Lam's bank woes show risk of US dominance of global finance system
US dominance of global finance system threatens nation's security
Published: Nov 29, 2020 10:26 PM

Chief Executive of the Hong Kong Special Administrative Region (HKSAR) Carrie Lam delivered a speech at the inauguration ceremony of China Federation of Literacy and Art Circles Hong Kong Member Association in Hong Kong, south China, Nov. 18, 2020. (Xinhua/Li Gang)

The revelation that the Chief Executive of China's Hong Kong Special Administrative Region (HKSAR) Carrie Lam, who was among 11 officials sanctioned in August by the US, can't use a bank account is a reminder that China's national sovereignty and security is at stake with US dominance in global financial transactions, industry watchers said.

While China could consider equal countermeasures, it's still a long way off for the nation and other economies working on alternatives to a US dollar-denominated clearing system to genuinely topple the dollar's dominance, they noted.   

In an interview with Hong Kong International Business Channel broadcast on Friday night, Lam said that "sitting in front of you is the chief executive of the Hong Kong SAR, who has no banking services made available to her."

She's using cash in her daily life, and she has piles of it at home as the government is paying Lam's salary in cash because she doesn't have a bank account, according to media reports.

"It's very honorable in this set of circumstances to be so unjustifiably sanctioned by the US government," she stressed. 

The chief executive was among 11 officials from Hong Kong SAR and the Chinese mainland to be sanctioned by the US Treasury Department for allegedly undermining the city's autonomy. 

In a circular released shortly after the US sanctions were announced, Arthur Yuen, deputy chief executive of the Hong Kong Monetary Authority, wrote that unilateral sanctions imposed by foreign governments are not legally binding in Hong Kong.

"In assessing whether to continue to provide banking services to an individual or entity designated under a unilateral sanction which does not create an obligation under Hong Kong law, boards and senior management of authorized institutions should have particular regard to the principle of treating customers fairly," according to Yuen.

That Lam can't gain access to bank services three months after the sanctions indicates the US' worrying dominance in the international banking arena, financial observers said.

With the American-controlled system in the driver's seat when it comes to money transfers, payments and other cross-border banking services, the US is able to monitor banks' activities and freeze or seize money from bank accounts running under its system, Zhao Xijun, vice president of the School of Finance at the Renmin University of China, told the Global Times on Sunday.

Countries including China have been pushing proprietary settlement programs. For example, phase two of the yuan cross-border interbank payment system (CIPS) is in place in China's case. Nonetheless, these attempts to carve out a non-dollar alternative have been confined to their own currencies such as the yuan and are only applicable in their respective local banks, Zhao said.

A possible solution to Lam's woes could be by paying her in the yuan, thereby avoiding the US system, he went on to say, noting that any conversion of a yuan-dominated salary into other currencies including the Hong Kong dollar would still fail, unless the CIPS expands to include the Hong Kong dollar.

Lam's plight is indicative of threats to national sovereignty and security arising from US financial dominance in global financial transactions, notably the Society for Worldwide Interbank Financial Telecommunications (SWIFT), the dollar-dominated cross-border transfer system that leaves China vulnerable to US sanctions, Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, told the Global Times on Sunday.

SWIFT couldn't be immediately reached for comment. 

It could be the case that China ramps up efforts to work with Europe to create a viable settlement regime to take on the dollar system, Dong said.

Countermeasures on an equal footing could also be on the agenda for China, he reckoned, stressing however that the yuan has yet to be globalized enough to render the nation's non-dollar push a genuine rival to the US-controlled system.

As for the nation's digital currency push on the back of its fintech prowess, Dong thought it's still mostly a domestic effort to replace cash in circulation and has yet to defuse the woes inflicted by US unilateralism.

Among the more feasible solutions are equal countermeasures to restrict US banking activities within China, experts said.