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

America has dominated global finance since the end of the Second World War when the current system was built but the economic disaster caused by the corona virus pandemic could signal a new chapter in financial history with America's leadership called into question could be 19 assume that America is failing to sort out its own affairs at home let alone provide global leadership four hundred and eighty four billion dollars for loans and after the first round of funding ran out another huge spike in unemployment claims with a vacuum imagining 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 to finance the crisis as probably 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 force it's 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 bank's 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 globalizing China is also giving its own currency a more prominent role in commodities market it has convinced a few companies to use the currency Rio Tinto which is one of the largest iron ore miner in the world issued its first contract in yuan last year the covert 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 tons 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 of some of its loans and charging ahead with vaccine development the co bid crisis at least so far has cast a negative shadow on the capacity for leadership of America it did not try even show interest in marshaling 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 ko bid 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 as the second biggest bull market in the world covent provided the first tests that this bond market could resist the crisis in a way that typically energy market bonds don't it shows investors trust China as an economy that they don't think it's going to collapse overnight [Music] 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 too politically 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 adversary's 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 is supposed to be neutral however America has a strong influence over its American 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 into digital 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 destructive to the financial system it changes the way that when he moves around the world it empowers a new set of companies which are so big that even his government is scared of them last year Chinese customers made mobile payments worth a total of 49 trillion dollars and the two main Chinese companies offering this tech $0.10 an ant financial are enormous with a billion users each covet 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 and financial and $0.10 are already expanding overseas and financials app Ali pay is accepted in 56 countries in regions and other digital wallet firms are buying into their tech Ali pays QR format has already been adopted by six European mobile wallets America as reasons to be worried about the Chinese giants they are getting bigger in the region because they are investing their wallets in Southeast 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 top Chinese officials kept it quiet after all Chinese leaders initially denied and covered up the spread of koban 19 there's always a doubt about what is the ultimate objective that China is pursuing in being so collaborative at the prison tone is not always transparent about the truth and what happens in its own country in a global functional 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's unclear whether it will complement Americas 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 Oh China terminated 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 a more than just functional system and in the end most people will result China may not become the dominant force in global finance anytime soon but covert 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 met you first famous correspondent of The Economist and if you want to read more about how the current crisis is going to change the financial system please click the link opposite [Applause] you [Music]

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