Asia takes step to move away from US dollar?

Asia’s largest economies made a decision that could signal a shift away from the US dollar on Sunday, as they approved a new rapid financing mechanism that will for the first time use regional currencies including the Chinese yuan.

The new scheme has been rapidly approved as countries across East and Southeast Asia look to shield themselves from the financial volatility unleashed by US President Donald Trump’s global tariff war, which has triggered turbulence in the US Treasuries market and an Asian currency rally in recent days.

It may also herald a deeper, longer-term shift towards a regional monetary mechanism that is less reliant on the dollar – and gives China a bigger role.

In this explainer, the South China Morning Post breaks down the details of the new financing mechanism, and what it means for the future of Asia and the dollar-based global financial system.

What is behind this decision?

The new rapid financing mechanism is part of a broader scheme known as the Chiang Mai Initiative Multilateralization (CMIM) – a currency swap arrangement among the 10-member Association of Southeast Asian Nations (Asean), China, Japan and South Korean.

The CMIM has its origins in the aftermath of the Asian Financial Crisis of the 1990s. It is designed to prevent a repeat of that crisis by providing emergency help to countries facing balance-of-payments issues and short-term liquidity difficulties.

The 13 member countries – collectively known as Asean+3 – first began setting up a network of bilateral currency swap arrangements in 2000, then the scheme expanded and evolved into the CMIM a decade later.

The lending capacity of the CMIM has since risen the US$240 billion, with Japan and China each contributing US$76.8 billion, South Korea US$38.4 billion and the 10 Asean countries a combined US$48 billion, according to the Asean+3 Macroeconomic Research Office.

To date, none of the member countries have ever requested CMIM funding.

What was decided on Sunday?

During a meeting of finance ministers and central bank governors from the Asean+3 nations in Milan, Italy, on Sunday, the attendees approved a new tool for providing swift financial help to economies facing urgent balance-of-payments issues called the CMIM Rapid Financing Facility.

Unlike previous mechanisms, which relied on the US dollar, the new facility will use the Chinese yuan and other regional currencies.

The yuan had been approved for use as a transaction currency in the CMIM pool just weeks earlier, during a meeting of the Asean+3 deputy finance ministers and central bank governors in April.

A joint statement released at the Milan meeting noted that the new facility was designed to “enhance regional resilience by offering members timely access to emergency financing during urgent balance of payments needs, in response to sudden exogenous shocks such as pandemics and natural disasters”.

In a press release published on Monday, China’s central bank governor Pan Gongsheng hailed the move as “a breakthrough in diversifying the international monetary system in the region” amid a period of global uncertainty.

In Milan, the financial officials also agreed to explore further improvements to the CMIM in line with the International Monetary Fund framework – a move seen as a step towards institutionalizing the initiative and making it more effective.

What it means for the US dollar?

“Yuan’s inclusion in the CMIM system reflects growing acceptance of the currency on the global stage and marks a step forward in its internationalization,” said Ding Shuang, chief Greater China economist at Standard Chartered Bank.

The move comes as Beijing accelerates its efforts to expand the yuan’s global influence by encouraging the use of the Chinese currency in trade settlement, commodity pricing and foreign exchange reserves.

Chinese authorities have also tried to boost cross-border use of its digital yuan through Project mBridge, a scheme launched in collaboration with the central banks of Hong Kong, Thailand, Saudi Arabia and the United Arab Emirates.

Ding, however, noted that the significance of the yuan’s inclusion in the CMIM was mainly symbolic, given that the mechanism has never before been activated and the member countries already had sufficient foreign exchange reserves.

“At this stage, the inclusion of the yuan is more of a structural move, and we will only see the actual impact when the CMIM funding pool is truly activated,” said Ding.

 

Saudi Arabia denounces Israeli move to occupy Gaza

The Ministry of Foreign Affairs expressed Saudi Arabia’s categorical rejection of the Israeli occupation authorities’ announcement regarding their incursion into and control of the Gaza Strip and Palestinian territories.

The ministry also strongly condemned the continued Israeli violations of international law and international humanitarian law.

Saudi Arabia reaffirmed its firm stance against any attempts to expand Israeli settlements in the occupied Palestinian territories and stressed the importance of holding the occupation authorities accountable to implement international resolutions.

The ministry reiterated Saudi Arabia's unwavering support for the Palestinian cause, in line with international legitimacy, the Arab Peace Initiative, and the establishment of an independent Palestinian state on the 1967 borders, with east Jerusalem as its capital.

Oman mediates US-Yemen ceasefire

In a statement late on Tuesday night, Oman announced it had conducted “recent discussions and contacts” with the United States and “relevant authorities” in the Ansarallah-controlled Yemen. The “efforts have resulted in a ceasefire agreement between the two sides,” it said, Al Jazeera reported.

“In the future neither will target the other, including American vessels, in the Red Sea and Bab al-Mandab Strait, ensuring freedom of navigation and smooth flow of international commercial shipping,” the statement said.

US Present Donald said, “The Houthis have announced that they don’t want to fight any more.”

“They just don’t want to fight. And we will honor that, and we will – we will stop the bombings, and they have capitulated, but more importantly, we will take their word. They say they will not be blowing up ships anymore,” he said.

“We just found out about that. So I think that’s very, very positive. … I will accept their word, and we are going to stop the bombing of the booties, effective immediately,” he said.

Trump also said he’ll make a major announcement before his trip to the Middle East either on Thursday or Friday.

“It’ll be one of the most important announcements that have been made in many years about a certain subject, very important subject,” he said at the White House. He did not elaborate.

Trump is to visit Saudi Arabia, Qatar and the United Arab Emirates starting on May 13.

 

India strikes Pakistan

According to Reuters, India attacked Pakistan and Pakistani Kashmir on Wednesday. Pakistan said it had shot down five Indian fighter jets in the worst fighting in more than two decades between the nuclear-armed enemies.

India said it struck nine Pakistani "terrorist infrastructure" sites, some of them linked to an attack by Islamist militants on Hindu tourists that killed 26 people in Indian Kashmir last month. Islamabad said six Pakistani locations were targeted, killing eight people.

Indian forces attacked the headquarters of Islamist militant groups Jaish-e-Mohammed and Lashkar-e-Taiba, an Indian defence source told Reuters.

"India has demonstrated considerable restraint in selection of targets and method of execution," the Indian defence ministry said in a statement.

Pakistan said Indian missiles hit three sites and a military spokesperson told Reuters five Indian aircraft had been shot down, a claim not confirmed by India.

"All of these engagements have been done as a defensive measure," military spokesperson Ahmed Sharif Chaudhry said. "Pakistan remains a very responsible state. However, we will take all the steps necessary for defending the honour, integrity and sovereignty of Pakistan, at all cost."

 

Israel approves Gaza “conquest” plan

Israel’s security cabinet has voted to expand military operations in Gaza that can be described “conquest” of enclave. The vote came hours after the military said it would mobilize tens of thousands of reservists, strengthening its capacity to operate in the besieged Palestinian territory.

The new plan for Israel’s war in Gaza involves “the conquest of territory and remaining there.” The Israeli military will displace the Palestinian population to southern Gaza while carrying out “powerful strikes” against Hamas.

Over 2,400 Palestinians have been killed in Gaza since mid-March when Israel launched a wave of deadly strikes, shattering a ceasefire which had been in place for nearly two months. More than 52,000 Palestinians have been killed in Gaza since the war began.

The expansion of the fighting will be gradual to give a chance for a renewed ceasefire and hostage release deal before US President Donald Trump’s visit to the region in mid-May. Trump is scheduled to visit Saudi Arabia, the UAE, and Qatar next week.

The cabinet also discussed allowing the resumption of aid deliveries into Gaza under a new framework which was approved, but has not yet been implemented. An Israeli blockade of all humanitarian aid into the strip is now in its ninth week.

Israel’s public broadcaster, Kan 11, reported that a confrontation had broken out during Sunday’s meeting over the resumption of aid deliveries with two far-right members of the cabinet, National Security Minister Itamar Ben Gvir and settlements minister Orit Strook opposed to any resumption of aid and Israel Defense Forces (IDF) Chief of Staff Lt. Gen. Eyal Zamir arguing Israel was obligated to facilitate them under international law.

The Israeli media reports about the arguments over the aid “are not wrong.”

Israel says it cut off the entry of humanitarian aid to pressure Hamas to release hostages. But international organizations say its actions violate international law and risks creating a man-made famine, with some accusing Israel of using starvation as a weapon of war – a war crime.

The US and Israeli officials are discussing a mechanism to deliver aid to Gaza that bypasses Hamas. An announcement could be made “in the coming days.”

The delivery mechanism in the works is intended to allow aid to reach the Palestinian population with safeguards to ensure it is not diverted by Hamas or Islamic Jihad.

An unnamed private foundation would manage the aid mechanism and the delivery of humanitarian supplies into Gaza.

The US expects the United Nations and international aid organizations to work with the framework of the foundation’s mechanism to ensure that supplies do not reach Hamas.

Aid agencies working in the occupied Palestinian territory rejected the new framework for aid deliveries Sunday saying the plan appeared “designed to reinforce control over life-sustaining items” and would fail to ensure aid reached Gaza’s most vulnerable residents.

The UN Secretary-General and the Emergency Relief Coordinator have made clear that they will not participate in any scheme that does not adhere to the global humanitarian principles of humanity, impartiality, independence and neutrality.

Pakistan: SBP lowers interest rate by 100bps

After keeping the rates unchanged in March’s monetary policy, the State Bank of Pakistan (SBP) has cut the policy rate by 100bps to 11.0%. The policy rate has halved in less than a year, down from 22.0% in June 2024. Intermarket Securities believes the key reasons behind the rate cut are:

Headline CPI coming off to multi-decade low in April, with core inflation dipping to 8.0%YoY, resulting in an improved inflation outlook. 

Weak LSM readings feeding into anemic GDP growth of just 1.5%YoY in 1HFY25 (FY25 GDP growth is projected to be sluggish between 2.5% to 3.5%. The shortfall in tax collection has also widened.

Much talked about buildup in foreign exchange reserves to US$14 billion by June 2025, together with expected continued reserves buildup in FY26 even if the current account slips back into a modest deficit. 

Outlook for softer global growth, backed by recent IMF estimate downgrades and sharply lower oil prices.  

The brokerage house believes equities should find something to cheer after the rate cut, having suffered a difficult April, KSE-100 index shed 5.5% on Pakistan-India tensions. That said, given the pace of monetary easing in the previous twelve months, the brokerage house believes the SBP is likely to take a more cautious approach going forward.

With macroeconomic stabilization having been achieved, fiscal reforms remain important for lengthening the economic cycle. The coming Budget, expected in early June, will be a key checkpoint in this respect.

The brokerage house continues to remain positive on Pakistan equities. Its base-case KSE-100 Index target for end December 2025 is 130,000 points.

 

 

Israel calls up reservists as Gaza offensive escalates

The Israeli army is issuing call-up orders to tens of thousands of reservists as it prepares to expand its military operations in the Gaza Strip, further intensifying an already devastating conflict, reports Saudi Gazette.

The military said the reservists would begin reporting for duty in the coming week, without specifying the scale or focus of the planned escalation.

The decision comes as the humanitarian situation in Gaza continues to deteriorate. Israel has barred the entry of aid, medicine, food, and commercial goods into the enclave since March 02, worsening conditions for the civilian population.

According to Palestinian health authorities, nearly 52,500 people — the majority women and children — have been killed in Israeli attacks on Gaza since the war began in October 2023.

Israel is currently facing multiple international legal proceedings over its actions in Gaza. The International Criminal Court issued arrest warrants in November last year for Prime Minister Benjamin Netanyahu and former Defense Minister Yoav Gallant for alleged war crimes and crimes against humanity. The country is also on trial at the International Court of Justice in a genocide case brought by South Africa.