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US coronavirus stimulus reignites China’s criticism of dollar hegemony, but no alternative seen any time soon
- China’s criticism of the US dollar’s monopoly is gaining momentum in the face of Washington’s coronavirus stimulus and threats of financial sanctions
- But reform of international monetary policy is unlikely any time soon, largely because there is no alternative reserve currency to the dollar
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The US economic policy response to the coronavirus crisis and the threat of financial sanctions on China have reinvigorated criticism in Beijing over US dollar hegemony, but few analysts see a viable alternative currency emerging any time soon.
Chinese officials have recently taken aim at the unprecedented coronavirus stimulus in the United States, which has seen American debt levels balloon and stoked concern in Beijing about the devaluation of the US dollar assets held by Chinese financial institutions.
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Threats by the US to sanction China over its imposition of a national security law on Hong Kong have also ratcheted up anxiety about being cut off from the US dollar-dominated SWIFT international payments system.
Zhou Li, a former deputy director of the Communist Party’s International Liaison Department, issued a strong warning on the US dollar’s international monopoly last week.
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In a wide-ranging article, Zhou outlined the potential risk posed by the US Federal Reserve’s unlimited quantitative easing programme to China’s US dollar-denominated assets and urged leaders to prepare for decoupling, because the US dollar “has us by the throat”.
His remarks have been echoed elsewhere in Beijing in recent months. Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, captured the growing frustration in a speech at the Lujiazui Forum in June, saying US policy that failed to consider the spillover effects on the rest of the world would “overdraft the credit of the US dollar and the US”.
China has long had an issue with the perceived “exorbitant privilege” of the US dollar, which is the bedrock of the global financial system and underpins the lion’s share of international trade and cross-border financial transactions.
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But amid deteriorating bilateral ties between the two nations and a global economic downturn caused by the pandemic, the issue has taken on new momentum.
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