China and the United States should further cooperate and communicate with each other for the sake of their own interests and the global development, particularly after the two countries' leaders met in San Francisco last month.

The US has a series of advantages in finance. For example, it has a highly developed financial market, a large bond market and holds a leading position in the derivatives market. The country monopolizes the global financial infrastructure, dominates major international financial institutions and enjoys the dollar status.

Some US senators introduced an act to sanction Chinese financial institutions that conduct transactions with any Russian financial institution using financial messaging systems other than the SWIFT (such as China's Cross-border Interbank Payment System and Russia's SPFS network).

The US also tries to constrain the development of the renminbi. It has said explicitly that China cannot get advantage in digital currency and tried to hinder the regional development of the renminbi and the US introduced the Say No To the Silk Road Act last year.

Some bills may not be passed. But it's time for US politicians to change their mindset on the US' finance competition with China.

For those politicians, the US attempts to take its financial advantages to build a new economic ecosystem and launch a long-term competition with China. In particular, the US tries its best to constrain China's promotion of the internationalization of the renminbi, which could shake the US dollar system, so as to prevent China from rising from an industrial system to a financial system that can compete with that of the US.

Digital currencies and payment tools provide faster payment methods, more diversified and speculative investment portfolios. An increasing number of people used digital currency transactions and settlements to replace traditional cash transactions during the COVID-19 pandemic. The convenient cross-border payments made possible through decentralized virtual currency and sovereign central bank digital currency have more or less affected the US' dollar-dominated payment system.

Some strategists in the US believe that if China relies on the digital renminbi to build a large-scale cross-border payment system that becomes the preferred transfer system between banks, it will weaken the share of US dollar-denominated international trade and capital flows and impact the widespread use of the US dollar in international transactions.

As such, the US is intensifying the international financial competition with China. However, if the US insists on doing so, financial friction between the two sides will be more lethal than the trade friction, and violent fluctuations in the financial market will bring systemic financial risks.

For China, the intensified international financial competition will increase the risk of disruption to its internal and external economic environment. The country is facing a strategic squeeze that goes beyond the traditional financial scope and a more challenging external economic environment.

It is already becoming increasingly difficult for Chinese enterprises to obtain long-term stimulation and financial support in the US-dominated market, increasing the risks and costs of overseas development. Worse, because of the US' actions, developed countries only want to maintain trade relations with China, rather than strengthen their financial and political ties with it.

Even the US will face multiple risks in an adjusted financial system. The cross-border allocation of capital, international payment systems and asset prices of the US financial institutions will be affected if the US pushes financial decoupling.

The operating costs of the US financial institutions will be increased due to greater regulatory burdens, making some of their cross-border operations more complex than those of other countries. If Europe and other developed economies do not take similar measures, the US' financial institutions will be at a disadvantage and may later choose to move some of their businesses and assets out of US jurisdictions to avoid being regulated. Hence, the funding cost of US banks will increase, profitability will decline and they will provide less credit to the private sector.

From a global perspective, financial fragmentation may increase macro-financial volatility in the long run. The long-term evolution of the international financial system is inevitable because it needs to better reflect the economic weight of emerging countries. If the US forcibly tries to reverse the trend, it will exacerbate capital flows and increase macro-financial volatility.

The impact of financial turmoil on emerging markets and developing economies is significantly greater than that on developed economies. The stress in financial market complicates the tasks of emerging economies' central banks, which need to ensure financial stability and price stability against the background of global high inflation and tough financial conditions. That in turn may lead to more complex risks to macro-financial stability.

The author is an associate researcher at the Institute of American Studies at the China Institutes of Contemporary International Relations.

The views don't necessarily reflect those of China Daily.

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