America’s control of US dollar international settlements is a potent weapon. For financial institutions, exclusion from that system would be crippling, possibly fatal. The mere threat is generally sufficient to bring transgressors into line.
The issue hit the headlines recently when BNP Paribas reached an “agreement” with US authorities. As punishment for having violated US sanctions against doing business with various nations including Cuba, Iran and Sudan, BNP will pay a fine of $8.97 billion, cop a guilty plea on various charges and be partially excluded for one year from conducting US dollar transactions.
Each use of this power increases the incentives for other countries and institutions to build effective alternative settlement systems. Given the U.S. dollar’s continuing ubiquity, that may be a long time coming. Still, because it’s the first time a major international bank has been so squarely in the crosshairs this latest case definitely raises the stakes:
Euro zone finance ministers will discuss on Monday ways to bolster the use of the euro in international trade in the aftermath of BNP’s record U.S. fine, France’s finance minister said, adding that other banks could face the same fate as BNP. [ . . .]
He did not give any details on what would be discussed or what could be done to promote the euro.
“It would be a way to protect businesses when, outside of U.S. territory, they carry out transactions that are perfectly legal in the country they belong to,” he said.
America’s willingness to run down its bank of international goodwill on sundry questionable crusades is remarkable. They’re certainly not playing a long game.
BNP Paribas’s record fine highlights double-edged sword for US
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