Australia has committed additional funding to support banking services in the Pacific region as part of an effort to counter China’s growing influence. Treasurer Jim Chalmers emphasized the importance of financial stability and accessibility in the Pacific during a press briefing. The increased funding aims to bolster financial institutions across Pacific Island nations, enabling them to provide better services and foster economic growth.
This move is also seen as a strategic effort to strengthen ties with Pacific nations amidst increasing Chinese investment in the region. The new funding initiative is part of a broader strategy by the Australian government to enhance economic partnerships and ensure long-term stability in the Pacific. This comes in the wake of heightened geopolitical tensions and strategic competition, particularly with China’s Belt and Road Initiative making significant inroads in the Pacific.
Australia’s commitment includes not only financial assistance but also capacity-building initiatives to improve the regulatory framework and financial infrastructure in these nations. This multi-faceted approach aims to create a sustainable and resilient banking environment that can support ongoing development efforts. The announcement follows a series of financial and diplomatic engagements between Australia and Pacific Island countries, underscoring the importance of regional cooperation.
Australian officials continue to highlight the shared interests and values that underpin their relationships with Pacific nations. The United States is also committed to strengthening financial connectivity, investment, and integration in the Pacific region, according to a senior U.S. Treasury official at a Pacific Banking meeting in Brisbane. The event saw financial institutions and government officials gather to devise strategies to enhance the region’s banking systems.
Pacific Island countries are grappling with challenges as major banks terminate long-term relationships with local Pacific banks, which limits access to U.S. dollar-denominated bank accounts. This trend, known as de-risking to meet financial regulations, undermines the financial resilience of these countries.
Additional funding for Pacific banks
U.S. Treasury Secretary Janet Yellen emphasized America’s focus on bolstering the Pacific region’s economic resilience, including enhancing access to correspondent banks. “The United States is committed to an Indo-Pacific that is free and open, connected, prosperous, secure, and resilient. A strong and connected Pacific region benefits the United States and the global economy,” she said.
Treasurer Jim Chalmers is urging Australia’s largest banks to keep their branches open in the Pacific region to counteract China’s expanding influence. Chalmers emphasized that a sustained Australian banking presence is crucial for the safety, security, and economic development of Pacific Island nations. A two-day Pacific Banking Forum is currently taking place to explore how Australian banking services can remain active in Pacific Island countries amid rising Chinese state-run banking activities.
China’s banking system has already established a foothold in Papua New Guinea’s capital, Port Moresby, and there are worries that this influence could expand further if Australian banks continue to reduce their operations. Chalmers is set to announce a $6.3 million initiative aimed at incentivizing Australian banks to maintain their operations in the Pacific. Nearly half of this funding will support the development of secure digital identity infrastructure through the World Bank.
The remaining funds will be directed toward enhancing anti-money laundering and counter-terrorism compliance, as well as aiding criminal justice law enforcement efforts. The problem of bank closures is not limited to the Pacific. A Senate committee inquiry revealed that nearly 800 bank branches in regional and rural areas of Australia closed between June 2017 and June 2023.
The inquiry concluded that the existing model of banking industry self-regulation has failed to protect regional Australia effectively. Maintaining local banking services is not only vital for financial transactions but also for the social and economic well-being of these communities.
