![]() On 20 April 2022, Israel – a staunch US ally – decided to diversify its reserves, replacing part of its USD share with other major trading partners’ currencies, including China’s renminbi. With US rhetoric more belligerent, dollar apprehension has been spreading. Thus, the USD share of foreign currency reserves worldwide declined from 71% in 1999 to 59% in 2021. Nevertheless, countries began diversifying their reserve portfolios, especially after the euro’s launch in 1999. Thus, OPEC’s 1974 ‘petrodollar’ deal strengthened the USD following the uncertainties after the Nixon shock. In the ensuing uncertainty, the US ‘persuaded’ Saudi King Feisal to ensure all oil and gas transactions are settled in USD. Soon, the fixed USD exchange rates of the old order – determining other currencies’ relative values – became flexible in the new ‘non-system’. In August 1971, President Nixon unilaterally ‘ended’ US obligations under the Bretton Woods international monetary system, e.g., to redeem gold for USD, as agreed. Hence, it is able to spend more, e.g., on its military, while collecting less taxes.ĭue to USD popularity, the US also profits from seigniorage, namely, the difference between the cost of printing dollar notes and their face value, i.e., the price one pays to obtain them. It thus borrows cheaply to finance deficits and debt. With the USD remaining the international currency of choice, the US Treasury could pay low interest rates for bonds that other countries hold as reserves. Hence, the US has enjoyed an “exorbitant privilege” since World War Two after the 1944 Bretton Woods conference created the gold-based ‘dollar standard’ – set at US$35 for an ounce of gold. The USD remains the currency of choice for international trade and foreign reserve holdings. Hence, over nearly two decades, CHIPS members like BNP Paribas, Standard Chartered and others have paid nearly US$13 billion in fines for Iran-related sanctions violations under US law! ![]() As all CHIPS members maintain US offices, they are subject to US law regardless of headquarters location or ownership. CHIPS settles US$1.8 trillion in claims daily. About 95% of world USD payments are settled through the private New York-based Clearing House Interbank Payments System (CHIPS), involving 43 financial institutions.Ībout 40% of worldwide cross-border payments are in USD. This blocked foreign funds transfers to Iran until a compromise was struck in 2016.īased in Brussels, with a data centre in the US, SWIFT is a ‘financial panopticon’ for surveillance of cross-border financial flows. Such alternatives may ensure not only smoother, but also more secure cross-border financial transfers.Īs part of US-led sanctions against the Islamic Republic, the EU stopped SWIFT services to Iranian banks from 2012. This includes preparing for contingencies, e.g., by joining other payments arrangements. While intimidation may work, it also prompts other actions. As sanctions are increasingly imposed, such actions intimidate others as well. It is now used to block payments for Russian energy and agriculture exports.īut besides stopping income flows, it inadvertently erodes USD dominance. Created during the US-Soviet Cold War, SWIFT remains firmly under Western control. US and allied – including European Union (EU) – sanctions against Russia and Belarus followed their illegal invasion of Ukraine. Otherwise, banks of importing and exporting countries would need accounts in each other’s currencies in their respective countries in order to settle payments. Many parties use USD accounts to settle dollar-denominated transactions. Joint ownership was supposed to avoid involvement in geopolitical disputes. ![]() The system sends over 40 million messages daily, as trillions of US dollars (USD) change hands worldwide.Ĭo-owned by more than 2,000 BFIs, it is run by the National Bank of Belgium, together with the G-10 central banks of Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the UK and the US. ![]() ![]() It links 11,000 banks and financial institutions (BFIs) in more than 200 countries. Thus, it enables the smooth and rapid transfer of funds across borders.Ĭreated in 1973, and launched in 1977, SWIFT is headquartered in Belgium. The instant messaging system of the Society for Worldwide Interbank Financial Telecommunication (SWIFT) informs users, both payers and payees, of payments made. The growing number of countries threatened by US and allied actions is forcing victims and potential targets to respond pro-actively. US-led sanctions are inadvertently undermining the dollar’s post-Second World War dominance.
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