Since the West disconnected major Russian banks from SWIFT in March, China and Hong Kong have attempted to prepare a response plan for a similar situation.

According to Asia Times, the Hong Kong Monetary Authority (HKMA) has prepared emergency plans if the U.S. sanctions Hong Kong or the mainland for supporting Moscow in its war with Ukraine.

HKMA Chief Executive Eddie Yue stated that the de facto central bank in Hong Kong kept constant communication with the People’s Bank of China regarding financial security. HKMA planned to mitigate risks in serious scenarios, such as the SWIFT ban.

Earlier, Financial Times reported on May 1 that Beijing had held a closed-door meeting on April 22 with large domestic and foreign banks, such as HSBC. They discussed how to protect assets from U.S.-led sanctions similar to those imposed on Russia.

Andrew Collier, managing director of Orient Capital Research in Hong Kong, stated that it is advisable for Beijing to be concerned “because it has very few alternatives and the consequences [of U.S. financial sanctions] are disastrous.”

The Guardian reported on May 4 that China stepped up its preparedness for risks of Russia-style sanctions. It ordered major departments such as banking supervision and international trade to conduct a comprehensive “stress test.” It aims to simulate sweeping Russia-style sanctions on China’s economy and how China will respond.

In terms of payment method solutions, HKMA is considering launching a central bank digital currency, namely the e-HKD.

Yue said e-HKD aims to improve the efficiency of central bank payment systems. He added that it would help position Hong Kong for potential challenges from new forms of money.

However, he pointed out that the actual use of the e-HKD has yet to be reviewed in Hong Kong and that it may encounter many challenges and technical concerns.

Beijing has also developed its own digital currency electronic payment system, known as the digital yuan or e-CNY, since April 2020. The central bank stated that China is trying to completely replace physical cash with e-CNY in the future.

Asia Times presented the idea from Gong Liutang, a professor of applied economics at Peking University, that the launch of e-CNY could help cut transaction costs and stimulate China’s domestic consumption, as well as protect the nation’s financial security.

Nevertheless, many market analysts have commented that if Hong Kong or mainland China were prevented from using U.S. dollars, the e-HKD or e-CNY would be ineffective in stabilizing external commerce and international investment for both places.

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