The EU must undertake with the BRICS with Japan an initiative to limit the exorbitant power of the Unites States derived from
“Weaponizing” the Dollar!

The unilateral exercise of power is a temptation for any public or private entity who can get away with it! For the United States, the possibility goes back to the end of WWII, though it has been utilized with more or less restraint by successive Presidents corresponding to their assessment of the country’s best interests.

After having been sole power to master the use of nuclear power at the end of the conflict, its progressive proliferation led the United States to enter into a series of international treaties aimed at forbidding its military use and limiting its civilian applications thus avoiding the specter of assured mutual annihilation in the event of war.

The overwhelming dominance of the USD as the currency of choice in settling cross border payments also goes back to 1945 following the disappearance of the British Empire and the related weakening of Sterling as a reserve and payment currency; this shift was illustrated by Treasury Secretary’s John Connolly’s famous quip “the dollar is our currency and your problem!”.

The introduction of the Single Currency in1999 raised, momentarily, hopes that the € would gradually establish itself as a credible alternative to the USD as both a reserve and ordinary international transaction currency. After its perfectly executed launch, and a progressively increase in the use of the €, the trend stabilized and then reversed when it appeared clear that the momentum under the further integration of the Eurozone had stalled and that the Sovereign debt crisis of 2010 instilled the fear –still potent today – that the sustainability of the Single Currency was not assured.

During Obama’s presidency, the administration made use of the monetary weapon in inflicting severe penalties on foreign institutions that violated American law, even when the transaction was between two nonresident parties; the mere fact of “transferring” dollars – a transaction that must necessarily be settled in the USA and therefore falls under its jurisdiction – was sufficient justification to sanction and cow the implicated financial institutions under the threat of being barred from the US market, which was vital to their survival.

Realizing that the power of the USA was being threatened by other world powers, in particular China, and having vowed to “Make America great again”, President Trump discovered in his arsenal of weapons of mass destruction the USD which he alone possessed. He did not hesitate a single moment to use it, specifically in the Iranian controversy surrounding the unilateral withdrawal of the USA from the nuclear accord and the imposition of new sanctions including barring offenders of accessing the US market: thus corporations such as TOTAL, Airbus, Peugeot and Volkswagen cancelled both commercial and investment contracts, despite an attempt by the EU to offer its enterprises legal protection in the – probably in vain – to save the nuclear accord.

To this particular conflict one must add the commercial warfare initiated by Trump with both the USA’s traditional allies (the EU, Japan, Canada, Turkey, etc.) and third party countries (Russia, China, Mexico, etc.). It is within this context that one must evaluate the proposals outlined in the Handelsblatt by the German Minister of Foreign Affairs, Heiko Maas aiming at saving the Iranian accord.

“For that reason it’s essential that we strengthen European autonomy by establishing payment channels that are independent of the US, creating a European Monetary Fund and building up an independent Swift system”.

If one cannot but applaud the suggestion of the Minister to reinforce European autonomy, it an illusion to believe that developing an EMF and a rival to Swift can “Save the Iranian accord” because the timescale to achieve both aims is incompatible. Reaching autonomy must have a much larger ambition than circumventing American sanctions against Iran. Its aim should be to reduce durably the domination of the US. D in the settlement of international transaction generally. It is only when this objective is achieved over time that it becomes realistic to negotiate with USA a treaty that would frame strictly the use of the monetary weapon in settling “extraterritorial” disputes.

In order to achieve progress one must have a multilateral approach based on the convergence of interests of the parties concerned: it would seem far simpler to agree between the EU, the BRICS, Japan and Russia (and others) to denominate future cross border transactions in currencies other than the USD except those to which the US are a party. The contractors would be free to choose the currency of denomination. However, it is likely that the market would impose one or several currencies of choice based on criteria such as its suitability as a reserve currency, the liquidity of its underlying FX markets, the political regime of the currency’s issuer, etc. It will probably necessary to develop between say the €, the Yen, the renminbi and more exotic currencies to avoid the current situation which forces the intermediation of US FX markets. This activity would seem particularly suit to the competencies of the City and Singapore which could be develop significantly their existing expertise FX.

Once the United States realise that they could be losing primacy in the lucrative “clearing” segment of the market of which they control currently some 70% of cross border settlements, Wall Street is most likely to react in order to safeguard their financial interests (like the City is attempting to preserve its Euro clearing dominance after Brexit). At this point the Americans, confronted with a significant loss of influence, may become amenable to negotiate a multilateral agreement. One of its clauses would prohibit the currency used in licit transactions between non-residents to justify sanctions against the contractors, to the extent that the operations were neither fraudulent nor used to finance terrorism.

This joint approach coordinating interests of parties “against” (which is always easier than “in support of”) the United States who would find itself isolated as a result of Trumps erratic behaviour, could serve, in the long run, as the corner stone in the construction of a multipolar world which must become the next stage of world governance while waiting for a planetary government that remains utopic for most rationalist thinkers but that remains a hope for Christian believers who pray to be led “to perfect unity and peace”. The extension od the multilateral approach to the problems of climate change, immigration, the fight against poverty and the spreading of inequalities should aim at preserving peace and ensuring a more just distribution of resources. It is a huge challenge that demands a long term shared political vision as well as accepting short term sacrifices and risks. It constitutes, nevertheless, a first step in confronting the unilateralism that the United States seek to impose on the rest of the world in general and the EU in particular.