In response to the withdrawal of Western banking services and growing Chinese influence in the Pacific region, Australia announces increased funding to support the banking systems of Pacific Island countries.
The Australian government will provide an additional A$6.3 million ($4.3 million) to develop secure digital identity infrastructure and improve compliance with anti-money laundering and anti-funding terrorism standards.
The announcement was made by Treasurer Jim Chalmers during the Pacific Banking Forum in Brisbane today, an event co-hosted by Australia and the United States. Chalmers stressed the urgency of the situation, saying the Pacific region risks becoming isolated from the global financial system, which could harm its ability to engage with the world.
Assistant Treasurer Stephen Jones highlighted on Monday that there has been a significant reduction in correspondent banking relationships in the Pacific region, particularly in US dollar-denominated services. Since 2011, the region has seen an 80% reduction in these relationships, which are vital to international trade and finance.
Western banks are withdrawing from the Pacific region, ending long-standing relationships and considering shutting down operations in an effort to reduce risks around compliance with financial regulations. This is making it harder for Pacific island countries to meet compliance standards, threatening their financial stability.
US Treasury Secretary Janet Yellen, who appeared at the forum on Monday, reiterated the United States’ commitment to supporting Pacific economic resilience, including by improving access to correspondent banking services.
The strategic moves by Western countries come at a time when China is actively seeking to increase its influence in the Pacific region. Notably, the Bank of China signed a deal to explore banking opportunities on Nauru following the withdrawal of Australia’s Bendigo Bank from the country. In light of these developments, Chalmers assured that Australia is working with Nauru to ensure it continues to have access to essential banking services.
Changes in the banking landscape were also marked by decisions by large banks such as ANZ Group to exit retail operations in Papua New Guinea. Westpac also considered selling its operations in Fiji and Papua New Guinea, but ultimately opted to retain its presence.
Australia’s additional funding is aimed at enhancing the financial resilience of Pacific Island countries, ensuring they remain connected to global financial networks despite current challenges.
Reuters contributed to this article.
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