actively expanding international reach by lending to globalizing Chinese companies and convincing commodity traders, such as miner Rio Tinto, to issue contracts in yuan.
- China has leveraged its pandemic response to project global leadership, including providing medical supplies to Europe (30 tons to Italy, 500k masks to Spain) and suspending loan repayments for some partners.
- China's government bonds remained stable during the early pandemic crash, contrasting with plummeting emerging market bonds and signaling strong investor trust in the stability of China's economy.
- The US maintains dominance over the SWIFT payment network due to dollar routing through New York, a leverage used to sanction adversaries like Russia and Iran despite SWIFT's Belgian neutrality.
- China is bypassing US-dominated SWIFT and card networks (Visa/Mastercard) by developing a parallel digital payment ecosystem via mobile wallets like Alipay and WeChat Pay.
- Last year, Chinese mobile payments totaled $49 trillion, with Tencent and Ant Financial each commanding over one billion users and expanding their QR code infrastructure into 56 countries.
- Ant Financial's Alipay has already been adopted by six European mobile wallets, creating a non-American financial standard in consumer spending.
- Significant friction remains as global distrust persists regarding China's initial transparency and potential cover-up of the virus's early spread.
- Future scenarios suggest a potential fragmentation of the global financial system into competing US and Chinese spheres, which could increase transaction costs and systemic risk if collaboration fails.
- While China is unlikely to achieve immediate total dominance, the pandemic has accelerated its trajectory, positioning it for significant gains as the global economy recovers.