When the US sanctioned 11 Hong Kong and Chinese officials for their roles in curtailing Hong Kongers’ freedoms, Beijing scoffed. One senior official offered to send $100 to the US just so president Donald Trump could freeze it. China quickly reciprocated by sanctioning 11 prominent Americans.
But China is actually far more vulnerable to US sanctions than it will let on, even if the sanctions are aimed at individuals and not banks. That’s because the primary system powering the world’s cross-border financial transactions between banks, Swift, is dominated by the US dollar.
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According to the latest data (pdf) from Swift, more than 40% of global transactions on its platforms are denominated in dollars. Since the bulk of dollar transactions are cleared through American banks, the US can argue that those transactions pass through US soil, thereby giving the US legal jurisdiction over them. That means the US has outsize control over the machinery of international transactions—or, as the Economist put it, “America is uniquely well positioned to use financial warfare in the service of foreign policy.”
That’s why banks in Hong Kong are now wary of providing services to the 11 sanctioned Hong Kong and Chinese officials. According to local media reports, several banks have already suspended certain services, including high-speed bank transfers, to the sanctioned officials, and will also have to suspend credit cards issued by US companies like Visa and Mastercard. Meanwhile, Chinese state-owned banks are also taking steps to comply with the US sanctions, with at least one bank refusing to operate accounts for the sanctioned officials, according to Bloomberg.
China’s largest state-run banks operating in Hong Kong are taking tentative steps to comply with U.S. sanctions https://t.co/WWofYx1IQb— Bloomberg (@business) August 12, 2020
Dethroning the dollar - America’s aggressive use of sanctions endangers the dollar’s reign | Briefing | The Economist https://t.co/ceJxqTyiel— Ali H. Soufan (@Ali_H_Soufan) January 19, 2020
China test-fires 'carrier-killer' missile as U.S. announces new sanctions https://t.co/EtLK8RBFeV— The Washington Times (@WashTimes) August 26, 2020
The Trump Administration has hit Hong Kong with severe sanctions that affect Hong Kong Chief Executive Carrie Lam, major banks, Chinese state-run banks, and even the family of top Communist Party officials. It's the most severe retaliation yet over an authoritarian national security law China imposed on Hong Kong.
The U.S. sanctioned 24 Chinese companies, moving to cut them off from parts of the U.S. market for their activities in the disputed South China Sea https://t.co/BaijveVJT1— The New York Times (@nytimes) August 26, 2020
I hope the CCP will conclude that you can’t keep stealing American property and destroying American jobs. President @realDonaldTrump has been focused on this in the trade deal. We’re always ready to sit down with the CCP and work our way through a deal that is good for Americans. pic.twitter.com/6FpYSGvwYU— Secretary Pompeo (@SecPompeo) August 28, 2020
“it represents a totally antithetical approach to the decentralization of power espoused by cryptocurrency adherents.” https://t.co/gt6uCCUBsj— General Spalding (@robert_spalding) August 29, 2020
Eswar Prasad, a professor at Cornell University, believes that even though China’s digital yuan will enhance the renminbi’s role as an international payment currency, it will “hardly put a dent” in the US dollar’s status as the dominant currency.https://t.co/yJG6DfEBpE— Michael (@val5linx) August 29, 2020