Summary of Key Points
The frequent use of the US dollar in settlement systems by the United States as a tool for sanctions has raised concerns about financial security among various countries, prompting them to establish their own independent financial infrastructure. There are fears that the global financial system could split into opposing camps. However, participants at the Summer Davos Forum reached a consensus that while there will be structural changes in the global payment system, it will not lead to division. New systems such as CIPS and mBridge are intended to complement existing ones (like SWIFT), rather than replace them, resulting in a diversified and complementary payment ecosystem.
Why Do People Worry About a Financial System Split?
The US often uses the dollar to exert its influence—for example, by freezing the assets of sanctioned countries or preventing them from using the globally used cross-border payment system SWIFT. This has caused concern among other nations: what if they become targets of US sanctions and are unable to transfer funds? As a result, countries have begun to develop their own payment systems (such as China’s CIPS and the mBridge, which is a collaboration among multiple central banks). Some worry that this could lead to a division into a “dollar camp” and a “non-dollar camp,” with restricted capital flows between the two, potentially leading to a fragmented or even collapsed financial system.
The Guests Reaffirm: “Division and Opposition Are Impossible!”
All participants at the forum rejected the idea of a split.
- Chen Maobo, Secretary for Finance of Hong Kong, stated that countries want to use their own currencies for settlements mainly to avoid exchange rate risks (for instance, using the dollar could increase costs due to currency fluctuations) and to reduce trade expenses; it’s not about confronting anyone in particular. China has significant trade volume (15.3% growth in foreign trade in the first five months), but the proportion of transactions settled in RMB is still low, and its use as a reserve currency is minimal, far from being a challenge to the dollar.
- A South African deputy minister added that while countries value their financial autonomy, it doesn’t mean the system will collapse. The dollar remains the dominant currency for global payments and commodity pricing; China’s promotion of RMB settlements is merely to facilitate transactions, not to replace the dollar.
- A Latin American participant also mentioned that they need alternative channels because remittance processes are too complex and costly, but it’s not about confronting the dollar.
In conclusion, the system will change, but it will not split into two opposing camps.
New Payment Systems: Complements, Not Replacements
Will CIPS and mBridge replace SWIFT? The answer is no.
- Fang Xinghai, Vice Chairman of the China Securities Regulatory Commission, explained that CIPS is designed to facilitate the internationalization of the RMB and help companies use it for cross-border settlements; currently, 80% of domestic trade still uses the dollar.
- Chen Maobo clarified that mBridge aims to make cross-border payments faster and cheaper (what used to take days can now be done in seconds), but it’s not intended to replace SWIFT.
- A Latin American participant noted that replacing SWIFT would be too costly; the dollar is still a core reserve currency for many countries, and switching systems would require adapting to new clearing mechanisms and regulatory frameworks, which financial institutions cannot afford in the short term.
Therefore, these new systems are meant to diversify payment methods, not to replace existing ones.
The Three Main Motivations Behind Countries’ Push for Local Currency Settlements
Why do countries want to use their own currencies more?
1. Security: They don’t want to be at the mercy of the US; using local currencies prevents asset freezes in case of sanctions.
2. Cost Savings and Convenience: Using local currencies eliminates the need for currency conversion and reduces transaction fees, as well as the risk of exchange rate fluctuations. For example, remittances from Latin America are currently complex and costly, so there is a desire for simpler alternatives.
3. Regional Cooperation: Countries like Africa are working on regional settlement systems to promote trade within their regions, making transactions smoother and reducing dependence on the dollar. China has developed CIPS due to its large trade volume and the demand from companies to use RMB for settlements.
The Future of the Payment System: Diversified and More Resilient
The participants agreed that the future global payment system will feature a coexistence of old and new systems, complementing each other:
- The dominant role of the dollar will not change in the short term, but new systems (CIPS, mBridge, African regional systems) will become more widespread.
- These systems will not be isolated from each other; they can interoperate (for example, African systems could cooperate with RMB systems).
- The overall system will be more resilient—if one system encounters issues (such as sanctions), others will still be available, preventing a complete disruption of capital flows.
In summary, future payment methods will be more diverse and secure, without leading to a fragmented or collapsed system. The new systems are not seen as enemies but as helpful additions to the existing framework.