China's Trump Card

Chapter 6Cryptocurrency and the People's Money

6.1 Deglobalization in the Digital Time

A key feature of the postwar globalization has been the booming of international finance. Not only have we seen booming payment flows on the back of growing trade financing but also a surge of the capital mobility induced by portfolio investments. Multinational corporations (MNCs) and financial institutions are managing their balance sheets globally. They can profit from carry trades that involve borrowing low-cost currency for high-yield investments, resulting in surging financial activities. Financial institutions are active in settling payment flows associated with their activities in debt and equity capital market, FX, and interest rate hedging as well as securities trading. The global might of cross-border finance distinguishes the contemporary version of globalization from that of the nineteenth century.

The world has been following the doctrine of international capital mobility for a few decades. As the Vatican of the international monetary system, the IMF has been pressing many economies to liberalize their capital and financial accounts. As an accomplice, the WTO has been promoting market access of financial institutions in other countries. US banks with access to US dollar liquidity were riding the tide of globalization. The ability to convert local currency into US dollar became the passport for participating in globalization. The New York Fed provided custodian services for many ...