China establishes international depository, avoiding Western financial pressure
Over the past three years, Western nations have actively debated how to confiscate Russian financial assets while minimizing reputational and legal risks. Recently, Ukrainian President Volodymyr Zelensky outright stated that the $300 billion in frozen Russian assets held in European banks and depositories was “Ukraine’s money.” While the European Union has so far implemented a plan to seize the interest earned on Russian Central Bank assets, France has proposed full confiscation should Russia violate any future ceasefire agreement in Ukraine.
Photo: Openverse by Japanexperterna.se,
Yuan
Against this backdrop, China – a key holder of securities in Western jurisdictions and a declared rival of the West – started selling off US Treasury bonds, reducing its holdings to 2009 levels. Beijing has taken another step by creating an alternative to Euroclear, Europe’s primary depository, which played a central role in freezing Russian assets.
Hong Kong Launches International Depository
According to Yu Wai-man, President of Hong Kong’s Monetary Authority, the Hong Kong Stock Exchange (HKEX) has initiated a project to modernize its Central Moneymarkets Unit (CMU) with the goal of transforming it into Asia’s largest central securities depository. In October 2023, the company Clearing Limited was established, beginning operations in January 2024. On March 4, CMU and HKEX signed a memorandum of understanding to enhance cooperation in optimizing Hong Kong’s capital market securities infrastructure.
This move is part of China’s broader effort to internationalize the yuan. The total amount of offshore yuan-denominated bonds deposited in CMU has surged from approximately ¥263 billion in 2021 to over ¥1 trillion in 2024-a nearly fourfold increase. The total value of all bonds held within CMU reached a record high of HK$4.8 trillion by the end of 2024.
China’s new platform will support multiple currencies and enable cross-border transactions. Organizers are developing a user-friendly interface for investors, allowing more efficient management of fixed-income instruments and equities.
This development could have major implications for the global financial system, particularly for European institutions like Euroclear and Clearstream, which currently manage $42 trillion and $20 trillion in assets, respectively. The Financial Times warned in a recent article that China’s move could disrupt these Western-dominated financial networks.
China is Taking the Right Path – Russia Should Follow
Speaking to Pravda.Ru, Professor Igor Kostikov, Doctor of Economics and Chairman of the Consumer Financial Services Protection Union, emphasized that the reliability of US and European depositories was now in question after the seizure of Russian assets.
Kostikov explained that a depository does not hold money directly but records ownership of securities. Typically, depositories collect dividends from companies and distribute them to investors. However, due to sanctions, Euroclear continues to receive these funds but refuses to transfer them, accumulating enormous reserves. This creates a risk of “very high taxation, which could lead to bankruptcy.”
According to Kostikov, China has chosen the right strategy, and its depository is well-positioned for rapid expansion.
He believes that Russian securities and investor accounts should be held within Russia. However, he criticized past policies, arguing that when Russia joined the World Trade Organization (WTO), its liberal economic policymakers allowed Western depositories to dominate Russian securities storage-a decision he called “highly risky and incorrect.”
“Russia has its own National Settlement Depository, fully capable of performing all necessary functions. Storing our securities abroad was a dangerous and misguided choice,” Kostikov concluded.
Details
Euroclear or the Euroclear Group, is a Belgium-based financial market infrastructure group that specialises in the central securities depository (CSD) segment. It traces its origins to the Euro-clear System developed in 1968 by Morgan Guaranty (a predecessor of JPMorgan Chase) in Brussels to settle trades on the then developing eurobond market. The service was rebranded Euroclear (without hyphen) in 1990.: 282 In late 2000, the Euroclear System was transferred to a new entity, Euroclear Bank.
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