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How covid-19 could change the financial world order - YouTube
Channel: The Economist
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America has dominated global finance
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since the end of the Second World War
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when the current system was built but
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the economic disaster caused by the
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corona virus pandemic could signal a new
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chapter in financial history with
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America's leadership called into
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question could be 19 assume that America
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is failing to sort out its own affairs
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at home let alone provide global
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leadership four hundred and eighty four
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billion dollars for loans and after the
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first round of funding ran out another
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huge spike in unemployment claims with a
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vacuum imagining at the top of the
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financial order China is vying to
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compete for greater control this is not
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a case of China becoming Wall Street to
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finance the crisis as probably China
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with an opportunity to show what it's
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capable of doing which in the long run
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will tip the balance of power in global
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finance America is king it controls the
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world's financial plumbing and accounts
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for almost a quarter of the world
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economy the dollar makes up most central
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bank reserves and is the currency of
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international trade 80% of global supply
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chains use dollars which gives America
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significant power whoever controls the
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flows of money at the end of the day
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controls a lot of things in the economy
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and ends up being the puppet master of a
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lot of things that go on around the
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world China hopes to correct this
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imbalance there is a growing call from
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the international community for
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reforming the global economic governance
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system which is a pressing task force
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it's already has the world's second
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largest economy its banks are enormous
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the banking sector has been growing
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fairly steadily for the past ten years
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while in America Bank assets have
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remained relatively stable and with
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European banks assets falling Chinese
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banks now have more assets than those in
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Europe or America but most of their
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business is within China Chinese banks
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account for only 7% of cross-border
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lending so the bank's vast size hasn't
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translated into influence within the
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world's financial system yet its banks
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are becoming more active overseas
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they are lending to companies in
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particular Chinese companies that are
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globalizing China is also giving its own
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currency a more prominent role in
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commodities market it has convinced a
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few companies to use the currency Rio
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Tinto which is one of the largest iron
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ore miner in the world issued its first
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contract in yuan last year the covert 19
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pandemic could increase China's
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financial influence China is now sharing
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its experience with the rest of the
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world and providing much-needed supplies
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30 tons of equipment to Italy 500,000
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surgical masks to Spain following the
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outbreak in Wuhan China has positioned
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itself as a global leader containing the
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outbreak agreeing to deals to suspend
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repayment of some of its loans and
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charging ahead with vaccine development
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the co bid crisis at least so far has
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cast a negative shadow on the capacity
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for leadership of America it did not try
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even show interest in marshaling a
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global response to this crisis it's
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going to disappear one day it's like a
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miracle it will disappear this could
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offer an opportunity for China because
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it's tried to fill the vacuum that
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America has left in terms of global
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leadership
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China's tough response to the crisis and
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the growing size and depth of its
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financial markets have helped convince
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investors it's a safe bet
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even as ko bid sent other markets
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crashing while emerging markets saw the
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value of bonds plummet earlier this year
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China's government bonds remained stable
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which is a good gauge of trust in a
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country's economy so China as the second
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biggest bull market in the world covent
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provided the first tests that this bond
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market could resist the crisis in a way
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that typically energy market bonds don't
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it shows investors trust China as an
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economy that they don't think it's going
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to collapse overnight
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[Music]
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as well as improving its reputation with
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international investors China hopes to
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increase its hold over how money moves
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around the world America has huge
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influence over the current system thanks
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to Swift the world's largest network for
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transferring money it's a messaging
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system that allows financial
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institutions to communicate it's meant
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to be too politically neutral but
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because a majority of Swift transactions
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are in dollars and these are routed
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through new york america has used the
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system to choke its adversary's russia
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feared being excluded after its invasion
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of Crimea and some Iranian banks were
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blocked from using the system in 2018 to
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enforce US sanctions so Swift is based
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in Belgium so it is supposed to be
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neutral however America has a strong
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influence over its American can also
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threaten Swift with sanctions if Swift
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does not do what America wants this is
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very upsetting for its allies which
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would rather the system stays neutral
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and for the benefit of everyone for now
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China can't hope to challenge America's
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dominance of Swift instead Chinese
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companies are targeting a different part
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of the financial system the way in which
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consumers spend their money most
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consumer payments rely on American
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giants Visa and MasterCard but Chinese
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tech companies have developed a series
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of apps that disrupt this system rather
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than using bank accounts or credit cards
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for transactions consumers load money
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into digital wallets consumers can then
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do almost anything from paying parking
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fines to making investments or ordering
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taxis without any of this money flowing
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through the banks creating a parallel
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financial ecosystem this is potentially
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very destructive to the financial system
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it changes the way that when he moves
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around the world it empowers a new set
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of companies which are so big that even
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his government is scared of them last
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year Chinese customers made mobile
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payments worth a total of 49 trillion
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dollars and the two main Chinese
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companies offering this tech $0.10 an
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ant financial are enormous with a
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billion users each covet 19 may increase
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their reach people are doing more
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shopping online trying to stay away from
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cash which is seen as a potential
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contaminant and this is all to the
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benefit of electronic payment firms and
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financial and $0.10 are already
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expanding overseas and financials app
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Ali pay is accepted in 56 countries in
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regions and other digital wallet firms
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are buying into their tech Ali pays QR
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format has already been adopted by six
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European mobile wallets America as
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reasons to be worried about the Chinese
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giants they are getting bigger in the
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region because they are investing their
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wallets in Southeast Asia and Beyond and
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in effect it creates a system that is
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not reliant on American companies
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American standards American norms but
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China faces a major obstacle much of the
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world distrusts its intentions China
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denying a cover-up top Chinese officials
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kept it quiet after all Chinese leaders
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initially denied and covered up the
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spread of koban 19 there's always a
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doubt about what is the ultimate
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objective that China is pursuing in
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being so collaborative at the prison
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tone is not always transparent about the
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truth and what happens in its own
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country
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in a global functional system you need
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transparency you need to know the facts
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what's going on to make sure the system
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is in good health as China's financial
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sphere of influence grows it's unclear
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whether it will complement Americas by
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creating more competition or undermine
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the existing system in the end what we
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could see is the fragmentation of the
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global financial system in an America
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dominated sphere and Oh China terminated
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sphere these two systems don't have to
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be mutually exclusive they could
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actually collaborate with each other if
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they do great if they don't then it will
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be harder to move money around the world
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it will be a costlier a more than just
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functional system and in the end most
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people will result China may not become
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the dominant force in global finance
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anytime soon but covert 19 is helping to
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fast track its progress and as the world
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recovers from the virus and economies
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begin to open up China will be well
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placed to make significant gains thanks
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for watching I met you first famous
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correspondent of The Economist and if
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you want to read more about how the
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current crisis is going to change the
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financial system please click the link
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opposite
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[Applause]
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you
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