The dollar’s dominance masks China’s rise in finance

IN HONG KONG’s deserted airport, two cash machines face each other. One is run by HSBC, a British bank that is one of the territory’s main conduits for accessing American dollars. The other, operated by the Bank of China, dispenses Hong Kong dollars and Chinese yuan. Flashing in the eerie, pandemic-induced silence, they are a metaphor for China’s discreet quest for financial influence.

The dollar is still the king of currencies. It underpins four-fifths of global supply chains and around two-thirds of securities issuance and foreign-exchange reserves. Though China is the world’s second-largest economy, its financial clout lags far behind that of America. But it wants to catch up, and the pandemic could speed its progress.

At first blush, last month’s global rush for dollars might suggest otherwise. The outbreak of covid-19 presaged widespread lockdowns and an intense liquidity crunch. Spooked, investors sold whatever they held. Dollars became highly sought after. Australia’s currency hit its lowest level against the greenback since 2002. The Indian rupee fell to a record low. Even the Japanese yen and Swiss franc, usually havens, tumbled.

Funding markets also hinted at a serious dollar shortage. The three-month “cross-currency basis” swap rate, which tracks the premium traders pay to temporarily exchange euros...

via The Economist: Finance and economics Business Feeds

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