SYDNEY and KUALA LUMPUR, June 14 (IPS) – U.S.-led sanctions are inadvertently eroding the dollar’s dominance after World War II. More and more countries are threatened by the actions of the United States and its allies, forcing victims and potential targets to respond proactively.
SWIFT’s Stronger Dollar
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) instant messaging system notifies users, both payers and payees, of payments being made. Thus, it allows for smooth and fast cross-border transfers.
Founded in 1973 and launched in 1977, SWIFT is headquartered in Belgium. It links 11,000 banks and financial institutions (BFIs) in over 200 countries. The system sends more than 40 million messages a day, as trillions of US dollars (USD) change hands worldwide.
Co-owned by more than 2,000 BFIs, it is operated by the National Bank of Belgium, along with the G-10 central banks of Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, UK and US. . Common ownership is supposed to avoid getting involved in geopolitical disputes.
Many parties use USD accounts to pay for dollar transactions. Otherwise, the banks of the importing and exporting countries will need accounts in each other’s currencies in their respective countries to make payments.
Abuse of SWIFT
Sanctions by the US and its allies – including the European Union (EU) against Russia and Belarus following their illegal invasion of Ukraine. Founded during the Cold War between the US and the Soviet Union, SWIFT remains under Western control. It is currently used to intercept payments for Russian agricultural and energy exports.
But besides blocking income flow, it inadvertently erodes USD dominance. As sanctions are increasingly imposed, such actions threaten others as well. Although intimidation can be effective, it is also Remind other actions.
This includes preparing for contingencies, for example, by entering into other payment arrangements. Such alternatives can ensure not only smoother cross-border financial transfers, but also safer ones.
As part of US-led sanctions against the Islamic Republic, EU has stopped SWIFT service to Iranian banks since 2012. This blocked foreign remittances to Iran until compromise was hacked in 2016.
America’s financial hegemon
Headquartered in Brussels, with a data center in the US, SWIFT is a ‘financial landscape‘ to monitor cross-border financial flows. About 95% of the world’s USD payments are settled through the private New York-based Clearing House Interbank Payment System (CHIPS), with 43 financial institutions involved.
About 40% Worldwide cross-border payments are denominated in USD. CHIPS settles US$1.8 trillion in claims daily. Since all CHIPS members maintain offices in the United States, they are subject to U.S. law regardless of headquarters location or ownership.
Thus, for almost two decades, CHIPS members such as BNP Paribas, Standard Chartered and others paid nearly 13 billion US dollars in fines for Iran-related sanctions violations under US law!
Exorbitant privileges
USD remains the currency of choice for international trade and foreign exchange reserves. Therefore, the United States has enjoyed a “exorbitant privileges“Since the Second World War” Bretton Woods Conference 1944 created a ‘dollar standard’ based on gold – set at US$35 for an ounce of gold.
With the USD still the international currency of choice, the U.S. Treasury Department can pay low interest rates on bonds that other countries hold as reserves. Therefore, it borrows cheaply to finance its deficit and debt. Thus, it can spend more, for example, on its military, while collecting less taxes.
Due to the popularity of the USD, the United States also benefits from seignioragenamely, the difference between the cost of printing dollar bills and their face value, i.e. the price one has to pay to obtain them.
In August 1971, President Nixon unilaterally ‘ends’ U.S. obligations under the Bretton Woods international monetary system, such as the exchange of gold for dollars, are under the agreement. After that, fixed The USD exchange rate of the old order – which determines the relative value of other currencies – has become flexible in the new’unsystematic‘.
Amid the uncertainty that followed, the US ‘convinced’ King Feisal of Saudi Arabia to ensure all oil and gas transactions were paid for in USD. As a result, OPEC’s 1974 ‘petroleum dollar’ agreement strengthened the dollar following the turmoil following the Nixon shock.
However, countries began to diversify their reserve portfolios, especially after the introduction of the euro in 1999. As a result, the share of USD in foreign currency reserves worldwide. decrease from 71% in 1999 to 59% in 2021.
With the more belligerent rhetoric of the United States, apprehensions about the dollar have grown more widespread. On April 20, 2022, Israel – a staunch US ally – decision to diversify its reserves, replacing part of the dollar’s share with the currencies of other major trading partners, including the Chinese renminbi.
Punishment reaction
The EU’s decision to ban Iranian banks from participating in SWIFT has spurred China to develop a Cross-Border Interbank Payment System (CIPS). Operating since 2015, CIPS is administered by China’s central bank. By 2021, CIPS has 80 financial institutions as a member, including 23 Russian banks.
At the end of 2021, Organized by Russia nearly a third of the world’s renminbi reserves. Some see recent Russian sanctions as a turning pointas those not entrenched in the US camp now have more reasons to consider using other currencies instead.
After all, before seizing about 300 billion USD of Russian assets, the US confiscated about 9.5 billion US dollars in the reserves of Afghanistan and 342 million US dollars Venezuelan property.
Threatened with exclusion from SWIFT after the 2014 Crimea crisis, Russia developed its own SPFS (Financial Notice Transfer System) messaging system. Launched in 2017, SPFS uses the same technology as SWIFT and CIPS.
Both CIPS and SPFS are still evolving, serving mostly domestic BFIs. By April 2022, most Russian banks and 52 foreign institutions from 12 countries had access to SPFS. Ongoing developments may accelerate their progress or consolidation.
National Payments Corporation of India (NPCI) has its own domestic payment system, RuPay. It clears millions of daily transactions between domestic BFIs and can be used for cross-border transactions.
Sanctions cut both ways
It is not surprising that countries that are not allied with the United States want to change the system. After the 2008-9 global financial crisis, the head of China’s central bank called for a “one international reserve currency disconnected from individual countries“.
Meanwhile, China’s USD assets have decreased from 79% in 2005 to 58% in 2014, will probably drop further since then. More recently, China’s central bank has been gradually expanding the use of digital yuan or yuan, e-CNY.
With more than 260 million usersIts application is now ‘The technique is ready‘for cross-border use as there is no need for Western banks to transfer money across borders. Such payments for imports from China by e-CNY will bypass SWIFT and CHIPS will not need to delete them.
Russia has long complained about America’s abuse of dollar hegemony. Moscow has attempted to ‘de-dollarize’ by avoiding the use of USD in trade with other BRICS – i.e. Brazil, India, China and South Africa – and in National Wealth Fund holdings their.
Last year, Vladimir Putin warned America is biting its hand to feed it, by undermining confidence in the US-centered system. “The United States has made a big mistake in using the dollar as a tool of sanctions,” he warned.
The range supervision of US financial payments and payments in USD will decrease, though not immediately. As a result, Western sanctions inadvertently accelerated the erosion of American financial hegemony.
In addition to the worsening trend of stagnant inflation, such actions have prompted its objectives – present and future – to take defensive measures first, but the consequences are unknown.
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© Inter Press Service (2022) – All rights reservedOrigin: Inter Press Service
