Ukraine Invasion May Speed Up China’s Plan to Insulate Against US Dollar: Fed Chair

By Frank Fang
Frank Fang
Frank Fang
journalist
Frank Fang is a Taiwan-based journalist. He covers US, China, and Taiwan news. He holds a master's degree in materials science from Tsinghua University in Taiwan.
March 4, 2022 Updated: March 5, 2022

China could very well accelerate its plans to come up with alternatives to the world’s dollar-dominated international payments system, after seeing Russia becoming isolated economically, according to Federal Reserve Chairman Jerome Powell.

Powell made the assessment on March 3 during a Senate Banking Committee hearing, when he was questioned by Sen. Jack Reed (D-R.I.), who is the chairman of the Senate Armed Services Committee.

“I think the Chinese are particularly interested in the fact that we’ve been able to assemble a global coalition to basically shut down the Russian economy,” Reed said.

“And they will start thinking about how they can avoid that fate if they get into similar circumstances,” the senator said, before adding that China “will look very closely” at the “whole issue of the dollar as the medium of exchange to the world.”

While the senator did not elaborate on what “circumstances” the Chinese regime might get into, Russia’s invasion of Ukraine has sparked concerns that the Chinese Communist Party (CCP) may be emboldened and take military actions to fulfill one of its own ambitions—taking over self-governing Taiwan.

The CCP sees Taiwan as part of its territory that must be united with the mainland, by force if necessary. However, Taiwan is a de facto independent entity, where Taiwanese people elect their own government officials through democratic elections.

In October last year, Chinese leader Xi Jinping vowed that the “reunification” of Taiwan with China would “definitely be realized.”

Reed asked Powell if the Federal Reserve Chairman was looking at this issue and whether he would inform Congress on developments and share his opinions on what he thinks might happen.

“Yes to all of the above,” Powell said in response. He added that China has been working on a messaging system that is like the SWIFT international payments system.

On Feb. 26, the United States, the European Union, Canada, France, Germany, Italy, and the UK announced that they would ban certain Russian banks from the SWIFT system, in retaliation for Russia’s military attack on Ukraine.

“That’s going on now. That’s been going on for some time,” Powell said of China’s efforts to insulate itself from potentially the same thing that Russia is experiencing now.

However, the invasion “may change the trajectory” of China’s efforts, Powell said.

On March 2, Senators Rick Scott (R-Fla.), John Kennedy (R-La.), and Kevin Cramer (R-N.D.) introduced new legislation (S.3735), intending to impose “crippling” sanctions against the Chinese regime should it decide to invade Taiwan.

“Taiwan is a friend, good trading partner, and beacon of freedom and democracy,” Cramer said according to a statement. “Our bill threatens crippling financial sanctions as a deterrence to China trying to follow in Putin’s footsteps as it relates to Taiwan,” Cramer said.

If enacted, the bill would require the president to impose sanctions 30 days after “a triggering event” launched by the Chinese regime. The sanctions include revocation of visas and restrictions on Chinese nationals involved in the use of force against Taiwan and prohibition on any transfers of credit or payments between financial institutions with China.

Frank Fang
journalist
Frank Fang is a Taiwan-based journalist. He covers US, China, and Taiwan news. He holds a master's degree in materials science from Tsinghua University in Taiwan.