The new law expands on previous laws governing national secrets, and comes as relations between Beijing and Washington are deeply strained over military tensions and deep economic competition. NCSC said the law expands China’s definition of espionage from covering state secrets to any documents or data that the government saysContinue Reading
A year after the US-China chips war started in earnest and less than two months after G7 countries’ May 7 decision to de-risk from China, new legislation from Beijing authorizes authorities to punish any organization or individual for committing “acts that are detrimental to China’s national interests.”
Effective from Saturday, the Foreign Relations Law is aimed at issuing a warning to Western countries that promote “decoupling” from China and disrupt international order, according to Chinese officials and legal experts.
Some commentators say the vagueness of the law’s language defining the crime may fuel China-based foreign firms’ concerns about deteriorating Sino-United States relations. They note that relocating to Singapore or Dubai can be a way to minimize geopolitical risks.
“The law improves the relevant systems of our country’s foreign relations, and shows the world the image of our nation as a responsible major country that promotes peace, development, cooperation and mutual success through the rule of law,” an unnamed official of the National People’s Congress Standing Committee (NPCSC)’s Legal Affairs Commission, said Thursday in an official announcement.
The official stressed that the passage of this law is not aimed at setting up long-arm jurisdiction; China has already implemented the Unreliable Entity List in 2020 and the Anti-Foreign Sanctions Law and the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures in 2021.
The newly-passed Foreign Relations Law is considered an enhanced version of the Anti-Foreign-Sanctions Law, which was passed by the NPCSC on June 10, 2021.
On April 26 this year, Beijing also amended its Anti-Espionage Law by expanding the coverage of spying charges from stealing “state secrets” to the theft of “all data and items related to national security.” That amended law also is set to take effect on Saturday.
The US Chamber of Commerce said in a statement on April 28 that the amendment of China’s anti-spy law is “a matter of serious concern for the investor community and likely is as well for their local business partners in China.”
The NPCSC passed the Foreign Relations Law on Wednesday. The Global Times, a Chinese Communist Party’s mouthpiece, says in an editorial published Friday that the new law is aiming at “putting China’s attitude on the table.”
“As China increasingly moves closer to the center stage of the world, it has become more necessary to establish comprehensive legislation in the field of foreign relations,” it says. “China advocates for the peaceful resolution of international disputes, opposes the use or threat of force in international relations and rejects hegemonism and power politics.”
“Some hegemonic countries in the West pursue unilateralism and zero-sum game thinking, and frequently use their domestic laws as a basis to impose unilateral sanctions and long-arm jurisdiction to the outside world,” Huo Zhengxin, a professor at the Faculty of International Law, the China University of Political Science and Law said on Chinese Central Television.
“They used some so-called legal means to exert extreme pressure, build walls and barriers and promote decoupling, seriously endangering the sovereignty and interests of other countries and threatening the international order and global development,” Huo said.
Top Chinese diplomat Wang Yi writes in an article published by the People’s Daily that by formulating the Foreign Relations Law, China highlighted its opposition against all hegemonism and power politics, as well as unilateralism, protectionism and bullying behavior. He says the law clearly defines China’s counteract and restrictive measures to establish deterrence.
According to Article 8 of the Foreign Relations Law, “any organization or individual who commits acts that are detrimental to China’s national interests” will be penalized.
Article 32 says that the State shall take law enforcement, judicial or other measures in accordance with the law to safeguard its sovereignty, national security and development interests and protect the lawful rights and interests of Chinese citizens and organizations.
Article 33 says China has the right to take counteractive or restrictive measures against acts that endanger its sovereignty, national security and development interests in violation of international law or fundamental norms governing international relations.
Some experts say the law negatively impacts foreign investors’ sentiment because its broad language lacks clear definitions of offenses and prescriptions of penalties.
“The new law does not seem to be a legal provision but more like a political statement to the world,” Dennis Weng, an associate professor in the Department of Political Science at Sam Houston State University, said in an interview with Taiwan’s TVBS. “Some people may feel that it’s a written expression of China’s ‘wolf-warrior’ diplomacy.”
Weng said the law may squeeze Taiwan’s diplomatic space as some countries may have to think twice about whether they want to form stronger ties with Taiwan and risk facing Beijing’s sanctions.
Chris Devonshire-Ellis, chairman of Dezan Shira & Associates and an advisor to foreign investors in China, says in a research note that the new law does not contain any aspects that are detrimental to foreign firms and foreigners in China.
However, he adds that businesses investing from the West (a reference to G7 countries) should assess the political risk inherent within their own governments’ attitudes towards China. He says some companies may try to maintain their presence in the Chinese markets by relocating to Singapore or Dubai, which are highly unlikely to impose sanctions on China.
On June 15, Siemens AG said it will build a new factory in Singapore for €200 million (US$218 million). Media reports said Siemens Chief Executive Roland Busch had originally favored China as a location for the new factory but he faced resistance from Siemens’s supervisory board, which had concerns over the growing geopolitical tensions.
The unnamed NPCSC official quoted in the announcement said the new law, by clearly stating China’s diplomatic policy direction, allows the world to better understand and trust China and encourages international cooperation – and said it implemented Party General Secretary Xi Jinping’s “Thought on Socialism with Chinese Characteristics for a New Era.”
The official said that China as of the end of June has on its books 297 sets of laws, 52 of which specifically target foreign issues and 150 of which contain foreign-related clauses.
“Our foreign-related legal system still has some shortcomings, especially in the areas of safeguarding sovereignty, national security and development interests,” the official said, adding that the NPCSC had spent less than one year drafting and passing the Foreign Relations Law.
That timelline indicates that the law was in preparation months before the G7 offended Beijing with its May proclamation. A year ago, the US Commerce Department started sanctioning Chinese chipmakers and persuading allies such as Japan and the Netherlands to restrict their exports of chip making equipment to China.
Read: Tech giants ‘de-risk’ from China, but selectively
Read: US envoy worries about China anti-spy law overreach
Follow Jeff Pao on Twitter at @jeffpao3
Mr Loo, who is also a real estate agent, said he believes office rents will continue to rise in the coming months.
Prices in industrial estates, however, are still expected to remain more affordable compared to renting a workspace in more central locations.
Typically, only businesses in sectors like manufacturing, warehousing, IT and research can rent spaces in such industrial spaces, analysts told CNA.
Mr Lee Sze Teck, senior director and head of research at Huttons Singapore, said that only bigger production companies, such as news companies, have offices in the central business district (CBD).
“For smaller businesses, the rental cost will not make sense for them. They would rather be in a place that’s more economical for them,” he said.
“Those who are actually priced out of the CBD, naturally, they will have to look for an alternative space. Industrial (areas) is one of it, or even business parks. But they do have to qualify to be able to go to this space to operate their business.”
The utilities provider reviews the electricity tariffs every quarter based on guidelines set by the Energy Market Authority (EMA).
The electricity tariff consists of four components – energy costs paid to the generation companies, network costs and market support services fees paid to SP Group, as well as market administration and power system operation fees paid to the energy market company and power system operator.
The energy costs component is adjusted quarterly to reflect the changes in the cost of fuel and power generation. The fuel cost is the cost of imported natural gas, which is tied to oil prices by commercial contracts.
The cost of power generation covers mainly the costs of operating the power stations, such as the manpower and maintenance costs, as well as the capital cost of the stations.
The gas tariff for households will also increase for the Jul 1 to Sep 30 period.
It will go up by 0.23 cent per kWh, from 21.68 cents per KWh to 21.91 cents per kWh before GST, City Gas said on Friday.
The increase is due to higher fuel costs compared with the previous quarter, City Gas added.
City Gas reviews the gas tariffs based on guidelines set by EMA, which regulates the gas industry.
“The regulation will directly affect stakeholders in the supply chains and impact the livelihoods of farmers, especially the smallholders, who make up the majority of Vietnam’s coffee production,” said Agriculture and Rural Development Minister Le Minh Hoan.
“They will face many challenges, particularly in terms of location data, traceability, monitoring systems, and deforestation-free supply chain management,” he told a news conference on Thursday (Jun 29) in Hanoi.
Industry players said that most of Vietnam’s coffee production does not flout the new EU rule, as a majority of its plantations were established decades ago.
“Deforestation is no longer a concern in Vietnam’s coffee industry,” said Mr Nguyen Xuan Loi, chief executive officer of An Thai Group, a company that supplies instant coffee.
“Vietnam’s coffee plantations are grown on lands that are stable. It is extremely rare for coffee trees to be grown on deforested land,” he added.
The main challenge, industry sources said, is the process of providing evidence that their goods are in compliance with the new law.
The Wall Street Journal reported this month that the People’s Republic of China has heavily invested in a cash-strapped Cuba in exchange for access to an electronic intelligence collection (ELINT) facility, and negotiated an agreement to train Chinese soldiers on the north side of the island.
These developments have been met with great concern in Washington, particularly due to the strategic threat that the PRC’s presence in the region poses.
China’s history of US intelligence collection through Cuba can be traced back to 1999 when Cuba granted the PRC access to facilities at Bejucal, a city just south of the capital, previously operated by the Soviet Union, to collect intelligence on the United States.
More recently, the Biden administration’s response to the WSJ’s report confirmed that the Chinese had indeed been operating an intelligence facility in Cuba for some time, and had only upgraded it in 2019. This ran counter to presidential spokesman John Kirby’s characterization of the reports of China’s “building” of the base.
However, the dialogue left unclear exactly how much money the PRC has invested towards the 2019 upgrade and whether or not it was included as part of the debt restructuring and investment credits awarded by the PRC to Cuba this past November.
By contrast, the possible rotation of People’s Liberation Army (PLA) military personnel through the island for training crosses a small, if important, threshold with respect to an enduring Chinese military presence close to the US mainland.
Regardless of the minutiae involved, both developments showcase an increased disposition by both Cuba and the PRC to take risks through explicitly US-focused military initiatives, in ways that suggest it’s willing to take similar risks in other areas as well.
This has significant implications for the United States, necessitating an appropriate, and carefully crafted response from Washington to both current and future events involving both parties.
In the case of Cuba, the government’s willingness to host military threats to the United States has remained consistent since the 1962 missile crisis.
That being said, the regime’s willingness to permit PRC military operations on the island, with the added risk that they might be discovered by US counterintelligence, more greatly highlights the regime’s current desperation for resources amid increasingly severe shortages of food, fuel and medicine – which have prompted a growing exodus of refugees from the island and inspired scattered protests that led the government to temporarily shut down the internet.
Such desperation is consistent with Cuban government behavior surrounding shortages, such as offering Russian investors notable tax breaks, long-term land leases, and options to repatriate profits, in exchange for investments aimed at addressing deficiencies in the country’s petroleum supply, rum and food production.
As for the PRC, the willingness to host anti-US-focused military capabilities for both intelligence collection and training in proximity to the continental United States is a stark departure from the PRC’s otherwise restrained military engagements in the region.
Previous PRC military engagements in the region consistently focused on hospital ship visits, participation in the United Nations Peacekeeping force in Haiti (MINUSTAH), training and professional military exchanges and institutional visits.
Even if the PLA electronic intelligence presence in Cuba is not new, the 2019 upgrade suggests a decreased concern over alarming or upsetting the United States, which may be, in part, a move emboldened by Xi Jinping’s government’s growing military power and confidence as well as growing military tensions with the United States.
It suggests a growing PLA willingness to construct military operations against the United States in the Western Hemisphere, which will surely fuel a reassessment of the interpretation of its security, people-to-people and commercial activities in the region.
The presence of the PLA is ever-expanding. The intelligence operations at Bejucal are probably not a game-changer in terms of capabilities. However, they pose a dangerous complement to the expanding array of other PRC operations to act on and use against the United States in both peace and wartime.
These include numerous Chinese commercial facilities close to US shores, from Hutchinson-operated ports in Mexico, the Bahamas and Panama to hundreds of PRC-owned business facilities in Mexico, Central America and the Caribbean, which could be used to “host” PRC Ministry of State Security personnel.
PRC options to use against the United States also include the numerous Latin American military, police and other government officials who regularly travel to mainland China for “people-to-people diplomacy,” some of whom may be used to provide insights to the Chinese and be labeled by them as friends or “paid consultants.”
As seen by the practices of PRC “police stations,” other options include ethnic Chinese in the region who may be induced by the PRC to cooperate in the interest of familial ties. In addition, the PRC capabilities may also be supplemented by those of Cuban intelligence and those of other anti-US regimes, with personnel in both the United States and throughout the region.
Beyond its facilities and human intelligence capabilities and options, the PRC also has the ability to capture data relevant to US security in the region through its vast and expanding digital footprint there. This is because any Chinese company operating within the United States, under the 2017 PRC National Intelligence Law, is required to turn over any data that may be relevant to security to the PRC.
Some of these architectures, such as Huawei, ZTE, Xiaomi, Oppo and others in the region’s telecommunications infrastructure, can utilize exploitable sensitive data against Latin American government officials and political entities. For example, Huawei uses cloud computing, along with “Smart” and “Safe Cities,” which utilize surveillance technology. Didi Chuxing, a ride-hailing application, has been known to collect trip data on its users.
These are but a few examples of Chinese companies operating within the region that deal with sensitive data that can be subject to exploitation.
In the event of war between the United States and China over Taiwan, anti-US countries close to the United States like Cuba, Venezuela, and Nicaragua would likely be too vulnerable for the PLA to base in them traditional forces such as aircraft and ships for attacks against the United States.
Still, Cuba and other such countries could serve as key staging areas from which the Chinese could observe and disrupt US deployment and sustainment flows, along with other war-critical operations, which would put the United States and its allies at risk.
Both the presence of the Chinese-operated electronic intelligence facility and the development of a PLA training operation on the island will certainly help the PRC to create favorable conditions to counter the United States.
While it is true that the United States and other democratic states conduct international waters and airspace operations under the freedom of navigation principle (FONOPs), the United States cannot simply tolerate an intelligence collection facility 100 miles from its shore operated by its principal geopolitical rival, nor the rotations of PLA military personnel through the island. Such acts of espionage go beyond the simple characterization of “what rivals do” and should be met with a response.
Besides military strikes or other extreme measures that would ultimately be counterproductive for the relationship with the region, the United States most likely can neither persuade nor coerce Cuba and the PRC into abandoning their US-focused military cooperation.
However, this should not prevent the United States from exploiting all other available means to maintain pressure on, and isolate, the Cuban regime and China. Doing so helps limit the ability to extend both anti-US intelligence collection and other capabilities elsewhere.
It also strongly signals to others that the United States draws the line, and will extract a high price, for explicitly collaborating with extra-hemispheric rivals in ways that threaten US security.
Evan Ellis ([email protected]) is Latin America research professor with the US Army War College Strategic Studies Institute. The views expressed here are his own.
This article was originally published by Pacific Forum. Asia Times is republishing it with permission.
By eliminating the production, distribution and disposal of physical name cards, companies can significantly reduce their paper consumption, energy usage and waste generation, said Singapore Environment Council executive director Jen Teo.
However, she pointed out that this is “just one step in a broader journey toward sustainability”.
Some other measures that firms can take to further reduce their carbon footprint include adopting energy-efficient technology, implementing effective waste management systems such as recycling and composting programmes, and promoting the use of reusable products among employees, said Ms Teo.
“Ultimately, it is crucial to understand that sustainability is a whole organisation effort that encompasses social, economic and environmental considerations,” she added.
Nevertheless, two printing companies said they have been receiving more orders for physical business cards in recent months. One has been getting more orders than before the COVID-19 pandemic struck in early 2020.
A spokesperson from Gogoprint said its orders declined 75 per cent in March 2020. Orders picked up again last year when borders reopened and are now at 30 per cent more than pre-COVID levels, she added.
The company has launched NFC cards due to demand from customers requesting “innovative solutions” for business cards, she said.
“During COVID, there was an increasing importance of networking and a growing need for contactless solutions. (NFC cards) are eco-friendly and reduce paper wastage. They also offer a convenient and hassle-free way of exchanging contact information,” the Gogoprint spokesperson said.
Ms Fatin Aris, sales coordinator at Print Market, said demand for printed cards has risen since the pandemic “ended”. The printing firm mainly received orders for stickers during that period due to the rise in home-based businesses.
“I hope it continues to stay this way,” she added.
Numerous government agencies, including the FBI, Department of Defense, National Security Agency, Treasury Department, Defense Intelligence Agency, Navy and Coast Guard, have purchased vast amounts of US citizens’ personal information from commercial data brokers.
The revelation was published in a partially declassified, internal Office of the Director of National Intelligence report released on June 9, 2023.
The report shows the breathtaking scale and invasive nature of the consumer data market and how that market directly enables wholesale surveillance of people. The data includes not only where you’ve been and who you’re connected to, but the nature of your beliefs and predictions about what you might do in the future.
The report underscores the grave risks the purchase of this data poses, and urges the intelligence community to adopt internal guidelines to address these problems.
As a privacy, electronic surveillance and technology law attorney, researcher and law professor, I have spent years researching, writing and advising about the legal issues the report highlights.
These issues are increasingly urgent. Today’s commercially available information, coupled with the now-ubiquitous decision-making artificial intelligence and generative AI like ChatGPT, significantly increases the threat to privacy and civil liberties by giving the government access to sensitive personal information beyond even what it could collect through court-authorized surveillance.
The drafters of the report take the position that commercially available information is a subset of publicly available information. The distinction between the two is significant from a legal perspective. Publicly available information is information that is already in the public domain. You could find it by doing a little online searching.
Commercially available information is different. It is personal information collected from a dizzying array of sources by commercial data brokers that aggregate and analyze it, then make it available for purchase by others, including governments. Some of that information is private, confidential or otherwise legally protected.
The sources and types of data for commercially available information are mind-bogglingly vast. They include public records and other publicly available information. But far more information comes from the nearly ubiquitous internet-connected devices in people’s lives, like cellphones, smart home systems, cars and fitness trackers. These all harness data from sophisticated, embedded sensors, cameras and microphones. Sources also include data from apps, online activity, texts and emails, and even health care provider websites.
Types of data include location, gender and sexual orientation, religious and political views and affiliations, weight and blood pressure, speech patterns, emotional states, behavioral information about myriad activities, shopping patterns and family and friends.
This data provides companies and governments a window into the “Internet of Behaviors,” a combination of data collection and analysis aimed at understanding and predicting people’s behavior.
It pulls together a wide range of data, including location and activities, and uses scientific and technological approaches, including psychology and machine learning, to analyze that data. The Internet of Behaviors provides a map of what each person has done, is doing and is expected to do, and provides a means to influence a person’s behavior.
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The rich depths of commercially available information, analyzed with powerful AI, provide unprecedented power, intelligence and investigative insights. The information is a cost-effective way to surveil virtually everyone, plus it provides far more sophisticated data than traditional electronic surveillance tools or methods like wiretapping and location tracking.
Government use of electronic surveillance tools is extensively regulated by federal and state laws. The US Supreme Court has ruled that the Constitution’s Fourth Amendment, which prohibits unreasonable searches and seizures, requires a warrant for a wide range of digital searches. These include wiretapping or intercepting a person’s calls, texts or emails; using GPS or cellular location information to track a person; or searching a person’s cellphone.
Complying with these laws takes time and money, plus electronic surveillance law restricts what, when and how data can be collected. Commercially available information is cheaper to obtain, provides far richer data and analysis, and is subject to little oversight or restriction compared to when the same data is collected directly by the government.
Technology and the burgeoning volume of commercially available information allow various forms of the information to be combined and analyzed in new ways to understand all aspects of your life, including preferences and desires.
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The Office of the Director of National Intelligence report warns that the increasing volume and widespread availability of commercially available information poses “significant threats to privacy and civil liberties.”
It increases the power of the government to surveil its citizens outside the bounds of law, and it opens the door to the government using that data in potentially unlawful ways. This could include using location data obtained via commercially available information rather than a warrant to investigate and prosecute someone for abortion.
The report also captures both how widespread government purchases of commercially available information are and how haphazard government practices around the use of the information are.
The purchases are so pervasive and agencies’ practices so poorly documented that the Office of the Director of National Intelligence cannot even fully determine how much and what types of information agencies are purchasing, and what the various agencies are doing with the data.
The question of whether it’s legal for government agencies to purchase commercially available information is complicated by the array of sources and complex mix of data it contains.
There is no legal prohibition on the government collecting information already disclosed to the public or otherwise publicly available. But the nonpublic information listed in the declassified report includes data that US law typically protects. The nonpublic information’s mix of private, sensitive, confidential or otherwise lawfully protected data makes collection a legal gray area.
Despite decades of increasingly sophisticated and invasive commercial data aggregation, Congress has not passed a federal data privacy law. The lack of federal regulation around data creates a loophole for government agencies to evade electronic surveillance law.
It also allows agencies to amass enormous databases that AI systems learn from and use in often unrestricted ways. The resulting erosion of privacy has been a concern for more than a decade.
The Office of the Director of National Intelligence report acknowledges the stunning loophole that commercially available information provides for government surveillance:
“The government would never have been permitted to compel billions of people to carry location tracking devices on their persons at all times, to log and track most of their social interactions, or to keep flawless records of all their reading habits. Yet smartphones, connected cars, web tracking technologies, the Internet of Things, and other innovations have had this effect without government participation.”
However, it isn’t entirely correct to say “without government participation.” The legislative branch could have prevented this situation by enacting data privacy laws, more tightly regulating commercial data practices, and providing oversight in AI development.
Congress could yet address the problem. Representative Ted Lieu has introduced the a bipartisan proposal for a National AI Commission, and Senator Chuck Schumer has proposed an AI regulation framework.
Effective data privacy laws would keep your personal information safer from government agencies and corporations, and responsible AI regulation would block them from manipulating you.
Anne Toomey McKenna is Visiting Professor of Law, University of Richmond
This article is republished from The Conversation under a Creative Commons license. Read the original article.
Malaysian financial bodies working to develop Future Skills Framework
Firms look to alternative ways to access ready talent apart from hiring
[Ed Note: Deputy Governor Jessica Chew (pic) gave the following Keynote Address at the 24th World Conference of Banking Institutes (WCBI) held in Kuala Lumpur with the theme, “Building a workforce…Continue Reading
After a record-breaking wave of new sanctions on Russia, a longstanding debate on whether the overuse of sanctions “endangers the dollar’s reign” has resurfaced. There is no easy answer, as the basic premise of whether sanctions are being overused is subjective and depends as much on politics as economics.
Even if there is widespread agreement that overuse is occurring, it is not clear that the costs and risks of future sanctions justify creating an alternative to the well-oiled global dollar machine.
One exception would be the risk of sanctions that the United States might impose on mainland China in the case of a military action related to Taiwan—as it and a coalition of countries imposed sanctions on Russia in the wake of its invasion of Ukraine—which would force countries to choose between connecting with the global dollar system or with China.
Countries may try to build alternatives to the US dollar system to avoid being forced to make such a choice—whether or not they would succeed. US sanctions apply beyond its borders, leading most firms to abandon sanctioned entities rather than risk being sanctioned themselves.
Despite a flood of sanctions on Russia in 2022, it is hard to see much of a dent in dollar dominance. The dollar is near its historical peak—88% of foreign exchange transactions involve the dollar on one side. The RMB’s jump from 4% to 7% in the past three years has come at the expense of other currencies, not by eroding the dollar’s share.
Almost 58% of global reserves were held in dollars at the end of 2022, nearly the same as before the Russian invasion of Ukraine. Powerful network effects mutually reinforce the dollar’s role.
Trade in dollars and borrowing in dollars means that actors want to accumulate dollar reserves to ensure that even on a rainy day, they can afford their imports and interest payments. The United States has the deepest capital markets in the world, accessible through an open capital account.
China is less reliable due to controls that keep capital within its borders. For most countries, the US dollar’s liquidity means that it is often cheaper, safer and more efficient to handle trade in US dollars.
The ecosystem around the dollar means that risks to exposure can be easily hedged and there are plenty of good assets in US dollars to invest in before they are needed. Despite the US debt ceiling mess and other issues with US institutions, the US treasury market is considered a “risk-free” asset.
Sanctions are the textbook example of “weaponized interdependence” when the central node of a network exploits that position for its own interests. But it is difficult to say how weaponized sanctions really are. The impacts of different sanctions vary widely and not all sanctions create frictions that make others question use of the dollar.
Cases like North Korea and Syria have involved a high degree of international consensus. But US unilateral action in other cases have created friction, even with allies. When the United States backed out of the Iran nuclear deal and reimposed sanctions, European countries were furious that Washington could stop their firms from doing business with Iran.
And, despite strong political will, efforts to create a sanction-proof financial institution for business with Iran proved fruitless. Daniel McDowell’s book on sanctions and the US dollar, “Bucking the buck”, concludes that “dollar dependence remains the reality, even for sanctioned regimes.”
Sanctions on Russia send a mixed message. They seem to weaken the US dollar, leading countries who fear future sanctions to diversify their currency choices. While many countries have not joined the sanctions, the major reserve currency issuers have, even Switzerland. Countries that fear sanctions may learn from Russia’s case that diversification away from the US dollar does not provide the protection they might hope.
Barry Eichengreen and others have found that while reserves are gradually being diversified away from the US dollar, only a small share has gone into RMB. Throughout Asia, countries are developing more ways to trade and invest using their own currencies, but that trade tends to be small and expensive.
Though the People’s Bank of China sees a future with directly connected central bank digital currencies, these are in their infancy. It is not clear whether they can reduce dollar use enough to be impervious to sanctions.
Even if Washington shelved sanctions, currency diversification would continue because it is largely driven by other concerns like the global impact of US monetary policy. One can liken the thinking on currency to the global discussion on supply chains, where there is an increased willingness to incur costs to reduce excessive reliance on one supplier or country.
While not unique to US dollar transactions, concerns about global financial infrastructures like the SWIFT messaging system, which, though located outside the United States, ejects sanctioned entities from its network, have not led to viable alternatives. China’s Cross-Border Interbank Payment System is not a real substitute for SWIFT and relies on SWIFT for much of its messaging.
The greatest threat to the global currency system is the possibility of sanctions on China, a dog that mostly has not barked so far in the US-China trade and technology war.
While many of China’s top technology companies—like Huawei—find themselves on export control and investment ban lists, the US treasury department has declined to put them on the sanctions list. Being sanctioned would make them radioactive for global business and spark a backlash from countries suddenly unable to service their networks.
Some countries might disagree, but current US policy has rightly been careful to avoid using excessive unilateral sanctions, especially on China. Such sanctions might make building and moving to a real alternative to the US dollar actually worthwhile.
Large-scale China sanctions would be far costlier and less likely to enjoy the widespread international support that the Russia sanctions have. US policymakers need to be very clear-eyed that broader China sanctions would prove an important risk to the international role of the dollar.
Martin Chorzempa is Senior Fellow at the Peterson Institute for International Economics.
This article was originally published by East Asia Forum and is republished under a Creative Commons license.