The Weaponization of the American Dollar
by John Lawrence, June 24, 2019
Imagine if you had the power to tell your friends what they could buy, where they could buy it, with whom they could do business and with whom they could not do business. That's the power that the US has over other countries, businesses and individuals. It can tell businesses in other countries who they can sell their products to and from whom they can buy needed materials even though those transactions have nothing to do with the United States. It can tell a Chinese company not to sell its products to Iran, and, if it does, it will be hit with enormous fines. Such was the case when the Chinese telecommunications company, ZTE, sold its phones to North Korea. ZTE was hit hard by the inability to buy essential components from suppliers because of sanctions for trading with North Korea and Iran. In these cases, the entity was not in violation of laws where it was domiciled or operated, and the proscribed acts took place outside the US.
That's right. The US is the dictator of the world when it comes to telling the rest of the world who it can do business with. This is the result of sanctions. Sanctions work because every business transaction worldwide has to be processed through SWIFT, the Society for Worldwide Interbank Financial Telecommunications. This system enables financial institutions to send and receive information about financial transactions in a secure, standardized environment. Since the dollar serves as the world's reserve currency, SWIFT facilitates the international dollar system. Obviously, the US controls SWIFT. It is not an independent international institution. The US can impose primary sanctions on any country or entity within a country, and it can impose secondary sanctions even on its allies by telling them they can not do business with that country or entity.
Recently, since Trump dropped out of the nuclear deal with Iran, the US has been imposing sanction after sanction on Iran which has had the effect of ruining that country's economy. Then it has ordered its allies not to do any business with Iran. This amounts to economic warfare, and the US stands all too ready to back up economic warfare with its gargantuan and unparalleled military warfare apparatus. So the US, especially under Trump, is becoming the world's bully even going so far as to sanction companies that it can't outcompete with on a level playing field. Such is the case with Huawei, the Chinese telecommunications giant.
Huawei buys many of its components from the US. Trump has threatened to stop those transactions thus ruining Huawei's business. The Trump administration has decided to add Huawei and about 70 affiliates to its so-called “Entity List," which precludes the company from acquiring equipment from U.S. firms without government approval. It’s the latest broadside to the Shenzen-based company, which U.S. officials have said represents a security threat because of its ties to the Chinese government. Huawei has denied those allegations. So the message is clear. If a US company cannot outcompete a Chinese company, it can screw up its business model and outcompete them that way.
The Foundation for Economic Education reported:
A number of countries, including China, Russia, and Iran, have taken steps to limit their dependence on the dollar and have even been working to establish alternative payment systems. A growing number of central banks have been buying gold as a way to diversify their holdings away from the greenback. It comes as no surprise that countries on shaky ground with the U.S. would take such measures, but even traditional U.S. allies have grown weary of American economic bullying.
On Sept. 24, the E.U. announced its plans to create a special payment channel to circumvent U.S. economic sanctions and facilitate trade with Iran. E.U. foreign policy chief Federica Mogherini made the announcement after a meeting with foreign ministers from Britain, France, Germany, Russia, China, and Iran. She said the new payment channel would allow companies to preserve oil and other business deals with Iran:
In practical terms, this will mean that E.U. member states will set up a legal entity to facilitate legitimate financial transactions with Iran and this will allow European companies to continue to trade with Iran in accordance with European Union law and could be open to other partners in the world.
The plan comes in response to Donald Trump’s decision to withdraw from the Iran nuclear deal. The E.U., Russia, and China released a joint statement saying the “Special Purpose Vehicle” will “assist and reassure economic operators pursuing legitimate business with Iran.” The statement also said the signatories to the Iran deal “reconfirmed their commitment to its full and effective implementation in good faith and in a constructive atmosphere.”
The Special Purpose Vehicle will serve as a clearinghouse for transactions with Iran. An Al Jazeera reporter explained it this way:
If the Italians want to buy some Iranian oil, they will wire the money to this entity which will then handle the financial transactions from there and vice versa. There will be no involvement of commercial banks and central banks, both of whom are terrified at the prospect of US retribution if they are seen to be going against US sanctions.
Rodger Shanahan, a research fellow at the Lowry Institute for International Policy, called the plan “a poke in the eye for the U.S.”
However, although alternative institutions may make financial transactions outside the US banking system possible because they can't be blocked by a US controlled institution, it does not relieve the countries which engage in such transactions from being sanctioned in other ways. Just because a US bank doesn't block the transaction doesn't mean that the US will not find a way to use sanctions to bestow economic hardship on a country. Only when countries are independent of the US dollar as the world's reserve currency will they be free to conduct business with whomever they choose without the threat of economic retaliation from the US.
